KE accused of producing power through ‘inefficient’, ‘expensive’ plants

The National Electric Power Regulatory Authority (NEPRA) has declared that K-Electric is generating electricity from ‘expensive and inefficient’ plants —— like Unit-3 of the Bin Qasim Power Station-1 (BQPS-1) —— with the impact of additional cost being reflected in the monthly Fuel Charge Adjustment (FCA) of Karachi-Electric Limited (KEL).

Also, the delay in meeting the commercial operation date (COD) for BQPS-IlI and the subsequent interim utilisation of the inefficient Unit-3 of BQPS-I are due to the poor performance of KEL, says the regulator. The consumers should not be charged for the inefficiencies of KEL.

NEPRA had on May 12, 2022, rejected a review petition filed by the KEL against the authority’s decision dated Sept 15, 2021 in the matter of LPM and the generation licence of KEL and decided to uphold its earlier decision.

The order, a copy of which is available with Business Recorder, said that electricity is being generated from expensive and inefficient units (like Unit-3 of BQPS-l) and the impact of additional cost is reflected in the monthly FCA of KEL.

Because KEL is a vertically integrated utility with autonomy in decision-making within its jurisdiction, any failure on its part to provide economical electricity to its consumers cannot be passed on to the clients.

KEL had communicated an LPM (proposal) in its above-mentioned Generation Licence on April 19, 2021. In the communicated LPM, it was requested that KEL be allowed to utilise Unit-3 of BQPS-I to generate power on an interim basis from May 2021 to July 2021 and addition of the Pakistan LNG Limited (PLL) as backup RLNG supplier in its Generation Licence for BQPS-1 and BQPS-ll, in addition to Sui Southern Gas Company Limited, the main fuel supplier for (natural gas and RLNG).

The authority through its determination dated Sept 15, 2021 allowed interim utilisation (from May 1 to August 15, 2021) of Unit-3 (210 MW) of BQPS-l. Further, the regulator decided that the cost of interim operation of Unit-3 of BQPS-1 be passed on to the consumers to the extent of fuel cost component of BQPS-lll and any additional cost incurred should be borne by KEL itself.

Not happy with the said decision, KEL filed a motion on Sept 28, 2021 for a review. The utility specifically requested the authority to review its decision regarding linking the payment of fuel cost component of interim operation of Unit-3 of BQPS-1 with the COD of BQPS-lll and to allow full cost of operations of the said unit, highlighting different grounds for review.

The grounds for review submitted by KEL mainly included the following factors: KEL had executed the option of interim operation of Unit-3 of BQPS-1 in the best interest of the consumers to avoid additional load management during summer months; as per its Generation Licence, the anticipated COD of BQPS-III is July 31, 2021 and hence the deductions for operations of Unit-3 of BQPS-1 during June and July 2021 have no nexus with the commissioning of BQPS-III; it had pursued BQPS-III on a fast-track basis; however, the project got delayed due to reasons beyond its control; and, there is no precedence of disallowance of fuel cost of operations of other plants based on Economic Merit Order (EMO) and there is no such condition or mechanism for adjustment mentioned in its MYT for delay in COD.

The authority considered the matter in its Regulatory Meeting and accordingly, provided an opportunity of hearing to KEL on November 23, 2021. In the hearing KEL reiterated the above-mentioned grounds.

The authority examined the entire case in detail. As per the Generation Licence, the generation fleet of KEL currently consists of 840 MW BQPS-l; 247.50 MW Combined Cycle Power Plant (CCPP) at Korangi/CCPP Korangi; 107.312 MW CCPP Korangi Town Gas Engine Power Station/KTGEPS; 107.312 MW CCPP at SITE Gas Turbine Power Station/SGTPS; 572.67 MW CCPP at Bin Qasim Power Station-ll; and 942.32 MW BQPS-III.

The regulator said that regarding BQPS-1 initially its capacity was 1260 MW (6×210 MW). However, through Modification-IX dated December 7, 2020, Unit Nos 3&4 (2×210 MW) of BQPS-1 were excluded from the Generation Licence of KEL on account of low plant availability owing in turn to frequent forced outages, high cost of fuel and low efficiencies.

Further, through the said modification, an efficient plant in the name of BQPS-III was included in the Generation Licence of KEL.

In its decision, NEPRA observed that contrary to facts, Unit-3 of BQPS-1 — which KEL excluded from its Generation Licence through LPM, declaring it to be inefficient, unviable and unreliable — became the best possible option because there was no other option available.

Had KEL commissioned BQPS-III within the stipulated timelines, the utilisation of the inefficient Unit-3 of BQPS-1 would not have been the best option, said the regulator.

On the submission of KEL regarding delay in COD against the communicated timelines, NEPRA observed that through its determination dated Oct 9, 2017 it had allowed investment of BQPS-III to KEL to complete the project according to the provided timelines.

“In this regard, it is observed that initially KEL vide its letter dated Sept 18, 2017, communicated that Unit-I of BQPS-III will achieve CODs in July 2018 (Simple Cycle) and July 2019 (Combined Cycle). Similarly, the COD of Unit-2 of BQPS-III was communicated as April 2019 (Simple Cycle) and December 2019 (Combined Cycle).

“However, the same has not been made operational as per the timelines provided by KEL itself. Even after the lapse of … years of the cost allowed to it, KEL was not sure about the COD of BQPS-III,” said the regulator.

“Accordingly, at the time of issuance of Modification-X dated Feb 19, 2021 only an indicative COD of BQPS-III was mentioned in the Generation Licence as July 31, 2021. However, till date KEL has failed to achieve the required COD, due to which electricity is being generated from expensive inefficient units (like Unit-3 of BQPS-l) and the impact of additional cost is reflected in the monthly FCA of KEL, burdening the consumers,” NEPRA said.

“Similarly, in the current case, there was no precedence or specific provision in the relevant regulations regarding allowing/adding of a generating unit in a licence on short-term interim basis. However, to facilitate the consumers and to avoid load-shedding in hot summer season, the authority allowed the same. Therefore, the authority is of the view that the position taken by KEL that there is no precedence or adjustment mechanism of disallowance of fuel cost of operation of other plants based on EMO, is also not acceptable.”

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