Power distribution company, the Electricity Company of Ghana (ECG), has submitted a proposal to the Public Utilities Regulatory Commission (PURC), seeking approval for the upward review of electricity tariff by 148% for this year.
For the subsequent years – from 2023 to 2026 – the ECG is seeking further approval of 7.6% tariff increase on its Distribution Service Charge (DSC) ie charge for distributing electricity to Ghanaian households.
ECG in its multi-year tariff review proposal for the period from 2022-2026, asserts the high tariff increase is attributable to the cost of investment projects, existing gap between actual cost recovery tariff and PURC approved tariffs and the effect of macroeconomic factors such as inflation and exchange rate.
According to the electricity distribution company, the current DSC of GHS 16.10/kWh is inadequate and has eroded the financial viability of the ECG which has had an adverse impact on the entire distribution sector.
It however believes that, with a DSC charge of GHS 39.95/kWh – that is the 148% increment – it will be able to recover actual cost of electricity distribution and remain financially viable.
Adding that, with the huge investment needs facing the distribution industry over the next five years, it is expected that the proposed tariff increases would inevitably be approved to sustain efficient and reliable electricity distribution service.
Some of the rationale/objectives underpinning ECG’s tariff revision include:
- To propose a full cost recovery tariff that incorporates the actual cost of generation, agreed cost of transmission and particularly the DSC1 which is expected to increase considerably and gain an equitable share of an approved EUT. Also, to propose minimal increases in DSC2 to support the proposed distribution losses for the 5-year tariff regime.
- To propose a gradual approach to achieve a cost of service allocation within the tariff structure to avert distortions in pricing signals to some customers and the dissatisfaction of other customers who may seek cheaper supply options. Efforts must be made to eventually attain a cost of service tariff allocation which eliminates cross-subsidization and promote a nondiscriminatory tariff.
- To propose the continuation of lifeline tariffs (exclusively 0-50 kWh) for residential customers and similarly introduce a defined threshold with a lower tariff for low-income commercial customers as the first block tariff for residential and non-residential customers respectively.
- To propose a two-band or block tariff for Non-Special Load Tariff (NSLT) customer groups. This is aimed at eliminating the multiple tariff bands or blocks associated with progressive tariffs. A two-band tariff rate design would be simple, easy to implement by all utilities and would be easily understood by end users.
- To propose the introduction of streetlight tariffs in the tariff structure to help account for the cost of streetlight consumption as the public light levy covers only about 30% of the actual cost of streetlight consumption.
- To propose the cost of reserve margin (18%) to be recovered in the tariff as this reserve margin capacity impacts the entire sector, its cost therefore needs to be considered in a manner that is appropriate for the entire sector.
- To propose the recovery of investment costs for projects completed, ongoing and planned for the five-year regulatory period.
Source: Norvanreports
