There is no justification for increasing power tariffs

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

08 July 2018

It is not clear who initiated the proposed review of electricity tariffs that is planned to take effect from this month. The document from the Energy Regulatory Commission (ERC) says that this is an initiative of the commission in an attempt “to harmonize the tariffs in order to … make it simpler for customers to understand their electricity bills”.

However, this is a proposal to increase the tariffs – plain and simple! I used my current electricity bill (May-June consumption) to test this. I consumed 351kWh in that period and the “energy charge” was Sh3,962.75. Adding the Sh150 standing charge to this brings the total to Sh4,112.75. To be clear, this is before adjustments, levies and taxes are added.

The proposed tariff does away with the standing charge. To recover the lost revenue, the low-consumer limit is reduced from 50kWh to 15kWh and the “normal” rate for domestic consumers is increased from Sh12.75 to Sh16.50.

When I apply this new charging method to my current bill, these are the results: the first 15kWh charged at Sh2.50 to cost Sh37.5. The rate for the remaining 336kWh is Sh16.50 to make Sh5,544.

Adding these two amounts brings the total to Sh5,581.50. This Sh1,469 more than what I am paying now; or 36 per cent higher! Such an increment cannot be attributed to “harmonisation of tariffs”; it is a price hike.

For that reason, I don’t think that the ERC is being forthright about this proposal. Furthermore, the new tariffs are taking effect with consumption recorded from 1^st July, yet the commission is conducting public hearings from the 2^nd up to the 12^th of July.

Even though the new rates will be effected on bills starting from 1^st August, I do not think there will be enough time to analyse the public views and factor them into the final tariffs.

There is also another question: is there justification for an increment of tariffs? In my view, there isn’t. First of all, Kenya Power is not facing any revenue constraints – at least not according to it’s audited financial statements. In the year ending 30 June 2017, the company made a profit of Sh10.9bn (before tax) from a turnover of Sh120bn.

Secondly, the company is protected from inflation through the “Inflation adjustment” charge on the consumer’s bills. In my current bill, Sh0.42 has been added for this.

If Kenya Power needs additional money for network improvement and expansion, it should do what its sister, KenGen did a few years ago: invite shareholders to inject additional capital through a “Rights Offer”. It is not wise to raise capital from customers!

It is true, however, that the billing method needs to be made simpler for customers to understand. Public complaints about this started when Kenya Power introduced the pre-paid toke system.

My view is that the problem is not in the tariff structure but in the way Kenya Power communicates the number of tokens purchased. Until the communication is changed, the complaints will not end.