Find out how much you'll pay under fuel charges adjustment
If you are one of K-Electric’s 2.5 million customers and consume above 50 units, you may have paid more this month than what your electricity consumption for January would normally cost.
“It may have something to do with a recent government order,” said one of my colleagues who paid Rs397 on top of his monthly electricity charges, taking his bill to Rs987. Since the government has issued two orders, I asked him which one he was talking about, but he had no clue—nor did many others I spoke to about the same issue.
What customers may find surprising is that tariffs have not increased. You may then be wondering why you are paying more. Electricity tariffs are are a complicated issue but we’ve got you covered.
On December 27, the National Electric Power Regulatory Authority (NEPRA) allowed KE to recover Rs16.6 billion from customers under ‘Fuel Charges Adjustment’. Four days later, the power sector’s regulator issued another notice, determining an increase of Rs4.87 per unit under the Quarterly Tariff Adjustment, which will help the company recover another Rs106 billion.
These back-to-back notices led some consumers to believe prices have increased, but that’s not the case.
Unlike other commodities, the electricity prices are regulated by the government under a multi-year tariff. In K-E’s case, this tariff remains effective for seven years and is further split between the KE tariff (what the company earns) and consumer tariff (what you pay). Yes, these are two different things. However, consumer-end tariffs are uniform across Pakistan since NEPRA sets this price nationally.
Here’s what you pay
Units consumed per month: Up to 50, you pay @Rs2 per unit
Units consumed per month: 1 to 100, you pay @Rs5.79 per unit
Units consumed per month: 101 to 200, you pay @Rs8.11 per unit
Units consumed per month: 201 to 300, you pay @Rs10.2 per unit
Units consumed per month: 301-700, you pay @Rs17.6 per unit
Units consumed per month: 701 or more, you pay @Rs20.7 per unit
What is the Fuel Charges Adjustment?
One component of KE’s tariff is Fuel Charges Adjustment and this is what my colleague paid on top of his January bill.
The tariff or price of electricity includes charges for fuel (think furnace oil) used in electricity generation. The price taken at the time of billing varies over the course of the month because of changes in international oil prices.
It can increase or decrease, which needs adjustment. The Fuel Charges Adjustment is the mechanism that allows power companies to do this and recover any legitimate increase in fuel cost. Now, you may wonder whether you get the benefit when fuel charges decrease.
The benefit of any reduction in fuel price is given only to those who consume 301 units per month or more. That, by the way, is a double negative for the middle segment (300 units or less) since they pay more in case of an increase but don’t get any benefit in case of a decrease—lifeline consumers (50 units per month or less) aren’t affected in either case.
Since the government didn’t finalise KE’s multi-year tariff until May 2019, the company could not calculate the Fuel Charges Adjustment nor charge consumers for this amount between July 2016 to June 2019.
So in the December 27 notification, the government allowed KE to collect 35 months’ Fuel Charges Adjustment by September this year. This means you will be paying against units you have already consumed. However, you will not pay all of it at once.
For example, your January bill includes Fuel Charges Adjustment recovery for six months, but in July 2020 you will pay Fuel Charges Adjustment for only two months. For more details, you can read the last two pages of NEPRA’s notification.
How much will you pay under Fuel Charges Adjustment?
In NEPRA’s notification, you can see how much you will pay under these charges in each of your monthly bills from January to September 2020. Simply multiply the Fuel Charges Adjustment amount with units consumed that month against which the adjustment is being charged. If you find that complicated, just calculate it on KE’s website by entering your account number in their Fuel Charges Adjustment calculator.
Let’s now talk about the price increase under quarterly tariff adjustment.
What is quarterly tariff adjustment?
This adjustment is on account of variations in power purchase price, inflation, operation and maintenance costs, rupee devaluation, transmission and distribution losses, write-offs and increased fuel costs over a month or a quarter. However, unlike the Fuel Charges Adjustment, which is fully paid by customers, the quarterly adjustment amount is usually settled at the government level.
It is up to the government to decide whether it absorbs all of it or passes some of the increase on to consumers. So when you read reports that the government is planning to give relief to electricity consumers, it indicates they are planning to absorb this increase.
Coming back to December 31 notification, the Rs4.87 increase per unit has only been determined and is awaiting the government’s approval. This means that KE can’t charge that amount till NEPRA notifies it. This will be decided in the next hearing in Islamabad on March 3.
The adjustments were delayed because the government didn’t finalise KE’s multi-year tariff. However, since these two notifications, KE has filed fresh requests for Fuel Charges Adjustment and quarterly adjustments, which are in addition to the first two. These requests will be decided during NEPRA hearings on March 4.