Overview of Legal, Policy and Regulatory Framework NEPRA Act 2018

Overview of Legal, Policy and Regulatory FrameworkNEPRA Act 2018 www.cppa.gov.pk

Scheme of Presentation www.cppa.gov.pk

Part-1 Overview of Policy and Regulatory Framework

Market Transition within a Framework Legal NEPRA Act 2018 Electricity Act 1910 Constitution Alignment of Legal Policy & Regulatory Framework Policy Power Policy 2013 National Electricity Policy & Plan 1994, 2002, 2015 Regulatory Wheeling, Competitive Bidding, Import Regulations Grid, Commercial and Distribution Codes Market Rules, Power Procurement Rules Pakistan’s Electricity Market Framework Generation Public Sector IPPs K-Electric Transmission Metering Service Provider System Operator (SO) Transmission Network Operator (TNO) Planner Alignment of Institutional Roles & Responsibilities System Operator Operational Planning Supply = Demand Market Operator Market & Product Development Agency Role Billing & Settlement Distribution Distribution Wire Business (Regulated) Metering Service Provider (Regulated) Sales or Supply Business (Competition) Markets Transition Vertically Integrated Single Buyer Single Buyer Plus Competitive Wholesale & Retail

Policy-Regulatory Interface Regulatory Framework Planning Paradigm Pricing • Policy Framework

Subordinate Legislation under the NEPRA Act • A number of pieces of subordinate legislation have been promulgated under section 46 of the NEPRA Act • 11 rules • 15 regulations • 1 standard operating procedure • 6 guidelines • 4 codes • 1 manual

Market Related Rules, Regulations, Codes and Guidelines www.cppa.gov.pk

Part-2 NEPRA Act

NEPRA Act (As Amended 2018) Chapter IIA (Appellate Tribunal) • Establishment of Appellate Tribunal • Appellate procedures • Powers of the Appellate Tribunal Chapter IIB (National Electricity Policy and Plan Chapter IIC (Generation of Electricity) • Generation • Captive Generation • Duties of Generation Companies Chapter I (General) • Title • Definitions Chapter II (Establishment of Authority) • Establishment of Authority • Resignation and Removal of Chairman • Powers and Functions of the Authority

NEPRA Act (As Amended 2018) Chapter III (License and Registration) • Duties and Responsibilities of Market Operator • Electric Power Trader License • Duties and Responsibilities of Electric Power Trader • Electric Power Supply License • Duties and Responsibilities of Electric Power Supplier • System Operator License • Duties and Responsibilities of SO Chapter III (License and Registration) • Transmission License • National Grid Company • Provincial Grid Company • Special Purpose Transmission • Distribution License • Duties of a Distribution Licensee • Sale to Bulk Power Consumer • Sale to Other Distribution Companies • Market Operator License

NEPRA Act (As Amended 2018) Chapter IIIB (Tariff) • Tariff • Investment and power Acquisition Program Chapter IIIC (Performance & Standards) • Performance Standards • Industry Standards and Code of Conduct • Uniform System of Accounts Chapter III (License and Registration) • Licensees to be Companies • Licensees of Territory Served by KESC Chapter IIIA (Enforcement) • Investigation and proceedings by the Authority • Prohibition order • Suspension and revocation • WAPDA and PEDO to be licensees

NEPRA Act (As Amended 2018) Chapter IVA (Miscellaneous) • Rules • Regulations • Cognizance of offences • Power of Authority to Issue Directives • Savings • Validation Chapter IV (Administration) • Provincial Offices of Inspection • Complaints Chapter IVA (Miscellaneous) • Enforcement of Orders of Authority • Reports of Authority • Inspection by Public • Information • Relationship to Other Laws

The NEPRA Act and its Subordinate Legislation • Titled the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997), 1997 • Originally promulgated and came into force in 1997 • Amended in 2012 vide the Act of Parliament (F.22(14)/2012-Legis.) to give effect to the financial proposals of the Federal Government for the period of July 2012 onwards • Amended in 2018 vide the Regulation of Generation, Transmission and Distribution of Electric Power (Amendment) Act, 2018 to cater to the development of the Energy Market • Under the NEPRA Act a number of rules, regulations, standard operating procedures, guidelines, codes, and manuals (subordinate legislation) have been promulgated by NEPRA (under section 46 of the original Act) and by the Federal Government (under section 46 of the amended Act)

The National Electric Power Regulatory Authority • NEPRA is established under section 3 of the NEPRA Act and is tasked with regulating the provision of electric power services under section 7 of the Act • The main functions of NEPRA include: • to grant licenses under the Act • assist the Federal Government in the preparation of the national electricity plan • ensure efficient tariff structures and market design for sufficient liquidity in the power markets • settle disputes between licensees • promote the development of an electricity market, including trading, in accordance with the national electricity policy and the national electricity plan • determine the tariff for licensees

The National Electric Power Regulatory Authority • As per section 31 of the Act, in the performance of its duties NEPRA is to be guided by the following principles: • the protection of consumers against monopolistic and oligopolistic prices; • the research, development and capital investment program costs of licensees; • the encouragement of efficiency in licensees, operations and quality of service; • the encouragement of economic efficiency in the electric power industry; • the economic and social policy objectives of the Federal Government; and • the elimination of exploitation and minimization of economic distortions • These principles are intended to ensure that the national electricity market is regulated in a competitive and pro-consumer manner, while encouraging investment and development in the sector

New NEPRA ACT Amendments : Important Timelines and Sequencing 2 6 System Operator Licensee Considering 23G & H can come into force within 05 years & then there are 02 years for licensing (Maximum: 5+ 2= 7 years) Section 14A.2b: Policy and plan on efficient and liquid power market design 4 Market Operator Licensee Considering 23 A & B can come into force within 05 years & then there is one years for licensing (Maximum: 5+1 = 6 years) 3 Section 50(2): Rules and regulations shall be brought into conformity within 01 year CTBCM Model Approval 1b 2021 2025 2023 April 2018 2024 2019 5b 1a Enactment of NEPRA ACT 1997 (Amended vide 2018) Electric Power Trader Licensee 23 C &D Electric Power Supplier Licensee 23 E & F 8 Delicensing of Generation Companies 14 B 5a CTBCM Commercial Operations Date, providing an Enabling Environment for Trading Can only operate within an Enabling Environment i.e. (a) a competitive market model is in place and (b) the rules, regulations, codes, procedures and standards etc. are amended or created Separation of Supplier and Distribution Licenses 23 E 7 www.cppa.gov.pk

Important Timelines and Sequencing www.cppa.gov.pk

The National Electricity Policy and Plan • Section 14A of the Act requires the Federal Government to prepare and prescribe a national electricity policy, as well as a national electricity plan in light of the prescribed policy • This national electricity policy is intended to promote: • the development of systems based on optimal utilization of indigenous resources and renewable sources for the generation of electricity; • the development of an efficient and liquid power market design; • the integration of national and provincial transmission systems; • ensuring the development of a sustainable renewable energy market with a dedicated and gradually increasing share in the electricity power sectorThese principles are intended to ensure that the national electricity market is regulated in a competitive and pro-consumer manner, while encouraging investment and development in the sector

National Electricity Policy – NEPRA Act (Amended 2018) www.cppa.gov.pk

Part-3 Entities and Their Functions

NEPRA Act As Amended 2018 • Licensed Entities: • Market Operator • System Operator • Transmission Operators • Distribution Service Provider • Traders • Suppliers • De-licensing of Generators www.cppa.gov.pk

Role of Policy Maker In other words, the Government (with political objectives) Regarding Competitive Electricity Wholesale Market development: Normally the political decision translates into policies the policy made by policy makers Include the market development as part of the national electricity policy (objectives, targets, mandates etc) Promote the promulgation of laws and policies to shape legally the political decisions www.cppa.gov.pk

Role of Regulator It is a professional body not subject to political interests Regulate according to the law and other binding documents Regarding Competitive Electricity Wholesale Market development: Approve the rules; codes, procedures, etc. Which will regulate the functioning of the market. In the end, approves the market model that responds to the policies and the laws Monitor and supervise the functioning of the market (particularly the risk of market power abuse) May implement independent market surveillance measures Amend; adjust, create new, etc. rules, regulations, etc as needed (usually through consultation) www.cppa.gov.pk

Role of Market Operator MO must be an independent body, without any commercial interest in the market – non profit entity Strict transparency and accountability rules Regarding Competitive Electricity Wholesale Market development: Well positioned to propose features of this market; the definition of a market model and products requires many pragmatic considerations (known by whom are close to the market) Well suited to prepare and propose rules, regulations and procedures for approval of the competent authority Monitor the settlement role cycle: metering, collection, validation, calculation, publication Market contracts registry (necessary for settlement) Market participants registration Credit cover administration www.cppa.gov.pk

Role of System Operator SO must be an independent body, without any commercial or technical interest in the market – non profit Strict transparency and accountability rules Governance to balance conflict of interest Regarding Competitive Electricity Wholesale Market development: Propose Grid Code amendment according to the market design (for approval) Prepare the security constrained economic dispatch according to the Grid Code (security and optimization) Operational planning, day ahead, unit commitment, etc In some cases expansion planning (indicative or not) for approval www.cppa.gov.pk

Role of Transmission Companies Not a market participant. Regulated function. It could be a for profit company. No rights to sell and buy It may or not have obligations to decide expansions Regarding Competitive Electricity Wholesale Market development: Transmission system operation. Dispatch may or not Expansion planning Open access. Connection agreements Regulated rates – Losses depending Availability obligations – system operation may or not be in it Penalties for non compliance – Public ownership dilemma www.cppa.gov.pk

Role of DISCOs Discos in fact play two roles: Network services Retail services The retail side is market participant (sells and buy) There could be more than one retailer per jurisdiction Retailer for regulated customers and for BPCs Regarding Competitive Electricity Wholesale Market development: Balancing mechanism participant Responsible for demand forecast (long, medium, short) Credit cover Integrated in one company or not www.cppa.gov.pk

Overview of Legal, Policy and Regulatory Framework NEPRA Act 2018