Nepra withdraws Rs42 billion penalties imposed on National Transmission and Dispatch Company

The National Electric Power Regulatory Authority (Nepra) has withdrawn around Rs42 billion in penalties imposed on National Transmission and Dispatch Company (NTDC) over alleged violations of the economic merit order in the operation of power plants, Dawn reported. 

The regulator also discontinued the practice of withholding amounts from NTDC’s Use of System Charges payable by distribution companies on account of economic merit order deviations during fuel cost adjustment proceedings.

The issue had remained under dispute for several years, with NTDC arguing that deductions from its dues were affecting liquidity and delaying nationally important transmission infrastructure projects. Nepra had earlier directed deductions from the company’s approved charges due to delays in removing system constraints.

The matter later reached the Islamabad High Court, which stayed the deductions and referred the issue back to Nepra for reconsideration on merit.

Following re-examination, Nepra concluded that continued withholding of the financial impact linked to economic merit order violations did not fully align with the intent of the regulatory framework.

In its decision, the regulator stated that while consumers had borne avoidable costs due to delays in the removal of transmission constraints, such issues should instead be addressed through enforcement measures, compliance mechanisms and performance monitoring rather than withholding funds through fuel cost adjustments.

Nepra stated that economic dispatch principles could not be interpreted in isolation and that legal provisions also recognised operational requirements related to system stability and reliability.

According to the regulator, the Nepra Act acknowledges situations where generating companies may need to deviate from economic dispatch requirements to maintain system security or operational stability, with compensation payable by NTDC in certain cases.

The regulator added that economic efficiency and system security do not always align, making deviations from economic dispatch necessary in some situations to ensure reliability of the power system.

Previously, Nepra had directed that the financial impact arising from underutilisation of efficient power plants would not be allowed in monthly fuel cost adjustments unless NTDC provided operational or contractual reasons for partial loading of plants during periods of high demand.

The deductions were made over 36 months, beginning in September 2019, while regular withholding continued from August 2020 until October 2023.

NTDC had argued before Nepra and the Islamabad High Court that the deductions had weakened its financial position, affected key indicators and increased the risk of breaches in loan covenants. It also stated that continued deductions could delay execution of strategic national transmission projects.