NEPRA allows recovery loss targets for K-Electric

May 27, 2025 (MLN): The National Electric Power Regulatory Authority (NEPRA) has decided to allow recovery loss to K-Electric as per the following targets for the MYT control period from FY23-24 to FY29-30.

The Authority noted that the return allowed to KE for its distribution function is around Rs.21.6 billion, meaning that effectively KE would be incurring losses for the first two years of the MYT if no recovery loss is allowed.

This may compromise the financial viability of the company, which is neither in the interest of the consumers nor the power system as a whole, according to the notification issued by NEPRA.

The Authority also noted that in the case of XWDISCOs, although no recovery loss has been allowed, the Federal Government under Section 31(8) of the NEPRA Act has the power to levy surcharges to offset inefficiencies.

However, no such option is available with K-Electric, as it can only charge the regulated tariff.

The Authority further observed that the National Electricity Policy 2021 ("NEP") envisages that targets for collections need to be revisited and aligned with current market realities.

The distribution segment is the interface of the entire sector with electricity consumers, and the financial viability of the sector depends on efficient distribution operations and timely recoveries.

Non-recovery of costs has led to circular debt, threatening the sector's sustainability. The NEP suggests revisiting targets and allowing timely recovery of prudent bad debt.

International precedents also suggest that 100% billing recovery is not generally mandated.

Regulators allow reasonable bad debt provisions and encourage utilities to improve efficiency through targets and incentives.

While high recovery rates are desirable, regulators account for economic realities and operational challenges.

The NEP does not require a write-off mechanism for bad debt recovery.

It instead suggests incorporating facilitative provisions in the regulatory framework.

The detailed mechanism for allowing recovery loss or bad debt allowance (provision for impairment against doubtful debts) during the MYT period includes applying the allowed percentage to determined revenue and reconciling actual losses based on audited financial statements.

Adjustments will be made to account for deferred billing, taxes, and collections from public sector consumers.

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