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Here's what consumers need to understand about changing electricity tariffs

The Electricity Regulatory Authority (ERA) will in December 2017 approve the end-user (retail) base tariffs to be charged to different categories of consumers of electrical energy distributed by Umeme Limited, in the year 2018.

These tariffs will form the base, upon which adjustments for changes in macroeconomic parameters will be carried out on a quarterly basis throughout the calendar year.

In consultation with key stakeholders, including policymakers and power consumers, ERA is currently undertaking the process of reviewing electricity tariffs, premised on the Quarterly Tariff Adjustment (QTA) methodology.

The Authority introduced this methodology in January 2014 and uses it to determine the electricity retail tariffs that are charged by the distribution utility in each billing period.  The methodology applies to the tariffs paid by all categories of consumers, namely: domestic, commercial and medium industrial.

Others are large industrial, extra-large industrial and street lighting.  

Prior to the introduction of the QTA methodology, government directly subsidized the electricity tariff, which remained unchanged while government absorbed the changes in costs due to inflation and fluctuations in the dollar exchange rate as well as the increase in price of fuel on the global market.

A change in the government’s subsidization policy in 2012, however, necessitated the development of a transparent and flexible cost-recovery mechanism that ensured adjustment of the end-user tariff on a quarterly basis. 

ERA, therefore, developed the QTA methodology for use in determining electricity tariffs that absorb the costs that licensees incur during the generation, transmission and distribution of electricity, to offset the subsidies that government no longer provides.  

With the QTA methodology, ERA is required to approve base end-user electricity tariffs at the beginning of each year, against which adjustment factors are applied on a quarterly basis to factor in changes in the inflation rate, exchange rate, international fuel prices, and the generation energy mix.  

These factors are specifically considered because they affect the cost of generation, transmission and distribution of electricity, which in turn affects the end-user tariff. 

The adjustment of the tariff to factor in such changes is provided for in the licenses of the companies that operate in the electricity supply industry.  

Unfavorable movements (increase) in inflation, exchange rate and the price of fuel on the international market increase the revenue requirement to run the electricity supply chain. 

On the other hand, favorable movements (reduction) in the same factors would reduce the costs incurred/revenue required to run the Industry, thus, leading to a reduction in electricity end-user tariffs.

The presence of the QTA as a cost-recovery mechanism is an attraction for private investors into the electricity supply industry, and is associated with efficiency gains, especially in the generation and distribution segments that have a significant component of private capital.  

For the consumers of electricity, the QTA methodology offers transparency in the electricity pricing process, ensuring that end-users enjoy the advantage of favorable movements in the macroeconomic factors, as manifested through a reduction in the retail tariff.

Over the past 12 months, favourable movements in inflation, exchange rate, fuel price, and energy generation mix have resulted into consistent tariff reduction quarter on quarter for all categories of consumers.

As an illustration, the tariff for domestic consumers has dropped from a base of Shs 696.9 per kilowatt hour in January to March 2017 to Shs 685.6 per kilowatt hour for the fourth quarter of the year.   

In December 2017, the Authority will announce the base tariffs applicable for the calendar year 2018, as prescribed by the QTA methodology.

I encourage all electricity consumers to actively participate in the process leading to the release of the base tariffs for 2018 by reviewing the applications from licensees (which are uploaded on the ERA website: www.era.or.ug and also available at the ERA library).

Consumers are also urged to attend the public hearing on the tariff on December 12 at a venue to be communicated in due course; and to engage with ERA either as an individual, group or company.

The author is Principal Communications Officer, Electricity Regulatory Authority

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