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ELECTRICITY REGULATORY AUTHORITY
TARIFF REVIEW REPORT FOR 2016
1. INTRODUCTION
1.1 Background
In 2001, Uganda’s Electricity Supply Industry (ESI) was restructured, to
improve efficiency and increase competition in the generation and
distribution segments of the industry.
The monopoly of the vertically integrated Uganda Electricity Board (UEB)
was ended and three successor companies were created to operate the
generation, transmission and distribution and supply segments of the
industry. These companies are Uganda Electricity Generation Company
Limited (UEGCL), Uganda Electricity Transmission Company Limited
(UETCL), and Uganda Electricity Distribution Company Limited (UEDCL).
UEGCL concessioned the operation and maintenance of its assets to Eskom
Uganda Limited (EUL), UEDCL concessioned its assets to Umeme Limited,
while UETCL remained as a Government company.
1.2 2016 Tariff and Budget Submissions
At the end of October 2015, Umeme Limited submitted its proposal for the
2016 tariff review in accordance with the provisions of its Licenses for
Supply and Distribution of electricity.
At various dates in November 2015, EUL, UEGCL UEDCL and UETCL
submitted their applications for consideration in the 2016 tariff review in
accordance with the provisions of their Licenses The specific dates of
submission of the applications are indicated in Table 1.
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Table 1: LICENSEE DATES OF SUBMISSION OF 2016 TARIFF APPLICATIONS
Company/Licensee Date of submission
Umeme Limited 30t
October 2015
UETCL 23r
November 2015Eskom Uganda Limited 11
t November 2015
UEDCL 23r
November 2015
UEGCL 11t
November 2015
Much as the companies submitted information on the dates stated in Table
1, there was need to revert to the companies on a number of occasions for
clarification, additional information and verification. After receipt of all the
relevant information the tariff review process commenced.
1.3 Review Process
The review process commenced with the publication of the applications in
the New Vision on 19th
November 2015. The key stakeholders and the
general public were invited to view the applications and submit their
comments. For the 15 days for which the applications were available for
public scrutiny, the Authority did not receive any comments and or
objections to the applications.
On 25th
November 2015, the Electricity Regulatory Authority (Authority)
run an advertisement in the New Vision newspaper inviting key
stakeholders and the general public to the Public Hearing/consultation that
was held on 11th
December 2015 at Imperial Royale Hotel, Kampala, with
respect to the 2016 tariff applications. Through the consultation process,
the licensees made presentations of their applications to key stakeholders
and the general public. A wide range of issues to be considered in the 2016
tariffs were presented and discussed.
In addition to the Public Hearing, the Authority held consultative meetings
with the licensees and stakeholders including the Uganda Manufacturers
Association (UMA). During the consultative process, the stakeholders
provided/submitted comments in respect to the tariff applications.
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After completion of consultations with the public, the 2016 draft tariff
outcomes were shared and discussed with Licensees. The licensees
responded with extensive comments and clarifications, which were taken
into consideration in finalizing the tariff report.
Therefore, in arriving at its determination, the Authority has taken into
account the views and submissions from all stakeholders including
licensees, stakeholders who submitted written comments and those who
participated in the public consultations.
1.4 Tariff Review major assumptions
The 2016 annual Tariff Review has been carried out in consideration of thefollowing major factors/assumptions;
(a) The quarterly Tariff reviews implemented by the Authority in 2014 and
2015 that adjust the base tariff for changes in macroeconomic factors of
inflation, exchange rate, fuel prices, and generation mix will continue to
be implemented in 2016.
(b) Government of Uganda will continue paying capacity payments to the
thermal plants in 2016 estimated at Ush 82.528 billion. Additionally,
debt service to UEB successor companies (UEGCL, UETCL and UEDCL)
will not be financed through the tariff.
(c) Electricity demand is expected to grow at an annual rate of 6% in 2016.
The total energy purchased by UETCL is expected to increase from
3,341.2 GWh in 2015 to 3,622.8 GWh in 2016.
(d) The water release at Nalubaale/Kiira is projected at 900 Cubic meters
per second (cumecs) for 2016 translating into an average generation
capacity of 154 MW from Nalubaale/Kiira and 167 MW from BujagaliEnergy Limited.
(e) The Uganda Shilling has depreciated by 20.7% against the United States
Dollar, from Ush 2,779.9/US$ in November 2014 to Ush 3,357.1/US$ in
November 2015.
(f) Umeme Limited’s gross capital investments have increased by US$70.6
million from US$ 260.0 million in 2015 to US$ 330.6 million in 2016 that
qualify to earn a return.
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(g) Umeme Limited’s target Overall Distribution Loss Factor (LF) and the
Total Un-collected Debt Factor (TUCF) for 2016 is 16.9% and 2.1%
respectively, compared to 18.3% and 2.3% for 2015.
(h) Project costs of UETCL and UEGCL are treated as development costs andnot funded from the tariff.
1.5 Purpose of this Report
The purpose of this report is to present the results of the Authority’s
analysis and evaluation of the Licensees’ 2016 Tariff submissions and to set
out the Authority’s determinations and the reasons informing the
determinations.
1.6 Structure of the Report
This report is divided into six (6) sections. The first five (5) sections of the
report after this introduction focus on (i) review of the demand and
generation from power plants, (ii) review of the 2016 UETCL tariff
submissions, (iii) review of the 2016 Eskom Uganda Limited tariff
submissions the resulting determinations, review of the 2016 UEGCL tariff
submissions, (iv) review of the 2016 Umeme Limited tariff submissions,
review of the 2016 UEDCL tariff submissions, and (v) revenue requirement
and resultant tariffs.
2. DEMAND ASSUMPTIONS
2.1 Peak Demand
During the year 2015, a total of 3,341 GWh is expected to be purchased by
UETCL from the generation plants compared to 3,203 GWh purchased in
2014, representing a growth of about 6%. However the 6% expected
growth in 2015 will be below the 10% growth that was projected to be the
growth at the beginning of 2015.
The lower than anticipated growth is mainly due to constraints in the
distribution infrastructure as well as lower than anticipated
industrial/manufacturing activity during the year, combined with reduced
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consumption in the domestic customer category as a result of rolling out
the prepaid meters, which have made consumers more sensitive about
their energy consumption levels.
In terms of peak demand, the registered systems demand so far in the year
2015 (including exports) is 529.33 MW. The highest registered domestic
peak, shoulder and off-peak demand is 516.94 MW, 449.5 MW and 380.83
MW respectively as shown in Table 2.
Table 2: MAXIMUM DEMAND (MW) FOR 2015
Month Peak Total (Including
Exports)
Peak Domestic Shoulder
Domestic
Off-Peak
Domestic January 512.97 500.05 436.76 364.85
February 529.33 516.94 446.31 361.58
March 516.82 505.31 441.99 359.52
April 512.43 496.58 426.11 354.67
May 526.48 502.31 443.52 369.9
June 503.63 491.25 427.46 357.4
July 509.98 493.81 432.16 360.97
August 528.39 512.18 448.83 361.84
September 519.22 504.92 449.5 380.82
Source: UETCL Sales Report
In 2014, the country recorded the highest electricity total peak demand of
550 MW in May and September. This implies therefore that in 2015
compared to 2014, total peak declined by 3.6%.
The decline in peak demand is attributed to a number of factors including:
(a) The Authority revision of the Time of Use weighting factor from 120% to
130%. This was meant to incentivize large consumers especially
manufacturers to shift from consuming at peak to other time of use
periods. A review of the effects of the response so far to the time of use
weighting factor indicates a notable shift from peak to shoulder and off-
peak time of use periods.
In order to maintain the incentives for customers to shift from peak
consumption to shoulder and off peak, the Authority maintained the
peak time of use weighting factor at 130% in 2016.
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(b) Slowdown in economic activity. The level of activity in the economy
influences energy consumption. Since 2013, the growth in Gross
Domestic Product has relatively stagnated at 5.3%.
(c) Energy Loss reduction. Notably, there has been steady reduction inlosses by UETCL and Umeme Limited leading to saving of more energy.
(d) Constrained distribution network infrastructure and transformation
capacity for manufacturers especially in the industrial parks have
limited the capacity of industries to use more power.
2.2 Energy purchases/ sales by UETCL
The total energy purchased and sold by UETCL in 2015 increased at an
average of 6% per annum. Given the outlook of economic activity in 2016
as indicated by the Ministry of Finance, Planning and Economic
Development and Bank of Uganda’s indicator of business tendency, it is
anticipated that the growth in energy purchases will be between 6% and
7%. For planning purposes, the Authority has assumed a 6% growth rate in
demand for 2016.
3. GENERATION ASSUMPTIONS
3.1 Oil Price Assumptions
In the 2015 Base Tariffs, the cost of fuel assumed in the tariff
determination was US$ 80 per barrel. According to Organization of
Petroleum Exporting Countries; as at end of November 2015, the
international price of oil averaged US$ 45.93 per barrel for ICE Brent) and
US$ 42.92 per barrel for Nymex WTI.
The drop in oil prices has been attributed to excess supply while demand
has not grown in similar magnitude. This has been worsened by the
slowdown of China’s economy and commodity market. Despite the
reduction in production by the US based Shale oil producers, Russia has
increased its output to record highs, wiping out the expected gains in the
market prices. As shown in Figure 1, the oil prices have been on a down
ward trend from January to November 2015. No significant recovery in the
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world oil prices is expected in the near future i.e. the next twelve months
of 2016.
Figure 1: Trend of crude oil prices January to November 2015
Source: OPEC
For purposes of the 2016 annual Tariff Review, the cost of US$ 44.6 per
barrel of crude oil based on the average of OPEC oil prices is applied.
Specifically, for Heavy Fuel Oil (HFO) that is used for electricity generationin Uganda, the price of US$ 331.86 per metric ton is used in the 2016 Base
Tariffs.
3.2 Energy purchases by UETCL from the Generation Power Plants
3.2.1 Eskom Uganda Ltd (380 MW)
UETCL in its application assumed that in 2016, it will dispatch/purchase
1,208.9 GWh from the Kiira and Nalubaale Hydro Power Complex. This willbe at an average capacity dispatch of 138.5 MW.
The Authority’s consultations with the Directorate of Water Resource
Management (DWRM) indicated that as a result of increased rainfall, the
hydrology of Lake Victoria has improved increasing the lake water levels.
This implies that the lake can support water release of more than 800
Cumecs in 2016.
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For the 2016 Tariff Review, we have therefore assumed an average water
release of 900 Cumecs. This translates into average generation of 1,351
GWh from EUL in 2016.
The power purchase costs for EUL are expected to decrease from an
estimate of Shs 52.2 billion in 2015 to an estimate of Ush 47.8 billion in
2016. The reduction is on account of the appreciation of the Uganda
Shilling against the United States Dollar in the later period of 2015.
3.2.2 Bujagali Energy Limited (250 MW)
In line with the assumed water release of 900Cumecs at EUL, Bujagali
Hydro Power Plant is expected to generate at an average capacity of 180
MW. However, annual maintenance shutdowns are expected from August
to December 2016, at the rate of one unit each month. Considering the
plant maintenance schedule and water release possibility, the generation
has been projected up to 1,489 GWh.
3.2.3 Africa EMS Mpanga Ltd (18 MW)
The power plant experienced hydrology challenges in the earlier part of
2015. In the later months of 2015, the hydrology improved and the power
plant increased generation. The estimated generation from Africa EMS
Mpanga was 61.8GWh by the end of 2015.
We expect that the favorable hydrology being experienced in Uganda will
continue in 2016 and therefore, we estimate that the plant will generate an
average of 9.0 MW translating into total energy of 78.84 GWh in 2016.
The power purchase costs are expected to be Shs 23.8 billion in 2016
increasing from an estimate of Shs 19.3 billion in 2015. The increase in
power purchase is mainly on account of the increase in generation from
the hydro power plant.
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3.2.4 Tronder Power Ltd – Bugoye (13 MW)
Tronder Power Limited is expected to generate 69.8 GWh by the end of
2015. In 2016, the plant is projected to generate an average of 8.0 MW to
the National grid leading to total energy supply of 70 GWh.
Pursuant to the tariff methodology in the license, the tariff for Tronder
Power has been adjusted for “Consumer Price Index for All Urban
Consumers (CPI-U)” increasing from US cents 8.59/kWh in 2015 to US cents
8.61/kWh in 2016.
Accordingly, the power purchase costs for Tronder Power are expected to
increase from an estimate of Shs 19.8 billion in 2015 to estimated Shs 20.2
billion in 2016. The increase in power purchase costs is on account of
increased generation from Bugoye power plant and upward adjustment of
the generation tariff for Consumer Price Index.
3.2.5 Kasese Cobalt Company Ltd -KCCL ( 10.5 MW)
The plant is expected to generate 65.7 GWh in 2016 compared to 58.7
GWh in 2015 on account of the improved hydrology. In 2014, the Authorityapproved KCCL’s generation tariff of US cents 5.3/KWh. The tariff
methodology provided for adjustment of the tariff for movement in the
United States Producer Price Index. The effective generation tariff for KCCL
in 2016 after adjustment for Producer Price Index is US cents 5.6/KWh.
The power purchase costs for KCCL are expected to increase from an
estimate of Ush 10.5 billion in 2015 to Ush 10.7 billion in 2016. The
increase in power purchase costs is on account of increased generationfrom KCCL and upward adjustment of the generation tariff for Producer
Price Index.
3.2.6 Kilembe Mines Limited – KML (5 MW)
Mobuku 1 Hydropower Plant operated by Tibet Hima Limited (formerly
Kilembe Mines Limited) has an installed capacity of 5 MW.
The floods in the Kasese region continue to pose a threat to the normal
operations of this plant. The plant is estimated to generate 24.7 GWh up to
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the end of 2015. We project that KML will generate an average of 2.1 MW
translating into energy of 21.2 GWh in 2016.
The power purchase cost for KML is expected to decrease from Shs 2.19
billion in 2015 to Shs 1.9 billion in 2016. The generation tariff for KML is in
Uganda shilling and therefore not subject to adjustment for movement in
the exchange rate. The reduction in power purchase cost is mainly on
account of the reduction in generation expected from the power plant.
3.2.7 Eco Power-Ishasha (6.5 MW)
The plant is estimated to generate 22.5GWh by the end of 2015. The power
plant experienced evacuation challenges in 2015. In 2016, we expect that
measures will be made to improve the evacuation of the power plant. As a
result of the improved evacuation in 2016, Eco-Power will generate an
average of 3.0 MW translating into energy sales of 26.4GWh. The power
purchase costs are expected to be Shs 6.4 billion in 2016, increasing from
Shs 5.8 billion in 2015.
3.2.8 Kakira Sugar Limited (22 MW)
The plant is estimated to generate 182 GWh by the end of 2015. It isprojected that the plant will generate at an average of 24 MW translating
into energy of 210.4 GWh in 2016.
Kakira Sugar Limited has three (3) Power Purchase Agreements (PPAs) with
UETCL. Kakaira Sugar Limited is expected to generate 4.7% of the energy
under PPA 1, 32.8% of the generation under PPA 2, and 62.5% of the
generation under PPA 3. The generation tariff of Kakira Sugar Limited is
adjusted for United States Producer Price Index. The weighted averageadjusted generation tariff for Kakira Sugar Limited in 2016 is expected at US
cents 9.54/KWh.
The Kakira Sugar Limited power purchase costs are expected to increase
from Shs 54.8 billion in 2015 to Shs 67.4 billion in 2016. The increase in
power purchase costs is on account of increased generation from Kakira
Sugar Limited power plant and upward adjustment of the generation tariff
for Producer Price Index.
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3.2.9 Kinyara Sugar Ltd (7.5 MW)
The plant is estimated to sell 9.9 GWh to the National Grid by the end of
2015. While evacuation challenges remain and efforts to address them
continue, the plant is expected to sell 17.6 GWh in 2016.
The Kinyara Power Purchase costs are expected to increase from Shs 2.8
billion in 2015 to Shs 4.8 billion in 2016 on account of increased generation
from the power plant.
3.2.10 Hydromax Limited- Buseruka (9 MW)
Hydromax plant is still not operating at full capacity owing to evacuation
challenges. While a number of interim measures have been undertaken to
improve the evacuation of this plant, the Hoima-Busunju line is still
affected by tripping of the tee-offs and the Autoreclosure in Busunju
substation which limits the capacity of the plant. Nonetheless,
maintenance work is being undertaken by Umeme Limited to address the
tripping at the Tee-off and should be completed before end of 2015. This is
expected to mitigate against the evacuation problem until the completion
of the Nkenda substation.
The plant estimated to generate and evacuate 29.5 GWh at the end of
2015. Given the improvement in evacuation, it is projected that in 2016,
the plant will generate an average 4 MW translating into energy of
35.04GWh.
The Power Purchase cost for Hydromax is expected to increase from Ush
9.6 billion in 2015 to Ush 11.2 billion in 2016. The increase in the power
purchase cost is on account of the increase in energy generation from thepower plant.
3.2.11 Sugar and Allied Limited
Sugar and Allied completed construction of the bagasse generation facility
with an installed capacity of 11.9 MW in 2015, licensed under the Feed-in-
Tariff (REFIT) regime. The plant was connected to the National Grid in
December 2015 and generated minimal energy in 2015.
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It is expected that the plant will be fully operational in 2016. The plant will
therefore, use 6.9 MW for own use and export 5 MW to the National Grid,
generating 51.0 GWh in 2016 at a cost of Shs 16.3 billion.
3.2.12 Mayuge Sugar Limited
In 2015, the Authority licensed Mayuge Sugar Limited to construct and
operate a co-generation bagasse power plant licensed under the Feed-in-
Tariff regime. The plant is expected to be connected to the National grid
before the end of 2016. Mayuge Sugar is expected to generate 30.6 GWh in
2016 at a cost of Ush 9.7 billion.
3.2.13 Electro-Maxx Limited- Tororo (50 MW)
In 2016, the generation from Electro-Maxx is expected to be maintained at
7 MW generating 61.32 GWh. The generation from thermal plants will only
increase when the generation from other sources is exhausted in 2016 to
avoid load shedding. The power purchase cost is expected to be
maintained at Shs 34.8 billion in 2016. The prices of the fuel on the
international market are expected to remain relatively constant in 2016.
3.2.14 Jacobsen Uganda Power Plant Company Ltd- Namanve (50 MW)In 2015, the Authority approved an extension of the License of Jacobsen
Uganda Power Plant Company Limited for one year. The plant is expected
to generate more energy in the later part of 2016 to avoid load shedding as
generation from other sources is exhausted. Jacobsen Uganda Power Plant
Company Limited is expected to generate 84.0 GWh in 2016 at a cost of Shs
45.7 billion.
3.2.15 Imported PowerIn 2015, UETCL is estimated to have imported 49.4 GWh at a power
purchase cost of Shs 31.5 billion. In 2016, UETCL is projected to import 38.8
GWh from Kenya Power and Lighting Company and Rwanda Energy Group
at a cost of Shs 33.3 billion. This cost includes an additional 18% Value
Added Tax in accordance with the Amendment to the Income Tax Act that
reclassified electricity from a good to a service.
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Table 3: PROJECTED ENERGY PURCHASES BY UETCL
Generation Plant
Energy
(GWh) Cost (Ush bn)
Energy
(GWh)
Cost
(Ush bn)
2015 Provisional Outturn 2016 Forecast
Eskom Uganda Limited 1,296.8 52.2 1,351.2 47.8
Bujagali Energy Limited 1,462.9 534.6 1,489.6 558.1
Kasese Cobalt
Company Limited 58.7 10.5 56.8 10.7
Kilembe Mines Limited 24.7 2.2 21.2 1.9
Bugoye-Tronder 69.8 19.8 70.0 20.2
Africa EMS Mpanga 61.8 19.3 78.8 23.8
Electro-Max 60.9 33.9 61.2 34.8
Jacobsen Plant-
Namanve 12.3 12.7 84.0 45.7
Ishasha Ecopower 22.5 5.8 26.4 6.4
Kakira SW 182.0 54.8 210.4 67.4
Kinyara 9.9 2.8 17.6 4.8
Sugar & Allied - - 51.0 16.3
Mayuge Sugar Limited - - 30.6 9.7
Buseruka Hydromax 29.5 9.6 35.2 11.2
Import KPLC -Kenya 45.7 30.5 35.2 32.1
Import Rwanda 3.7 1.0 3.6 1.2
Total 3,341.2 789.8 3,622.8 892.1
4 ENERGY SALES BY UETCL
The energy purchased by UETCL is adjusted for transmission losses and sold
to different distribution companies in Uganda. Part of the energy is
exported to Kenya, Rwanda, Tanzania and Democratic Republic of Congo.
Based on the 2016 forecast, UETCL will sell 95.7 percent of the energy to
Umeme Limited, three (3) percent of energy will be exported and the rest
(1.5%) will be sold to the small distribution companies in Uganda as shown
in Table 4.
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Table 4: ENERGY SALES BY UETCL
Distribution Licensee Annual Energy Sales by UETCL (GWh) %tage sales
Umeme Limited 3,353.2 95.7%
Ferdsult 27.4 0.8%
KIL 4.7 0.1%BECS 2.3 0.1%
PACMECS 2.2 0.1%
KRECS 2.0 0.1%
UEDCL 8.8 0.3%
EXPORT 102.6 2.9%
TOTAL 3,503.3 100.0%
5 UETCL TARIFF PROPOSALS FOR 2016
5.1 Introduction
UETCL is currently regulated under the incentive-based Multi-Year Tariff
(MYT) regime. In 2014, the Authority approved the UETCL MYT application
for the period 2014 to 2016 and set annual performance targets for the
company; such that on one hand if the company achieves or surpasses the
performance target, it retains the financial benefit associated with the
target. On the other hand, if the company does not achieve or performsbelow the set target, it suffers the financial loss or penalty for the
performance.
To note is that under the incentive-based MYT regime, UETCL is fully
compensated for any changes in operation costs arising from changes in
macro-economic factors including exchange rate, inflation, international
fuel prices and changes in the energy supply/generation mix.
The UETCL tariff methodology is designed to generate revenues that are
equivalent to the aggregate sum of regulated costs of power purchase,
system operation and the operation and maintenance of the high voltage
transmission grid.
On 23rd
November 2015, in accordance with its four (4) licenses and the
MYT regime, UETCL submitted its 2016 tariff proposals for the Authority’s
consideration. The sub-sections that follow present and discuss the UETCL2016 tariff submissions.
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5.2 Energy Sales and Transmission Losses
In line with the approved MYT parameters, the approved transmission loss
target for 2016 is 3.3%. UECTL is therefore expected to purchase 3,622.8
GWh in 2016 and sell 3,503.2 GWh to the distribution companies as shown
in Table 5.
Table 5: UETCL ENERGY SALES AND TRANSMISSION LOSSES IN 2016
2014 Actual 2015 Provisional 2016
Projected
Energy Purchase
(GWh)
3,203.1 3,341.2 3,622.8
Energy Sales (GWh) 3,098.9 3,227.6 3,503.2
Technical Losses (%) 3.4% 3.4% 3.3%
5.3 Transmission Losses
In 2015, the Authority set a transmission loss factor for UETCL at 3.6%, and
the outturn for 2015 was 3.4% (113.6 GWh). The applicable transmission
loss factor for 2016 as approved by the Authority under the Multi-year
tariff is 3.3%. The Approved transmission loss factor trajectory for the three
years 2014-2016 under the Multi- Year Tariff is as summarized in Table 6.
Table 6: TRANSMISSION LOSS FACTOR TRAJECTORY 2014 – 2016
Year 2014 2015 2016
Transmission Loss Factor 3.8% 3.6% 3.3%
5.4 UETCL Operation and Maintenance Budget
Under the Multi-Year Tariff, the applicable operation and maintenance cost
approved by the Authority for 2016 is Ush 58,049 million and other
revenue of Ush 7,679 million.
5.4.1 Local Currency Split of Operation and Maintenance Cost
At the time of approving the transition to the Multi-year tariff, the
Authority approved operation and maintenance local content of 75
percent. UETCL in its application requested that the split be maintained at
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75%. In the determination of the Bulk Supply Tariff for 2016, the Authority
maintained the operation and maintenance cost local currency content
split at 75 percent.
5.4.2 Adjustment of the Operation and Maintenance Costs of UETCL
Following the transition to the Multi Year Tariff and in accordance with the
tariff methodology, the UETCL operation and maintenance costs are
subject to quarterly adjustment for changes in exchange rate (the foreign
currency content) and inflation (the local currency content).
For the purposes of computing the adjustment factor, the base Consumer
Price index is 208.2, and the Base Exchange rate is Ush 2,524.5/USD. The2016 Consumer Price Index and exchange rate are; 227.3 and Ush
3,357/USD respectively (ie November 2015).
The effective/adjusted operation and maintenance cost used in the
computation of the tariff is Ush 59,713 million (operation and maintenance
of Ush 67,392 million and other revenue of Ush 7,679 million). The other
revenue is offset against the operation and maintenance costs.
5.4.3 High Voltage load profile
In 2015, the Authority approved a High Voltage Load Profile by UETCL of
29.1% peak, 50.3% shoulder and 20.6% off peak. Arising from the
adjustment of the Time of Use Weighting factor in 2015, the high voltage
load profile has marginally changed to 28.7% peak, 50.2% shoulder and
21.1% off peak as reported by UETCL.
6 ESKOM UGANDA LIMITED 2016 TARIFF PROPOSALS
6.1 Background
EUL is licensed (License No. 018) to generate electricity from the Nalubaale
and Kiira Hydropower Complex and sell it to the National Grid.
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Effective 1st
April 2015, the Authority approved EUL four-year (April 2015 to
March 2018) Generation Operation and Maintenance Costs (GOMC) as
indicated in Table 7.
Table 7: ESKOM UGANDA LIMITED APPROVED GOMC FOR THE FOURYEARS 2015-2018 (USH ‘000’)
Cost Item 2015 2016 2017 2018
Staff Costs 10,348,824 9,689,494 9,644,404 9,533,710
Core Operation &
Maintenance Costs5,148,712 5,049,416 6,561,039 4,802,699
Administration costs 3,495,397 3,340,010 3,336,095 3,345,315
Management Fee 840,000 840,000 840,000 840,000
Directors Fees 372,400 372,400 372,400 372,400
Non-core Assets/
Depreciation6,385,375 3,425,278 5,865,525 7,510,293
Total in UGX 26,590,708 22,716,599 26,619,463 26,404,417
Exchange Rate 2,867 2,867 2,867 2,867
Total in USD 9,275 7,924 9,286 9,211
EUL generation License as well as the Quarterly Tariff Adjustment
Methodology provide for adjustment of GOMC Base parameters for
changes in exchange rate of the Uganda Shilling against the United States
Dollar and Consumer Price Index. The reference Consumer Price Index and
exchange rate are; 213.95 and 2,866.77/USD respectively for the purpose
of adjusting the Generation Operation and Maintenance Cost for EUL.
6.1.1 Capital Investment by Eskom (IN)
In its application, EUL indicated that the company invested US$ 1,628,583
in 2015 that qualifies for a return on investment. The investments
undertaken by EUL in 2015 have been allowed in the determination of the
Capacity Price for EUL for 2016 pending the verification of the Investments.
Once the investment verification exercise is complete, and the verified and
approved amount is different from US$ 1,628,583, reconciliation will beundertaken.
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6.1.2 Depreciation (DPRy)
The company in its submission applied for a weighted average depreciation
rate of 5% in line with its twenty year license and concession period.
Accordingly, this rate of 5% resulted into depreciation cost of US$ 964,000
for 2016 and has been used in the computation of the capacity price for
EUL.
6.1.3 Royalties
In its application, EUL requested for Royalties at Shs 292/MWh in 2016. The
Authority approved guidelines for fixing the quantum of royalties payable
by hydro generation licenses in Uganda. Based on expected generationfrom EUL of 1,351 GWh, Shs 394.5 Million has been allowed as royalties in
the determination of the Capacity Price for EUL for 2016.
6.1.4 Generation Operation and Maintenance Costs (GOMC)
The Authority approved operation and maintenance costs of US$ 7.924
million for 2016 pursuant to Amendment No. 2 of the EUL License. The
license provides for adjustment of the operation and maintenance cost for
movement in exchange rate and consumer Price Index.
The Consumer Price Index (CPI) used in the adjustment of the 2016
approved GOMC is the November 2015 CPI of 227.27 compared to the
reference CPI of 213.95. The exchange rate used in the adjustment of the
2016 approved GOMC is the 30th
November 2015 midrate of 3,357.1
compared to the reference midrate of 2,866.77.
6.1.5 Return on Investment
In accordance with the provisions of the generation license, EUL is entitled
to 12 percent return on the net investment. At the end of 2015, the gross
investment undertaken by EUL is US$ 12.99 million. The return on
investment for 2016 based on the gross investment undertaken by the
company at the end of 2015 is US$ 1.6 million. This amount has been used
in the determination of EUL Capacity Price for 2016.
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6.1.6 Tested generation capacity (TC)
In 2015, Naluubale-Kiira hydro power stations’ capacity test generated a
maximum of 294 MW with an average of 157 MW. Actual generation from
the plant however averaged 138.2 MW. In 2016, we have projected the
plant to generate an average of 139 MW, which has been used in the
computation of the capacity price.
6.1.7 Target Availability
Pursuant to the Eskom Uganda Generation License, for the period
commencing with the transfer date, until and including the 31 December
2002, the target availability shall be equal to 95% and for the 3 year period,commencing 1 January 2004, the target availability shall be equal to 96%.
The target availability for each subsequent 3 year period shall be
determined and set thereafter by the Authority, but in no event shall it be
less than 94% or more than 97% in any period. Based on the inspection
done by ERA and submission by Eskom Uganda Limited, the availability in
2015 is 95.12 percent.
For the purpose of the 2016 annual tariff review, Target Availability is asdetermined in amendment number two of the Eskom Uganda Limited
License i.e. 95.6% and the same has been used in the computation of the
capacity price for 2016.
7 ANNUAL BUDGETS FOR UEGCL
In the submission of the application for approval of the budget, UEGCL
requested for Shs 16.4 billion in 2016 compared to Shs 12.1 billion
approved by the Authority for 2015. The review of the UEGCL 2016 budget
was concluded and Ush 8.6 billion was approved by the Authority and has
been used for the computation of the 2016 tariffs.
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8 DISTRIBUTION ASSUMPTIONS
8.1 Umeme Investment that qualify for Return on Investment
In 2015, the Authority considered the appeal of Umeme Limited andapproved a total of US$ 27,629,575.5 and US$ 37,146,880.87 worth of
investments that qualify for a return for 2012 and 2013 respectively. The
verified and approved Umeme Limited investment for 2012, 2013 have
been used in the computation of the distribution price for 2016
In the determination of the 2015 tariff reviews, a tentative investment
figure of US$ 85.75 million was used for the computation of the
distribution price subject to conclusion of the investment verification. The2015 investment verification exercise is still ongoing and accordingly, US$
85.75 million has been used in the computation of the distribution price
pending conclusion of the verification exercise.
In the 2016 tariff application, Umeme Limited indicated that it had invested
US$ 70.6 million in 2015. This amount of US$ 70.6 million has been allowed
in the computation of the Distribution Price pending conclusion of the
investment verification exercise. The investment verification exercise isexpected to commence and be concluded in 2016 after which
reconciliation shall be undertaken if the verified and approved amounts are
different from the provisional allowed amounts.
8.2 Capital Recovery/ Depreciation (CRy)
Umeme Limited in its application requested for depreciation / capital
recovery rate of 9.5 percent. In the subsequent information, Umeme
Limited stated that the company had reviewed the capital recovery rate to
align the same to the accounting depreciation rate. Through the additional
information submitted, Umeme Limited applied that a capital recovery rate
of 7.47% be used in the 2016 tariff review.
The Authority reviewed the justification provided by Umeme Limited for a
capital recovery rate of 7.47% and noted the following:-
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(a) It is expected that the capital recovery rate should change based on the
remaining period of the concession and the useful life of the investment
assets installed on the distribution network.
(b) It is inconceivable that the capital recovery rate will reduce as the
remaining period of the concession reduces.
(c) Umeme Limited has not provided a convincing justification why the
capital recovery rate used in the determination of the tariff is
significantly different from the accounting depreciation reported in the
company’s financial statements.
Based on the foregoing, a capital recovery rate of 9.5% has been used in
the computation of the Distribution Price for 2016.
8.3 Umeme Performance Parameters for 2016
The Overall Distribution Loss Factor, Distribution Operating and
Maintenance Costs (DOMC), Distribution Efficiency, Days Lag, and
Uncollected Debt Factor as set and approved by the Authority for Tariff
Year 2016 for Umeme Limited are summarized in table 8 below:-
Table 8: SUMMARY OF THE PARAMETERS FOR 2015 AND 2016
Parameters 2015 2016
Overall Distribution Loss Factor 18.5% 17.1%
DOMC (USD $ 000) 46,186 47,433
Distribution Efficiency DEF (%) 0% 0%
Days Lag (DY) 0 0
Target Uncollected Debt Factors
(TUCF)
2.3% 2.1%
Umeme Limited has reported that the energy loss outturn for the period
January to September 2015 is 19.1% and Total Un-collection Factor of less
than 0%.
The performance targets as approved by the Authority have been used in
the determination of the distribution price for 2016.
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8.4 Lease Payments
Umeme Limited in its submission applied for US$ 16.307 million relating to
lease payment to UEDCL. In meetings and through letters, Umeme Limited
has stated that Government of Uganda decision to suspend lease payments
through the tariff (by converting outstanding debt obligation into zero
return equity) deprives the company of the contractual rights under the
concession agreement and the Escrow agreement.
Various meetings have been held with Ministry of Finance, Planning and
Economic Development (MoFPED) and Ministry of Energy and Mineral
Development (MEMD) to discuss the matter. Following the meetings, it was
resolved that MoFPED would fund the Escrow account after concluding theaudit of the electricity bills to Government of Uganda entities. The
Authority has also not received communication from Government of
Uganda reversing the earlier policy decision to waiver debt service
obligation from the electricity tariff and convert outstanding dent into zero
return equity.
Based on the forgoing, lease payments have not been provided for in the
tariff for 2016.
8.5 UEDCL Budget
For the tariff year 2015, the Authority approved Shs 5.2 billion for the
UEDCL budget. The review of the UEDCL 2015 budget was concluded and
Shs 5,456 million has been used for the computation of the Umeme
Limited’s Distribution Price for 2016.
8.6 Customer Numbers
The company has increased the customer numbers in 2015 and is
estimated to add 160,350 new connections by the end of December 2015.
The customers by category are summarized in Table 9;-
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Table 9: New Customer connections from 2011 to 2015
Year Domestic CommercialMedium
Industrial
Large
Industrial
Street-
lightsTotal
2011 389,820 33,569 1,547 358 253 425,547
2012 422,589 37,991 1,853 349 293 463,075
2013 504,439 48,189 2,076 395 360 555,459
2014 589,415 58,075 2,267 468 348 650,573
2015 738,488 69,219 2,404 495 317 810,923
8.7 Time of Use Factors by Customer Class
In the application, Umeme Limited requested for the load profile to be
adjusted based on actual sales per Time of Use in 2015. The Authority has
recomputed and studied the load profile based on reporting by the
company for the nine (9) months ending September 2015 and approved
the Load profile as indicated in Table 10.
Table 10: Time of Use Profile
Customer
category
Domestic Commercial SmallIndustrial
LargeIndustrial
StreetLighting
Code
10.1Code 10.2 Code 20 Code 30
Code
50
2015
Peak 36.0% 25.0% 24.0% 23.7% 60.0%
Shoulder 44.0% 55.7% 58.4% 52.4% 0.0%
Off-peak 20.0% 19.3% 17.6% 23.9% 40.0%
2016Peak 36.0% 24.5% 24.3% 24.4% 60.0%Shoulder 44.0% 55.8% 59.0% 52.0% 0.0%
Off-peak 20.0% 19.7% 16.7% 23.6% 40.0%
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8.8 Time Of Use Weighting Factors
Following the commissioning of Bujagali Energy Limited and elimination
of load shedding, the Authority in 2014 approved an adjustment of the
Time of Use weighting factor to 120%. In order to further incentivize
electricity consumers to shift consumption from peak to off peak and
shoulder Time of Use, the Authority in 2015 further adjusted the Time of
Use weighting factor to 130%. Despite the revision in the Time of Use
weighting factor, the load profile of industrial consumers has not
significantly changed.
In the determination of the 2016 tariffs, the Authority considered and
approved that the Time of Use weighting factor is maintained at 130%.The Authority further committed to undertake sensitization in 2016 to
incentivize reduction of consumption at peak by commercial, medium
and large industrial customers.
Table 11: Time of Use Weighting Factor
Status BST-Peak HV-Peak HV-Shoulder LV-Peak LV-
shoulder
Current 130% 130% 100% 130% 100%
Approved 130% 130% 100% 130% 100%
8.9 Maximum Demand Charge (KVA Sales)
For the twelve month period ending September 2015, Umeme limited
reported that the company sold 1,932,032 KVA units to medium
industries and 3,743,772 KVA units to large industries. These sales havebeen considered for the computation of the distribution price for the
respective customer categories. Umeme Limited has not applied for
adjustment of the maximum demand charge and the approved charges
have been maintained in 2016.
The maximum demand charge of Ush 16,644 kVA per month and, Ush
11,096 per kVA per month up to 2,000kW and Ush 5,548 per kVA per
month for the large industries code 30 have been used in thedetermination of the Distribution Price for 2016.
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8.10 Reactive Power Tariff
The Authority approved a reactive energy charge of Ush 40 per kVArh per
month and reactive energy reward of Ush 20 per kVArh per month with
the objective of ensuring efficient power utilization by medium and large
industrial consumers through reactive energy compensation initiatives.
In its application, Umeme Limited stated that the company is in the
process of concluding the study to review the adequacy of the rates and
presumed impact on customer behavior.
Umeme Limited further stated that the reactive power tariff is an
impactful initiative to support demand side management and requestedthat the charge is maintained as part of the tariff structure to influence
efficient energy utilization by large consumers.
For the period October 2014 to September 2015, Umeme Limited
rewarded Shs 3,599 million and penalized Shs 3,243 million resulting into
net reward/deficit of Shs 355 million. This amount (Shs 355 million) has
been considered in the computation of the distribution price.
The Authority approved that the reactive energy charge of Ush 40 per
kVArh per month and reactive energy reward of Ush 20 per kVArh per
month is maintained in the tariff structure for 2016.
8.11 Percentage of Local and Foreign Content for DOMC
In 2015, the Authority approved a local currency content of Distribution
Operation and Maintenance Costs (DOMC) at 67%. For the tariff year 2016,
Umeme Limited applied for an adjustment of the Local currency content to54%. Umeme Limited stated that the company profiled its operating
expenditure for 2015 and noted that 46% of its operating expenditure is in
foreign currency. The Authority reviewed the submission and noted the
following;
(a) The spreadsheet submitted by Umeme Limited does not include the
breakdown for some cost items including; Transport, Insurance charges
and operating lease charge.
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(b) Umeme Limited’s submission does not include the explanation for the
shift in the company’s DOMC structure over the last nine months as
requested by the Authority.
(c) The approved DOMC is in foreign currency, and it is imperative that the
computation indicates the movement in the foreign currency split based
Schedule A-5 of the License for supply of Electricity. The submitted
computation already has the adjustment of both Consumer Price Index
and foreign exchange incorporated, causing a distortion in the
derivation.
9 RECONCILIATIONS
9.1 DATE OF THE APPROVED Q1 2015 RETAIL TARIFFS
The retail tariffs for Q1 2015 were effective 15th
January 2015. Umeme
Limited therefore applied the Q4 2014 tariffs for the period 01st
January to
14th
January 2015. In respect to the effective date for Q1 2015 tariffs,
Umeme Limited under recovered Ush 772 million as shown in Table 12.
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Table 12: UNDER RECOVERY ON ACCOUNT OF EFFECTIVE DATE FOR Q1
2015 TARIFFS
Tariff Before
15th
Jan 2015
Tariff After 15th
Jan 2015
Revenue Shortfall / over
recovery (Ush)
Code
10.1
Life Line
(15 units) 150.0 150.0 -
Above 15
Units 518.7 531.5 (248,486,010.45)
Code
10.2
Average 472.5 484.6 (36,469,143.37)
Peak 567.8 602.5 (74,302,888.22)
Shoulder 473.1 485.1 (58,457,923.01)Off-peak 352.1 336.5 25,819,585.98
Code
20
Average 450.1 461.6 (736,038.71)
Peak 540.4 570.1 (113,254,893.12)
Shoulder 450.3 461.9 (107,317,595.58)
Off-peak 329.1 314.5 41,298,940.88
Code
30
Average 308.5 315.6 -
Peak 371.8 383.5 (121,811,481.58)
Shoulder 309.7 316.4 (154,973,497.59)Off-peak 230.6 223.0 78,004,472.54
Code
50 Average 486.9 502.5 (1,463,941.64)
Total (772,150,413.87)
9.2 INCOME TAXES
The License for Supply of Electricity requires that reconciliation is
undertaken comparing the Income Tax allowance/provision used in the
computation of the Distribution Price and the actual outturn paid in the
retail tariff year based on the company’s reporting and the audited
financial statements.
The income tax allowance in the 2014 tariff was Ush 32,975.01 million
compared to income tax paid of Ush 16,039.0 million as included in the
audited financial statement for the year 2014. The reconciliation therefore
on account of Income taxes is Ush 16,936.01 million.
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However, the income tax allowance is based on the investments
undertaken and the approved return on investment. When the
investments are adjusted, the return on investment changes and therefore
the income tax allowance. After adjusting for the changes in the 2012 and
2013 verified and approved investments, the income tax reconciliation is
Ush 12,355.38 million as shown in Table 13.
Table 13: INCOME TAXES RECONCILIATION
Amount Allowed
(US$ Million) Exchange rate
Amount Allowed (Ush
Million)
Q1 2014 3.22 2,524.49 8,131.56
Q2 2014 3.22 2,538.07 8,175.30
Q3 2014 3.22 2,557.72 8,238.61
Q4 2014 3.22 2,617.00 8,429.54
12.88 32,975.01
Income Tax Paid 16,039.00
Income Tax Reconciliation 16,936.01
Adjustment for Investment
Reconciliation (4,580.63)
Total Income Tax Reconciliation 12,355.38
9.3 2012 AND 2013 INVESTMENTS RECONCILIATION
Following the conclusion of the investment verification exercise and
disposal of the appeal by Umeme Limited, the decisions of the Authority
regarding the capital investments that qualify for return on investment
undertaken by Umeme Limited for 2012 and 2013 were communicated,
vide letters Ref:- FIN/9/11/2 and FIN/9/11/2 of 10th
June 2015. Accordingly,
the Authority has undertaken the reconciliation for the 2012 and 2013
verified investments.
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In 2012, the provisional amount that was allowed by the Authority for the
determination of the Distribution Price subject to conclusion of the
Investment verification exercise was US$ 36,500,000. Following the
conclusion of the verification process and the disposal of Umeme Limited’s
appeal by the Authority, US$ 27,629,575.5 was approved as investments
made by Umeme Limited qualifying to be added to the Asset Base for
purposes of return on investment.
Consequent to the above, the Authority carried out a reconciliation of the
surplus revenue earned by Umeme Limited from January 2013 to
December 2015 amounting to US$ 5.15 million (Ush 12,631.59 million) as
shown in Table 14.
Table 14: RECONCILIATION FOR 2012 INVESTMENTS
Amount in US $
Million Exchange Rate
Amount in Ush
Million
Capital
Recovery 1.30 2426.8 3,143.72
Return on
Investment 2.70 2459.5 6,641.51
Income Taxes 1.16 2459.5 2,846.36Total 5.15 2451.3 12,631.59
In 2013, the provisional amount of investments that was allowed by the
Authority for the determination of the Distribution Price subject to
conclusion of the Investment verification exercise was US$ 50,000,000.
Following the conclusion of the verification process, US$ 37,146,880 was
approved as the investments made by Umeme Limited qualifying to be
added to the Asset Base for purposes of return on investment.
Consequently, we have carried out a reconciliation of the surplus revenue
earned by Umeme Limited from January 2014 to December 2015
amounting to US$ 6.38 million (Ush 16,742.47 million) as shown in Table
15.
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Table 15: RECONCILIATION FOR 2013 INVESTMENTS
Amount in US $
Million Exchange Rate
Amount in Ush
Million
Capital Recovery 1.62 2,627.61 4,263.57Return on
Investment 3.33 2,622.69 8,735.23
Income Taxes 1.43 2,622.69 3,743.67
Total 6.38 2,623.94 16,742.47
9.4 OTHER REVENUES (ORY)
In accordance with the License for supply of electricity, the Authority has
undertaken reconciliation for Other Revenue by comparing the amount
used in the computation of the Distribution Price for 2015 and the amount
reported in the financial statements for the year ended 31st
December
2014. The amount used in the computation of the tariff was Ush 5,557.0
million compared to an outturn of Ush 7,099.0 million leading to an over
recovery of Ush 1,524.0 million as shown in Table 16.
Table 16: RECONCILIATION FOR OTHER REVENUES
Source of Other Income Amount (Ush)
Amount used in the computation of 2015 Tariff (5,557,000,000)
Amount in Financial Statements 7,099,000,000
1. Reconnection fees 1,919,000,000
2. Meter/ Transformer test 3,000,000
3. Inspection 3,936,000,000
4. Sale of Scrap 161,000,000
5. Fines and other Income 1,080,000,000Reconciliation 1,542,000,000
9.5 ENERGY PURCHASES FROM UETCL -HVE RECONCILIATION
In 2012, the Authority amended Umeme Limited License and provided for
reconciliation between the actual energy purchases from UETCL and the
projected energy purchases used in the derivation of the Distribution Price.
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Accordingly, the Authority undertook the energy purchases from UETCL-
HVE reconciliation for the period October 2014 to September 2015
comparing the projection used in determination of the tariff and the actual
as reported by Umeme Limited and UETCL. The over recovery by Umeme
Limited as a result of the HVE reconciliation is Ush 22,531.3 million as
shown in Table 17. This amount was considered by the Authority in
determination of the Distribution Price for 2016.
Table 17: Energy purchases from UETCL- HVE RECONCILIATION
Projecte
d UETCL
Bulk
Purchases Used in
model
(GWh)
Energ
y Loss
Targe
t 2014
Energy
Sales
(GWh)
Actual
UETCL
Bulk
Purchases (GWh)
2014
Expecte
d
Energy
Sales(GWh)
Energy Sales
Variance
(GWh)
Average
Distributio
n Price in
the model(Ush/kWh)
HVE
Reconcili
ation
(Ushmillion)
Q1 2014 696.1 20.5% 553.5 705.07 560.6 7.1 128.6 916.2
Q2 2014 696.1 20.5% 553.5 711.7 565.9 12.4 119.3 1,478.9
Q3 2014 696.1 20.5% 553.5 741.5 589.5 36.1 135.4 4,886.6
Q4 2014 696.1 20.5% 553.5 735.9 585.1 31.6 130.0 4,108.7
Total 2,784.4 20.5% 2,213.8 2,894.1 2,301.0 87.2 11,390.4
Amount reconciled to Date 6,679.0
2014 reconciliation 4,711.4
Projecte
d UETCL
Bulk
Purchase
s Used in
model
(GWh)
Energ
y Loss
Targe
t 2015
Energy
Sales
(GWh)
Actual
UETCL Bulk
Purchases
(GWh)
2015
Expected
Energy
Sales
(GWh)
Energy
Sales
Varianc
e (GWh)
Average
Distributio
n Price in
the model
(Ush/kWh)
HVE
Reconcili
ation
(Ush
million)
Q1 2015 713.4 18.6% 580.8 755.40 615.1 34.2 146.6 5,019.7
Q2 2015 713.4 18.6% 580.8 753.4 613.4 32.6 152.1 4,963.7
Q3 2015 713.4 18.6% 580.8 775.5 631.4 50.6 154.8 7,836.5
Total 2,853.4 18.6% 2,323.3 2,284.4 1,859.9 -463.3 17,819.9
Total Reconciliation 22,531.3
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9.6 REACTIVE ENERGY CHARGE
The Electricity Regulatory Authority has undertaken a reconciliation
regarding reactive energy charge by comparing the reactive energy charge
and reactive energy reward. Based on the information submitted by
Umeme Limited, the company under recovered Ush 355.88 million
between October 2014 and September 2015, as shown in Table 18.
Table 18: REACTIVE ENERGY CHARGE/REWARD
Month Penalty Reward Reconciliation
Oct-14 257,265,220 (246,551,100) 10,714,120
Nov-14 253,411,840 (264,142,060) (10,730,220)Dec-14 243,325,880 (267,883,350) (24,557,470)
Jan-15 263,603,360 (288,546,730) (24,943,370)
Feb-15 227,765,440 (239,133,000) (11,367,560)
Mar-15 267,825,892 (267,122,420) 703,472
Apr-15 504,797,320 (548,929,940) (44,132,620)
May-15 238,639,860 (308,558,940) (69,919,080)
Jun-15 239,612,788 (284,425,720) (44,812,932)
Jul-15 269,349,360 (306,642,200) (37,292,840)Aug-15 228,597,860 (295,521,020) (66,923,160)
Sep-15 249,504,140 (282,124,730) (32,620,590)
TOTAL (355,882,250)
9.7 NON NETWORK ASSETS
For tariff year 2015, Umeme Limited applied for non-network assetsamounting to US$ 5.0 million. At the time of approval of the 2015 Base
Tariffs, Umeme Limited had not provided the justification and benefits
regarding the non-network assets as per the request contained in ERA’s
letter dated 8th
December 2015, Ref: ECR/25/1. Accordingly, the US$ 3
million included in the Base Tariffs for 2015 was a provisional amount.
Consequently, and as part of the investment plan for 2015, the Authority
approved US$ 1,575,800 as the applicable non-network assets allowance
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through various correspondences in 2015. The Authority has undertaken a
reconciliation comparing the amount used in the computation of the tariff
and the approved amount for non-network assets. The excess revenue by
Umeme Limited in 2015 is Ush 4,108 million as shown in Table 19.
Table 19: NON-NETWORK ASSETS
Provisional
Approval
Final
approval Variance FX rate
Amount in
Ush
Q1 2015 750,000 393,950 356,050 2,780 989,799,417
Q2 2015 750,000 393,950 356,050 2,894 1,003,221,630
Q3 2015 750,000 393,950 356,050 3,054 1,022,033,995
Q4 2015 750,000 393,950 356,050 3,658 1,093,013,630
TOTAL 3,000,000 1,575,800 1,424,200 4,108,068,672
9.8 Power Supply Price(PSP) Reconciliation
In accordance with Umeme Limited Supply of Electricity License No. 048,
the Power Supply Price (PSP) of any quarter should include the amount perkilowatt-hour required to reconcile cumulative amounts of actual power
supply costs and related billed revenues. PSP reconciliation (Rq) is defined
as ;- the cumulative amount required to reconcile power supply costs and
related revenues equal to;- (a) power supply costs incurred by Licensee from
UETCL or any other suppliers and self-generation (including related
wheeling charges) less (b) revenues billed to retail customers by applying
the power supply price to retail Kilowatt-hour sales, as such amounts are
recorded i n the Licensee’s accounts over the period commencing on the
Transfer date and ending on the last day of the month for which actual
data is available prior to any quarter “q”
Umeme Limited in its application and subsequent discussions applied for a
PSP reconciliation of US$ 13 million. In the determination of the Power
Supply Price (Rq) reconciliation, the ERA noted that there can only be a PSP
reconciling amount under the following circumstances;-
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(a) When the Distribution Loss Factor target approved by the Authority is
different from the outturn.
(b) When the loss allocation per customer category assumed when setting
the tariff is different from the outturn.
(c) When the percentage of total energy consumed by the different
customer categories assumed at setting the tariff is different from the
outturn.
(d) When the load profile per customer category used for tariff setting is
different from the outturn.
The reconciling amount should be ZERO when all the parameters used for
tariff setting are the same as the outturn.
In order to conclude the exercise, Umeme Limited was required to submit
the monthly raw data used in the generation of the business statistics for
the period January 2011 to December 2014, and revenue breakdown for
each source from January 2011 to December 2014. Umeme Limited is
further expected to submit and explain the energy loss estimation
methodology for losses per customer category and losses by time of use.
Umeme Limited has not submitted the requested information, pending the
submission of the requested information and clarification by Umeme
Limited, no amount has been used in the computation of the distribution
price for 2016.
10 NON-CORE ASSETS/ NON-NETWORK ASSETS
In accordance with Amendment Number two, investments in non-core
assets which do not directly improve or expand the distribution network
shall not be classified as investments for the purposes of computing the
ROI. These shall be classified as Distribution Operation and Maintenance
Costs.
Umeme Limited has not submitted the requested cost breakdowns in time
to enable the Authority undertake an assessment of the optimal levels of
non-network assets for 2016. Therefore, the Authority has considered a
provisional amount of US$ 3 million in the tariff determination for 2016.
The Authority’s approval in respect to non-core assets will be
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communicated in 2016 when Umeme Limited submits the requested cost
breakdown.
11 OTHER CHARGES NOT PROVIDED FOR IN THE RETAIL TARIFF
11.1 Monthly service charge
In the 2016 tariff application, Umeme Limited indicated that the current
monthly service fees may not reflect changes in the macroeconomic
variables since the last adjustment in 2012.
Umeme Limited however, did not submit proposals for adjustment of the
monthly service fees including the underlying assumptions and justifications for consideration by the Authority.
In the absence of the submission and justification, the Authority considered
and approved that the monthly service charges remained unchanged for
2016.
11.2 PREPAYMENT FLAT RATE
In the tariff application, Umeme Limited requested that customers on
prepayment metering be charged a flat rate. The company explained that a
single flat rate will address complaints from customers concerning the
interpretation of the vending receipts owing to the many lines and
complaints reflected on the receipts.
Umeme Limited however did not provide in its submission/application
sufficient information for the Authority to consider and make a decision. In
the absence of the requested information, the Authority rejected theproposal for a prepayment flat rate tariff.
10.1 TARIFF CODE FOR AGRICULTURAL PROCESSORS
In its application, Umeme Limited requested that the Authority considers
implementing a separate tariff code for customers engaged in agriculture
oriented processing.
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However, the information provided in Umeme Limited’s submission is not
sufficient for the Authority to consider and make a decision. Umeme
Limited was expected to provide more detail in respect to; which
customers will constitute this category, how the categorization will be
differentiated from the other categories, how many customers there are,
how much energy they consume, and how the risk of abuse will be
mitigated.
12 MACROECONOMIC ASSUMPTIONS
Key macroeconomic indicators that drive the tariff include the exchange
rate, domestic inflation (Consumer Price Index) and the US Producer Price
Index (PPI).
12.1 Exchange rate
The Uganda Shilling depreciated against the US Dollar between November
2014 and November 2015. The exchange rate as at end of November 2014
was Ush 2779.95/US$ compared to Ush 3,357.1/US$ at the end of
November 2015. The trend of the exchange rate for the period under
review is shown in Figure 2. This movement represents a 20.7%depreciation of the Shilling against the US Dollar as at end of November
2015.
The depreciation of the Uganda Shilling against the major currencies in
2015 is mainly attributed to foreign currency outflows for offshore
investments in Treasury Bills, Government Bonds and infrastructure
investments requirement especially for Karuma and Isimba hydro Power
plants.
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Figure 2: Movement of the Exchange Rate of the Uganda Shilling against
US Dollar for November 2014 to November 2015
12.2 Inflation
The annual Consumer Price Index (CPI) for the month ending November
2014 was 212.94 compared to 227.27 in November 2015. The annual
underlying inflation rate increased from 6.8% in November 2014 to 9.1% in
November 2015. This increment is largely attributed to imported inflation
arising from depreciation of the Uganda shilling amidst a tight monetary
policy regime exercised by Bank of Uganda in 2015.
Bank of Uganda continuously held a tight monetary policy by increasing the
Central Bank Rate (CBR) from 11% in November 2014 to 17% in October
2015.
12.3 Producer Price Index (PPI)
The US PPI increased marginally from 189.8 in November 2014 to 193.2 in
November 2015, representing a 1.79% increment. This was mainly
attributed to finished consumer goods and crude material.
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13 REVENUE REQUIREMENT AND RESULTANT TARIFFS
13.1 Revenue Requirement
As a result of the assumptions considered, the annualized revenue
requirement of Eskom Uganda Limited decreased from Ush 50,924 millionin 2015 to a base of Ush 47,826 million in 2016.
The annualized revenue requirement of UETCL (excluding the power
acquisition costs and dispatch stabilization fund) increased from Ush
94,125 million in 2015 to Ush 104,322 million in 2016. This is mainly on
account of the increase in the Rural Electrification Levy on account of
increase in Power purchase costs and adjustment for UETCL’s operations
and maintenance costs.
The annualized power acquisition costs (excluding the capacity payments
to all thermal generators) increased from Ush 838,744 million in 2015
(excluding claw back) to Ush 844,293 million in 2016. The increment is on
account of increased power purchase costs following the anticipated
dispatch from the thermal plants to meet the increased demand beyond
what the current renewable energy capacity can meet.
Umeme’s annualized revenue requirement(before reconciliations)
increases from Ush 440,026 million in 2015 to Ush 490,159 million in 2016,
mainly on account of the adjustment of the investments for 2012, and
2013 and adjustment of the Distribution Operation and Maintenance Costs
in 2016. The summary of the revenue requirement is shown in Table 20.
Table 20: Summary of Revenue Requirements
Other
power
purchas
es
Export
revenue
s
Total
Asset
related O&M Lease fee Total O&M
Levies &
Funds Total Total Total
Asset
related O&M Lease fee
USh mill USh mill USh mill USh mill USh mill USh mill USh mill USh mill USh mill USh mill USh mill USh mill USh mill
Q4 2015 50,924 10,962 30,218 9,744 94,125 59,551 34,573 838,744 58,417 440,026 291,752 141,149 7,125
Q1 2016 47,826 10,715 28,484 8,627 104,322 67,395 36,927 844,293 47,862 490,159 339,966 144,606 5,587
Eskom Generation Transmission Distribution
13.2 Resultant Tariffs
13.2.1 Capacity Price for Eskom Uganda Limited
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The Capacity Price as shown in Table 21 decreased from Ush 43,933 per
MW per hour in 2015 to Ush 41,085 per MW per hour in 2016. The
decrease is attributable to appreciation of the Uganda Shilling in the fourth
quarter of 2015. The Capacity Price has reduced despite the upward
revision of the UEGCL budget, increased investments that qualify for a
return by Eskom Uganda Limited, and adjustment of Generation Operation
and Maintenance Cost for Consumer Price Index.
Table 21: Capacity Price
Average Capacity
Price Total costs
Investment
component
Capital
recovery
charges
Return on
investment
Net
accumulated
investment
Income taxes
payable
O&M
compone
nt
USh-
portion of
O&M
US$-
portion of
O&M
Concessi
on fee
IN y, q CR y RT y NI y TX y OM y, q=1 LOM y, q EOM y, q LP y, q=1CP y.q USh mill USh mill US$ thous US$ thous US$ thous US$ thous Ush mill Ush mill Ush mill US$ thous
Ushs/ MWQ4 2015 43,933 50,924 10,962 883 1,479 12,328 634 30,218 16,538 11,178 9,744 Q1 2016 41,085 47,826 10,715 964 1,559 12,992 668 28,484 15,588 9,417 8,627
13.2.2 Bulk Supply Tariff (BST)
The annualized bulk supply costs increased from Ush 834,855 million
(excluding the claw back) in 2015 to Ush 935,464 million in 2016. The
expected bulk energy sales to Umeme excluding exports are projected at
3,253 GWh.
The resultant Base Bulk Supply Tariffs in 2016 increased to Ush 363.5/kWh,
Ush 279.6/kWh, and Ush 170.3/kWh at Peak, Shoulder and Off-peak
respectively, from Ush 319.8/kWh, Ush 266.5kWh, and Ush 197.7/kWh at
Peak, Shoulder and Off-peak for the respective Time of Use periods in Q4
2015, as shown in Table 22.
Table 22: Bulk Supply Costs and Resultant Bulk Supply Tariffs (BST)
Peak price
Shoulder
price
Off-peak
price
Sales to
distrib-
utors Total costs
Power
Purchase
Costs
Trans-
mission
costs
Total O&M
compone nt Othe r
USh/kWh USh/kWh USh/kWh GWh USh mill USh mill USh mill Ush mil l Ush mil l
Q4 2015 319.8 266.5 197.7 3,162 928,980 834,855 94,125 59,551 34,573
Q1 2016 363.5 279.6 170.3 3,353 1,033,511 929,189 104,322 67,395 36,927
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14 END USER TARIFFS
In accordance with the Amendment number two of the Umeme Limited
License for Supply of electricity, the retail tariff charges for electric service
shall be subject to and liable for automatic fuel cost charges, foreign
exchange rate fluctuation adjustment, and an inflation adjustment that will
be calculated in accordance with such formulae as determined by the
Authority. In 2014, the Authority approved a Quarterly Tariff Review
Methodology to be used in the computation of the tariff adjustments on a
quarterly basis.
The approved end-user tariffs for Q1 2016 are as shown in Table 23. The
Q1 2016 tariff will also be the 2016 base tariff on which the quarterlyadjustment factor shall be applied.
Table 23: APPROVED 2016 BASE ELECTRICITY END-USER TARIFFS
End-User Retail Electricity Tariffs (Shs/kWh)
Domestic Commercial
Medium
Industrial
Large
IndustrialStreet-
lightsWeightedaverage
Q4 2015 Approved Tariff 667.4 604.7 567.3 381.1 630.1 507.0
Tariff Adjustment Factors (Shs/kWh) for Q1 2016
Q1 2016 651.0 587.0 544.9 369.4 628.4 491.7
Percentage decrease -2.5% -2.9% -4.0% -3.1% -0.3% -3.0%
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2016 Q1Base
Capacity fee 41,085 Shs/MW per hour
Peak Shoulder Off-peak
BST 363.5 279.6 170.3 Shs/kWh
Code 10.1
Code
10.2/10.3
Code
20
Code
30
Code
40
Code
50
Domestic Commercial
Medium
Industrial
Large
Industrial
Tx large
Industrial Street-lights
Standing & max demand charges
Monthly fee 3,360 3,360 22,400 70,000 81,200 -
Max demand 1 16,644 11,096
Max demand 2 5,548
Power supply (Shs/kWh)
Average 391.7 344.00 347.03 320.84 329.4 350.7
Peak 448.8 447.7 425.2 429.8
Shoulder 345.2 344.4 327.1 330.6
Off-peak 210.3 209.8 199.2 201.4
Distrib charge (Shs/kWh)
Average 257.3 241.3 196.0 47.5 75.8 275.9
Peak 313.7 254.8 61.7 98.5
Shoulder 241.3 196.0 47.5 75.8
Off-peak 151.28 110.45 32.73 47.35
Tariff relief
Government tariff relief - - - - - -
Generation levy
Generation levy 2.0 1.7 1.8 1.1 1.2 1.8
Total energy tariff (Shs/kWh)
Average 651.0 587.0 544.9 369.4 628.4
Peak 764.2 704.4 488.0 529.5
Shoulder 588.3 542.2 375.7 407.6
Off-peak 363.3 322.1 233.1 249.9
ISSUED BY MANAGEMENT
DECEMBER 2015