Unbundling PURC’s new power tariffs

The headline news the other day that the Public Utilities Regulatory Commission (PURC) had approved increases in the power and water tariffs over the next three years by 27.15 per cent and 21.55 per cent respectively, effective September 1, 2022, did quite understandably cause some stir in the public square.

Naturally, nobody takes delight in paying more for the consumption of anything, particularly in these trying economic times, so one would not expect clapping and handkerchief-waving over the revelation of this news.

Of course, from where I sit at the Ministry of Energy, my preoccupation with, and interest in this announcement lay in the power tariffs, with quite a considerable number of friends reinforcing this by forwarding the headline announcement to me and demanding answers to the power tariff increment.
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Background

It is important to note that the last major review of tariffs was done in 2018, which resulted in a 17.5 per cent reduction for residential and 30 per cent for non-residential users in electricity tariffs

This year, as it has always been, the PURC held extensive stakeholder consultation sessions, some of which I had the privilege of attending.

They were boisterous and vibrant sessions, with the utilities service providers, such as, the Electricity Company of Ghana (ECG), the Northern Electricity Development Company (NEDCo), the Volta River Authority (VRA) and the Ghana Grid Company (GRIDCo) forcefully making their case in glossy presentations for increases in their respective tariffs, and various bodies, including civil society organisations and industry representatives strongly underlining an almost rebellious ‘yentua’ (we won’t pay) position relative to the rates being demanded by these companies.

The palpable angst during these engagements was not difficult to figure out, for the requests by these companies were truly eye-popping and migraine-inducing.

Ghana Water Company Ltd (GWCL) was demanding over 300 per cent increase in end-user tariffs.

ECG and the NEDCo proposed 148 per cent and 113 per cent increases, respectively, whilst VRA and GRIDCo sought 37 per cent and 48 per cent increment, respectively.

Press release detail

When I took the trouble to read the press release announcing the tariff increases, I noted that 27.15 per cent increase in electricity that was being bandied about was in fact an average figure, and not that the rate was applicable across the board to all users.

This is for the simple reason that there are several categories of consumers and in some cases there had been increases, while other categories had seen a reduction, with no movement either way in certain cases.

As they say, the devil lies in the detail, and perhaps the more accurate position of an average increase of 27.15 per cent should have been the narrative.

While the lifeline band parameters have been redefined downwards to 0-30Kwh and residential consumers of all categories have seen upwards adjustments of their tariff rates and service charges of up to 36 per cent, non-residential consumers will have a different experience.

For instance, those within the 0-300Kwh band, which ropes in small businesses, such as tailoring shops, barbering salons, cold stores, welding and others will see a much lower rate of increase of five per cent.

It, therefore, makes practical business sense for a person who runs, say a tailoring or cold store business from home to register the business and get a non-residential meter for that part of the home from which he runs the tailoring business, thereby saving up to about 30 per cent in electricity bills.

Those in the medium band of non-residential consumers (301-600Kwh) actually get a reduction from 84.9097 Ghana pesewas per kilowatt hour to 89.1552 Ghana pesewas per kilowatt hour.

The high end (601+) will also experience a reduction from 133.9765 Ghana Pesewas per kilowatt hour to 133.0919 Ghana Pesewas per kilowatt hour.

The High Voltage mines sector will see no change in tariff for mining firms.

These details contained in the press release are interesting for the fact that non-residential customers will actually pay a lower rate of increase than residential customers, and in some cases will even get a reduced or static rate, which appears to mark an important turning point in policy direction terms.

It is the totality of these different adjustments that results in the average of 27.15 per cent increment.

PURC justification

The PURC, in its release, extensively sets out the basis on which it seeks to grant non-residential consumers such latitude in terms of its approved increases.

Perhaps it is important to quote the Commission extensively from the press release:

“The Commission gave considerable thought to the role of small and medium-scale enterprises in the country’s economic development, in particular, the creation and/or preservation of jobs and livelihoods.

“The existing tariff is structured in a manner that slaps industry with punitive tariffs in order to subsidise residential consumers of electricity.

This structure has contributed to loss of competitiveness of Ghanaian industry, including small and medium-sized household enterprises.

The implications for jobs and the general welfare of residential consumers is adverse and obvious.

“To address the challenge, for the first time, industry, including small and medium-scale business owners of hairdressing and beauty parlours/salons, barbering shops, tailoring and dressmaking shops, welding, mechanics, cold stores, chop bars, vulcanising and carpentry workshops, among others, will now pay lower tariffs than the residential consumer class.

“This is to address the high electricity cost for industrial customers, which has been repeatedly identified in the AGI Business Barometer as the key challenge affecting the competitiveness of Ghanaian industry in the global market place.

“The objective here is to support industry to expand and enhance its ability to generate decent employment.

“This tariff decision is a first step in a gradual process to invert the tariff structure over the next few years in support of the industrialisation programme of government.”

Future

According to the African Center for Energy Policy (ACEP), the inflation and exchange rate factors that fed into the PURC’s computation in arriving at its figures were unrealistically low and would only lead to major upward adjustments going forward as reality bites.

While Mr Kwadwo Poku of the Institute for Energy Policy and Research (INSTEPR) agrees that these indicators (among others) used by the PURC were on the lower side than what pertains now, he believes that the thinking of the PURC lies in the context of a three-year projection with automatic quarterly adjustments, and which, hopefully, could reflect in more stable prices if inflation and the exchange rate are brought under control and move into steadier waters away from the current turbulence.

Whichever way, it is not fun to pay considerably more for domestic power consumption, but if it means giving industry more space to help grow the economy, then perhaps it is worth bracing oneself for, even if through gritted teeth.

Regardless, I will certainly be keeping an eagle eye on my electricity meter at home and will take energy conservation more seriously. ??????Every little helps. ???

Rodney Nkrumah-Boateng, Head, Communications & Public Affairs Unit, Ministry of Energy. E-mail: rodboat@yahoo.com