Economic Regulation — Tariff Methodology

The Authority approved an average tariff decrease of 1.31% for the financial years 2021/22 and 2022/23. Within this approval, the domestic tariff will be increased by 3% for this 2-year period per the award and other tariff categories revised downwards accordingly.

In terms of the Electricity Act of 2007

Prices shall be regulated according to one or more of the following tariff methodologies, which shall:

  • Allow a licensee that operates efficiently to recover the full costs of its business activities, including a reasonable return on the capital invested in business;
  • Provide incentives for continued improvement in respect of technical and economic efficiency with which services are provided;
  • Provide incentives for continued improvement of quality services;
  • Give to consumers proper signals regarding the costs that their consumption imposes on the business of the licensee; or,
  • Avoid undue discrimination between consumers and consumer categories.
In terms of Section 6 of the Tariff Methodology Regulations

The Authority shall hold a public hearing or hearings at such venues and times as it considers appropriate to canvass the opinions of interested parties on the application for the tariff adjustments.

The Authority shall consider the application for tariff adjustment and make a decision within three months, with due consideration of the following:

  • The tariff methodology approved of the Authority;
  • Public opinion canvassed by the Authority; and
  • The provisions of section 32 of the Electricity Act, 2007.
Tariff Methodology and Principles

The Methodology outlines that the Utility can only apply for a tariff review after two years from the last review. The approved Tariff Methodology has been applied in arriving at the tariff increase for the year 2021/22 and 2022/23. In line with the tariff methodology, the Authority has applied the principle of rate of return regulation to determine the increase to be allowed for each given period. This principle is elaborated and explained very well in the tariff methodology. The rate-of-return approach determines an allowable revenue requirement for the utility, based on allowable operating expenditures, depreciation and a fair return on assets to ensure sustainability of the business.

Other principles applied in the tariff review process are shown in the figure 1 below: These are explained in the third column (description).

Expectation Tariff Objectives Description
Customer 1. Affordable Least cost options (price should exclude inefficiencies)
  2. Non discriminatory Tariffs should be applicable to all customers on an equal and fair basis.
  3. Predictable & Stable Customers should be kept informed and real price adjustments should be gradual.
  4. Tranparent Easy to read and apply, and contains no hidden costs.
Utility 5. Cost Reflective Cover the costs of the business plus a return (profit) component.
  6. Encourage Efficient Use Appropriate price signals that will stimulate efficient use of electricity.
  7. Implementation Cost Implementation and transaction cost should be low.
Government 8. Social Support Tariff level and structure should accommodate social programmes.
  9. Self Support Expansion through development of own resources.

 

Formula for calculating electricity tariffs:

Allowed Revenue Req. = COS + Opex + Depreciation + ROA +/- Recon

COS — Cost of Sales
Opex — Operating Expenditure
Depreciation — Depreciation expense (allowed assets)
Recon — Reconciliation Adjustments

Tariff Review Timelines
  • 1 Oct
     

     .

  • 1 Nov
    Tariff Applications.

    (SERA Review)

  • Dec — Jan
     

     .

  • 1 Feb
    Tariff Approval

    (SERA Review - Customer Notice Period)

  • 1 March
     

     .

  • 1 April
    Tariff Implementation

    (Customer Notice Period)