Politics and policy
Reprieve for consumers as ERC halts electricity tariff review
Posted Monday, July 23 2012 at 21:19
The power sector regulator has ruled out an increase in electricity tariffs, handing consumers a reprieve and boosting efforts to tame power-induced inflation.
The Energy Regulatory Commission (ERC) said any review of prices will have to await the findings of an independent study it has launched to determine the actual cost of providing power to consumers.
“ERC is commissioning the cost-of-service study to examine in detail the requirements of all utilities to determine how tariffs should be done. We expect to complete in about six months,” said ERC Director General Kaburu Mwirichia in a telephone interview.
The commission maintained that the review is only necessary when additional power output is being added to the grid. Usually, it reviews tariffs every three years.
Kenya Power officials also confirmed that the firm’s application for a 25 per cent increment on retail tariffs remains suspended.
The last review of retail electricity tariffs was more than three years ago in mid 2008 — save for periodic adjustments on the fuel cost, foreign exchange and inflation, which are passed on to the end user and have a neutral effect on Kenya Power’s revenue.
Power generator KenGen, which sells more than 70 per cent of all power transmitted, says it is also awaiting a review on major operational issues as provided for in the ERC policy.
“There are 20 items that are outstanding, including hydrology risk and overhauls of major power plants that need to be resolved,” said managing director Edward Njoroge.
Critics argue that for Kenya Power, marginal costing does not justify an increase in tariffs. But the power distribution company needs to boost its earnings since it does not benefit from periodic review of prices, making the tariff review critical to its future profitability.
Consumers last week, however, welcomed the stance taken by ERC.
“Kenya Power has compelling reasons for tariff review to expand network but the economy does not support that. Consumers view that review be suspended indefinitely until such time when the economy will support,” said Stephen Mutoro, CEO for the Consumer Federation of Kenya.
The firm had last May sought for a 25 per cent adjustment in tariffs from June 2011, but the government suspended the application to cushion Kenyans because at the time, the cost of food and energy was high.
Kenya Power has since received support from the Treasury to increase prices from July to boost cash flow and finance its network upgrade.