Kenya Power s set to present a fresh application for higher electricity tariffs to the Energy Regulatory Commission (ERC) that will include a cheaper off peak tariff for bulk electricity consumers.
The firm had in May last year sought a 25 per cent adjustment in tariffs but the government suspended the application to cushion Kenyans that were suffering from expensive food and energy.
The electricity distributor says time is ripe to review the suspended application even as the regulator maintains that the fresh application should include a cheaper night or off peak tariff.
The offpeak tariff has been contentious with Kenya Power fearing it could drastically reduce its earnings because intended beneficiaries want a heavy discount of up to 50 per cent on offpeak consumption while the company is ready to offer only 20 per cent.
“We are currently working on the comments by ERC. We hope to conclude within one to two months,” said Joseph Njoroge, the managing director of Kenya Power in an interview with the Business Daily on Thursday.
“The delay has affected our earnings. As you know, the last review was more than three years ago, but the timing was wrong then.”
Retail electricity tariffs are reviewed every three years -- save for periodic adjustments on the fuel cost, foreign exchange and inflation which are passed on to the end user and have a neutral impact on Kenya Power’s revenue.
Sources at ERC and at Kenya Power say the electricity distributor is targeting to have the new tariffs in effect before September amid fears that politicians might hijack the process in an electioneering year to strike a populist chord with the electorate.
The tariff structure that was not acted upon and seen by The Business Daily would have hit low and middle-income households that consume between 50 and 150 units of power per month hardest.
Under the proposed tariffs, households consuming between 51 units and 1,500 units would have paid Sh11.79 per Kwh from Sh8.10 per Kwh while those consuming above 1,500 units would have paid Sh22 per unit from Sh18.75.
It was seeking to increase to Sh3.70 the charge per kilowatt hour (kWh) on domestic consumers for the first 50 units up from the current rate of Sh2 per kilowatt hour.
It was also looking to increase the monthly fixed charge - meant to recover costs related to meter reading, billing and accounting - from Sh120 to Sh160.
Kenya Power said the adjustments on the application being prepared would not differ much from those proposed last year.
The power firm says it needs additional cash to enhance its liquidity and attract lender support for upgrading the ageing network, bolstering supply.
The increase would also enable it to pay for bulk power purchases whose tariffs are reviewed with the commissioning of new plants.
The centrepiece of the ERC comments that Kenya Power is working on was the introduction of a cheaper off peak tariff that will offer discounts of up to 20 per cent to allow industrialists delay power consumption to between 11pm and 5am when demand for electricity drops to nearly half of peak time consumption.
The peak time stretches from 9 am and climaxes at between 6pm and 9pm when Kenyans return home from work switching on house lighting, cooking appliances and TVs.
“ERC is looking at the Time of Use tariff, transmission losses and the transmission tariff. Kenya Power was asked to fine tune its proposal,” said an industry executive who cannot be named for protocol reasons.
The transfer of industrial demand from peak hours - which are expensively priced - to cheaper off peak hours is meant to increase the electricity reserve during peak hours by nearly 100 Megawatts, according to the ERC.
Increased demand for power amid reduced supply due to delay in constructing new power plants has left the reserve margin - the difference between demand and supply - at 1.23 per cent, which is way below the optimum minimum level of 15 per cent.
This means that should one generator collapse or is stopped for maintenance, the country risks being plunged into a blackout.
Shifting industrial production to night shift is one of several options the government is pursuing to cushion the country from power rationing.
Other avenues aimed at softening demand include the supply of energy saving bulbs and the invitation of private power producers to help boost the country’s power supply.
But since the two later avenues involve multibillion shilling investments and lengthy procurement procedures, power managers say managing the country’s power demand offers the best path to handle the impending crisis in the short term.
The proposed tariff review is critical to Kenya Power’s future financial health which is hinged on proper management of operational costs and ability to pay for the expected rise in bulk power purchase and transmission costs.
The cost of purchase of bulk power from generators is expected to increase in the next three years as the utility firm buys more electricity, especially from private producers whose bulk tariffs are higher than State owned KenGen
Kenya will add between 1,913 and 2,213 megawatts to the national grid in the next three years.
Kenya Power also needs to upgrade its ageing network to boost supply and secure healthy cash flow to remain attractive to lenders.
The firm intends to spend Sh28.4 billion in upgrading its networks to ease the rising incidence of power blackouts.
This will be raised through internally generated funds of Sh9.9 billion, borrowings (Sh13 billion) and grants from development institutions (Sh5.3 billion).
It also needs to boost its earnings since it does not benefit from periodic review of prices, making the tariff review critical to its future profitability.
The firm’s net profits stood at Sh2.28 billion in the six months to December compared to Sh2.22 billion, a 2.7 per cent growth that highlighted the impact of the stagnant tariffs amid rising operational costs. (Business Daily/Zeddy Sambu)