LCCI Response to LEC Tariff Adjustment Application 2017/18

Proposals on Bulk Purchases cost cutting strategies:

  • Termination of EDM/LEC PPA is strongly recommended to avoid the unsustainable cost unit burden of M1.34 on LEC which in turn is passed through to consumers;
  • Currently Eskom has excess capacity of around 5,000MW at M0.94 per unit recently made available to the region;
  • LEC to negotiate better PPA contract with Eskom on required import capacity in substitution of EDM supply;
  • Consider conversion of Megaflex tariff at unit cost of M0.94 to NightSave Urban Large tariff type at unit cost of M0.73 for Maseru intake point;
  • In the proposed arrangement Eskom bill to LEC will further be reduced by two cost components attached to EDM power delivery facilitation;
  • NERSA has allowed Eskom an average tariff increase of 2.9% for the year 2017/18 compared to LEC request of 16.9%;
  • Why is Mantšonyane hydro-power plant production value not transparent in the light of who benefits and how? Domestic generation is meant to cushion consumers against high import costs.

CONCERNS ON REVENUE REQUIREMENT:

LEC repetitive non-compliance on the Electricity Charging Principles and Regulatory Accounting Guidelines may subject consumers to Utility hidden pass through costs on the following issues:

  • In terms of Principle 6 the estimated calculation as done by LEC to determine Required revenue is discouraged instead an appropriate margin cost on purchased services may be proposed for approval;
  • Principle 6 further insists on calculation of electricity losses and why is it not done so. We request for a percentage split of technical and non-technical losses for past three years;
  • Other regulatory calculation options are revenue cap formulae or price cap formulae, why is none of the above methods not considered?
  • In terms of Principle 12 why is the Audited data and Outturn in terms of Regulatory Accounting Guidelines not adjusted to indicate under or over recovery on required revenue?
  • Principle 13 emphasizes on cost reflective tariff design and to distinguish charges between the value chain business units and different system voltage levels; why is it not done so?
  • The calculation on Section O should not be considered due to lack of submission on Cost Allocation Manual by LEC for approval by the Authority;
  • Why is LEC Depreciation estimated instead of calculated in terms of annual Revaluation of Regulated Asset Base using depreciated indexed historical cost as per regulation?
  • The Return on Assets calculation seems to be subjective instead of objective. We request LEC to re-consider deduction of M100,467,641 and RoA to be adjusted to M74,000,000 due to the projected weak economic status.

CONCLUSION:

  • It is feasible for the Utility to implement the proposed cost cutting strategies on bulk purchases and effect downward adjustment on pricing for the coming fiscal year;
  • The Authority should protect consumers against pass-through company inefficient costs such as non-technical losses which the Utility has failed to disclose the percentage contribution on total system losses and conversion in monetary terms.

RECOMMENDATIONS:

  • LEC is requested to consider implementation of multi-year tariff with indicative price path in the medium-term to enable informed business investment decisions by the private sector;
  • The Authority is requested to apply strict regulation on repeated issues of non-compliance by the Utility during the tariff determination;
  • Following the Report of Auditor-General on Basis for Qualified Opinion and issues on assets misstatements, The Authority is requested to take close scrutiny on this report and management letter thereof and assure consumers in the determination report that no company inefficiency costs are passed through;
  • Since the LEC Tariff Application is based on estimated annual price increase and not necessarily on full compliance with the Regulation, we strongly recommend that the Utility be allowed an increase based on projected inflation index by Lesotho Bureau of Statistics with a cap rate of 6%.

Notice on Lesotho Electricity Company’s (LEC) Tariffs Adjustment Application to Lesotho Electricity and Water Authority (LEWA for Financial Year 2017-18) [Download]