NEPRA rejects industrial classification, DISCOs/ KE to charge commercial tariff from cold storages

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has decided not to classify cold storage facilities as industrial consumers, instructing all electricity distribution companies (DISCOs), including K-Electric, to categorize them under the commercial tariff, as outlined in the tariff terms and conditions notified on July 25, 2022.
Two members of the Authority issued dissenting notes. The Member (Technical) disagreed with the majority decision to classify all cold storages under a single commercial tariff, while the Member (Law) also opposed the decision to place cold storage facilities under the commercial tariff category.
However, NEPRA clarified that since the Member (Tariff) was “on leave” during the decision, and both the Member (Technical) and Member (Law) dissented, the presiding officer—who holds casting vote powers in case of a tie under Section 5(4) of the Regulation of Generation, Transmission, and Distribution of Electric Power Act, 1997—cast his vote in favor of the decision.
Background:
NEPRA explained that cold storage facilities have never been formally classified for the industrial tariff category. However, different DISCOs have applied varying billing approaches to cold storage facilities. The issue was brought to NEPRA’s attention after the Quetta Electric Supply Company (QESCO) sought clarification on tariff applicability for cold storages. In response, NEPRA clarified on March 18, 2021, that cold storage facilities could only be eligible for the industrial tariff if they were involved in processing, value addition, or manufacturing activities. Otherwise, cold storages used solely for commercial purposes would fall under the commercial tariff.
To address inconsistencies in billing practices across DISCOs, NEPRA issued a decision on June 2, 2022, which was notified by the Federal Government through SRO 1168(I)/2022 on July 25, 2022. This decision categorized cold storage facilities under the commercial tariff, alongside other commercial establishments such as shops, hotels, private hospitals, and service-oriented facilities.
Several consumers raised concerns about this change, claiming it negatively impacted their billing and operational costs, prompting them to seek a review of the tariff categorization.
To address these grievances, NEPRA held a public hearing on June 6, 2023, attended by stakeholders, including DISCO representatives and the All Pakistan Cold Storage Association.
Meanwhile, several industrial consumers challenged the decision in the Lahore High Court (LHC), which, in a consolidated judgment (W.P No. 50725/2022) dated February 6, 2023, directed NEPRA not to unilaterally change the tariff classification from industrial to commercial without giving affected consumers an opportunity to be heard. NEPRA and the DISCOs appealed this judgment to the Supreme Court.
Supreme Court Ruling:
On October 16, 2023, the Supreme Court of Pakistan ruled on the matter, allowing NEPRA to proceed with its decision on cold storages while ensuring that the decision would be made independently, without being influenced by the previous court judgments.
Subsequently, NEPRA sought comments from the Ministry of Energy (Power Division) and the Finance Division regarding the proposed tariff changes for cold storages. The Finance Division expressed concerns about potential subsidy implications for the government, while the Power Division noted that changing the tariff could set a precedent for other commercial establishments, leading to future litigation. Additionally, the Power Division warned that shifting cold storages to an industrial tariff could result in financial consequences, increasing the burden on other consumers.
NEPRA’s Final Decision:
Upon reviewing the matter and consulting with relevant departments, NEPRA concluded that cold storage facilities primarily serve as storage units for perishable goods, such as fruits, vegetables, dairy, and meat, without engaging in any manufacturing, processing, or value addition. These facilities act as intermediaries between wholesalers and retailers, preserving goods at the required temperature until they are ready for sale, but do not involve industrial processes.
Given this, NEPRA determined that cold storages do not meet the criteria for industrial tariffs as defined in the tariff determinations for industrial supply. Therefore, all DISCOs, including K-Electric, are directed to classify cold storage facilities under the commercial tariff category, as originally notified on July 25, 2022.
Ends