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Economy

Middle class hit hard in new electricity tariffs

ERC head Pavel Oimeke. file PHOTO | NMG
ERC head Pavel Oimeke. file PHOTO | NMG 

Power costs for middle class households will from Wednesday rise by up to 54 per cent when a new billing structure takes effect, setting millions of domestic consumers up for further budget squeeze.

The power cost increase for middle income earners goes contrary to the State’s earlier promise of cutting tariffs across the board.

Poor households that consume less than 10 units of electricity per month and the very rich that burn more than 1,500 units are, however, set to enjoy lower bills under the new tariff structure announced Monday by the Energy Regulatory Commission (ERC).

The new tariffs are effective from August 1 for prepaid users July 1 for those of post-paid meters.

The regulator removed the Sh150 fixed charge payable to Kenya Power for all electricity meter connections, with the aim of smoothing out billing fluctuations especially for customers on prepaid meters.

The fluctuations have been a big source of complaint for consumers, who will now get predictable power units at any time of the month they recharge their accounts.

The tariff increase comes as a boost to electricity distributor Kenya Power, which has been pushing for higher rates, citing increased operating costs and the need for more funds to upgrade its rickety network.

“In order to ensure financial viability, economic feasibility and a sustainable and affordable tariff, the Commission has approved an increase in the revenue requirement from Sh120 billion to Sh131 billion,” the ERC director-general Pavel Oimeke said in a statement.

“This will meet energy purchase costs and allow for system expansion and maintenance.”

54pc more

In the new tariff plan, homes that consume 50 kilowatt hours (kWh) of electricity per month will pay 54 per cent more at Sh1,067 in August, up from sh695 in July.

This is based on all charges loaded on power bills, including 16 per cent valued added tax (VAT) and adjustable costs (fuel, forex and inflation charges) that the ERC has set in advance for the month of August.

Consumers of 200 units of power will pay Sh4,268 a month, up from Sh4,121 in July.

These two consumer groups are the focus point in the Kenya National Bureau of Statistics’ inflation basket.

“The expected increase in electricity bills for the domestic category consuming between 11 and 100 units is due top removal of the lifeline (subsidy) tariff, which was previously between 0 and 50 units and now reclassified to 0 and 10 units,” said the ERC in a statement released late Monday.

Besides rising operating and finance costs, State-owned Kenya Power was left last year with a Sh10 billion hole in its books after the government put a lid on electricity price increases in an election year.

The energy regulator Monday for the first time set predetermined rates for fuel, forex and inflation levies, indicating drops by more than half in the August pass-through costs that are adjusted every month.

This means the one-off drops have absorbed some power cost shock, without which power bills for middle class homes would be much higher under the new rates.

On the flipside, smallest power consumers (below 10 units a month) which are the majority power customers now stand to enjoy double-digit drops with new rates.

Lifeline tariff

The bottom users enjoy a government subsidy under the lifeline tariff, hence the cost reduction.

More than half of Kenya Power customers (3.6 million) fall within this low-end segment (below 10 units) and spend below Sh300 on electricity per month, or Sh10 a day.

A user of 10 units, for instance, will now pay Sh169 a month, down from the previous Sh278, representing a 39 per cent cutback.

The rich have also emerged as winners of the new billing regime with a consumer of 500 units, set to save three per cent in the month of August at Sh10,672.

A key objective of the tariff review was to remove billing fluctuations, especially for customers on prepaid meters by creating uniform tariffs.

The shift has seen the energy regulator reduce layers of segmentation for customers from three to two based on their power consumption levels.

Prepaid customers have been experiencing wild fluctuations when they top up cash for electricity tokens at different times of the month, denying them the ability to predict their costs and budget properly.

A demand charge of Sh150 per month payable regardless of power consumption levels has also been ditched.

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