What is an Electricity Tariff?
An Electricity Tariff is the price of Electricity. It represents the revenue requirement of the Electricity Supply Industry at any given period of time including reasonable costs for generation, transmission, distribution, and supply of Electricity.
Who determines Electricity Tariffs?
Electricity Tariffs are determined by the Electricity Regulatory Authority, a mandate derived from Section 9 of the Electricity Act, Chapter 157 of the Laws of Uganda.
Why do we pay for Electricity yet it is generated from natural sources in Uganda?
We pay for electricity from natural sources, such as hydro (water) and solar power, mainly because of the costs involved in harnessing, converting, and distributing the energy generated from these sources, even though the initial energy input (sunshine or water flow) naturally exists.
Converting natural energy sources into usable electricity requires substantial investment in electricity infrastructure. For hydroelectric power, it includes building dams, turbines, and powerhouses while solar energy requires solar panels, inverters, and extensive grid connections. Furthermore, there are transmission costs, distribution costs, and return on investment. In summary, while natural resources like water flow and sunlight are free, converting these resources into reliable, distributed electricity requires expensive infrastructure, ongoing operations, and compliance costs, all of which contribute to the cost of electricity
Who qualifies for a Lifeline or Cooking Tariff?
A Lifeline Tariff of UGX 250/kWh for the first fifteen (15) Units purchased in a Month is applicable for Domestic Consumers whose rolling average monthly consumption over the previous six months does not exceed 100 Units per kilowatt hour while the Cooking Tariff (Fumba Tariff) of UGX 412 for a 70-Unit bundle is applicable for Units beyond the 81st to the 150th Unit purchased by a Domestic Consumer during any given month.
Why are Tariffs Adjusted Periodically?
End-User Tariffs are reviewed and adjusted annually, in line with Regulation 14 of the Electricity (Application for Permit, Licence and Tariff Review) Regulations, 2007. The Tariffs are further adjusted Quarterly in line with Regulation 15 as per the Quarterly Tariff Adjustment Methodology, to absorb shocks resulting from fluctuations in Macroeconomic Factors including the Exchange rate of the Uganda Shilling against the United States Dollar, International Price of Fuel, and Consumer Price Index/Inflation.
Why is the Tariff adjusted for movement in the foreign exchange rate?
The Electricity Tariff has a local currency component as well as a foreign currency component. The Electricity Tariff is meant to recover the costs of investment as well as the costs of operation and maintenance (O&M). Most of the investment costs and a portion of the O&M costs of Electricity service are denominated in United States Dollars. By implication, most loan repayments and recovery of invested equity are made in United States Dollars to foreign financiers while a proportion of operation and maintenance inputs are also imported. Therefore, in times when the exchange rate is changing, the Uganda Shilling amount to be collected from customers for purposes of meeting investment and O&M-related obligations need to change to realize the target United States Dollar amount, hence the foreign exchange adjustment.
Why is the Tariff adjusted for changes in Fuel Prices?
About 2.6% of the energy on the national grid is generated from thermal sources using mainly Heavy Fuel Oils (HFO). The generation pricing of thermal power takes into account the cost of fuel on the international market. Therefore, when the price of fuel on the international market changes, the price paid by the consumer needs to be adjusted to enable the recovery of generation costs.
Why am I given varying Yaka units for different purchases of the same amount of money in the same month?
Every month, every customer in the domestic category is allowed 15 units of power at the Lifeline (subsidized) Tariff of Ush 250 per Unit (kWh) and 70 Units at UGX 412 for Units between the 81st and 150th. Besides, every customer is required to pay a monthly standing charge of Ush 3,360. Therefore, the first time a customer purchases Electricity units or goes beyond 80 Units in a month, the customer receives subsidized units but also a deduction is made for the monthly standing charge. However, if a customer makes further purchases beyond the first 15 units and/or the 150th Unit in the same month, the customer will buy units at the normal Tariff (non-subsidized and also with no other charges except VAT. Therefore, the major reason why kWh units vary between the first purchase in a month, and subsequent purchases is the lower cost for the Lifeline and Cooking Tariff packages and the monthly standing charge.
Why do we have different Tariffs for different companies?
As earlier highlighted, Tariffs provide a mechanism for recovering costs of operation based on the energy sold. Different Tariffs across different utilities are attributed to differences in cost structure and differences in energy sales across different distribution companies.
Why is there no Time of Use Pricing for Domestic Consumers?
Electricity infrastructure (generation plants and network assets) are available to be utilized almost uniformly across a 24-day cycle. However, these assets have a limited capacity as to the amount of electrical load carried. Therefore, efficient utilization of these resources requires that as much energy from these assets is made available for customers so that the costs of these assets are spread across more output (energy). Energy from these assets can be best maximized if the highest reasonable capacity is utilized every hour of the day.
Therefore, customers are encouraged either to consume evenly across every hour of the day or even reduce consumption during peak periods. However, given that domestic customers are only mainly at home (and awake) at peak time, the electricity utilization of domestic customers is maximum at the peak, and these customers have minimal flexibility to increase their consumption during a non-peak period. It may, therefore, be unreasonable to subject domestic customers to ToU signalling.
Besides, domestic customers in Uganda use electricity for limited applications which limits the need to roll out expensive ToU metering devices that impose a significant additional cost.
Why do Industrial Consumers pay different Tariffs compared to domestic Consumers?
Tariffs are determined and approved based on customer classes/categories. Different customer categories are supplied with Electricity at different voltages and are, therefore, associated with different energy losses. Besides, Domestic Customers consume less energy compared to industrial customers. Based on the foregoing, Industrial Customers are associated with lower costs of service per Unit of energy supplied and, therefore, a lower Tariff.
Why do consumers pay Utility Companies Energy Losses?
Electricity transmission and distribution services are associated with losses even for the most realistically efficient operator. Therefore, it is prudent and reasonable that a distribution company is allowed costs to cover a reasonably determined and approved target level of energy losses. It is important to note that there is a limit on recoverable energy losses. Not all energy losses are allowed to be recovered through the Tariff and besides, energy losses need to be differentiated from the company’s losses on the profit and loss account (income statement). No utility is compensated for financial losses on the income statement.
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