Kenya Power’s bid to charge consumers higher tariffs flops

Electricity distributor Kenya Power’s quest to increase consumer tariffs beginning July has hit a brick wall after the Ministry of Energy rejected the proposal citing the government’s commitment to bringing down the cost of energy.

Kenya Power has recently sought the Energy Regulatory Commission’s (ERC) approval to raise consumer charges in order to cover rising operation costs and upgrade its transmission network.

But Ministry of Energy officials have ruled out any tariff increment, effectively blocking Kenya Power’s plan to open a new avenue for growing its bottom-line.

Kenya Power, a public listed company, is majority owned by the government, which has a controlling 50.1 per cent stake — giving it a big say in the firm’s operations.

Joseph Njoroge, the Energy principal secretary (PS) in charge of electricity, insisted that there will be no increment in tariffs, saying that the power distribution company needed to look at its mandate in broader terms beyond growing the bottom-line.

“Kenya Power is in business and have to make their case in seeking to tap new revenue but the government looks at things from a wider perspective,” the PS said.

Reducing the cost of energy has been a key plank of President Uhuru Kenyatta’s economic agenda that is aimed at making locally produced goods competitive in local and foreign markets as well as slowing down the rate of inflation.

READ: Kenya Power on the spot over rising electricity cost

Kenya Power is said to have presented the proposed higher tariff structure to the energy regulator last month, seeking its approval.

Kenya Power managing director Ben Chumo said the quest to increase tariffs was informed by the need to pay for new power generation projects and to revamp the transmission lines. 

He, however, did not disclose the proposed rates.

Kenya Power is expected to buy 50 megawatts (MW) of wind energy beginning September when the Lake Turkana Power project goes live — a move that is expected to add cheaper power to the national grid.

The 310 MW Turkana wind farm, the largest in Africa, is expected to feed the remaining capacity to the grid by end of next year. The ERC has fixed the bulk purchase price for Turkana wind power at Sh8.5 per unit (8.5 US cents) or half the price of electricity generated from diesel engines.

The low-cost electricity should ordinarily cut financing pressure from the distributor and result in reduced consumer bills but Kenya Power argues that the recent drop in the price of bulk power is not enough to cover its cost burden.

The current power tariffs were adjusted last July when Kenya Power made its first tariff cut of about Sh1 per kilowatt hour (kWh) for homes that consume more than 50 units monthly. 

Low-volume consumers (using 0-50 units per month) currently pay Sh2.50 per unit and were unaffected by last year’s tariff adjustment, which was the final phase of a billing structure that was set in 2013 for implementation over three years.

Homes using between 51-1,500 units of power are paying Sh12.75 per unit while consumers of above 1,500 units pay Sh20.57 per unit.

READ: Poor families pay more for power as the wealthy benefit

Electricity consumers also pay a fixed charge of Sh150 regardless of consumption levels.

The fixed fee stood at Sh120 in 2012 when the government suspended a planned increase in tariffs by 25 per cent.

Electricity remains one of the biggest segments of production costs for Kenyan manufacturers, a fact that has prompted the government to invest heavily in cheaper renewable power sources such as geothermal and wind farms.

A recent feeding of additional 280 megawatts of cheaper geothermal power to the grid has helped cut consumer power tariffs by about 30 per cent.

Dr Chumo said that the proposed tariff review was crucial to keeping the utility firm’s cash flows steady as it races to repair its ageing infrastructure and reduce outages.

The firm plans to set up additional substations and transformers to reinforce its grid from internally generated cash, loans and grants from development partners.

Kenya Power booked a 16.4 per cent drop in its net profit to Sh3.7 billion for the half year to December on the back of increased expenditure on its network.

This was despite the increase in customer numbers to 4.3 million from three million a year earlier, highlighting the low consumption capacity of the new customers.

Kenya Power has been keen to boost its earnings through higher tariffs since it does not benefit from monthly adjustment of pass-through costs for fuel and forex.

Power bills come with fuel levy, which is linked to the amount of electricity generated from diesel and supplied to the national grid alongside forex levy, which covers expenses incurred by utility firms in exchange rate movement.

The ERC reviews the two charges monthly for payment by consumers through their bills. Kenya Power collects the revenues for onward remission to power producers, leaving a neutral impact on its revenues and making tariff reviews critical to its profitability.

Consumers also pay an inflation charge, which is adjusted every six months or twice a year.

Kenya Power recently forayed into fibre-optic business to provide Internet as part of its quest to diversify its revenue streams.

READ: Kenya Power to set up new subsidiary for telecoms business

Sources indicated that the ERC had opened discussions with Kenya Power and Ministry of Energy officials to arrive at the new consumer tariff that would come into force in July but that effort now appears to have collapsed.

“They (Kenya Power) are seeking base tariff increase to meet costs on projects that have come on stream or those that will go live in coming years,” said Joseph Oketch, the director of electricity at the ERC.

Kenya Power is also eyeing higher consumer tariffs to cover project financing costs, including repayment of loans.

The company is undertaking the Last Mile Connectivity project, which has cut the connection fee to Sh15,000 from Sh35,000 for homes located within a radius of 600 metres of the nearest transformer.

The project is financed by a mix of loans amounting to Sh43.5 billion from the African Development Bank and the World Bank and involves extending low-voltage power lines to light up homes.