Putting Power In Perspective

THE Electricity Control Board (ECB) wishes to respond to a letter by one of your readers (Mr Peter Koep) which appeared in The Namibian of October 10 2006 on the Electricity Control Board (ECB).

There appears to be some misunderstanding regarding the role of the ECB and we feel it necessary to place this in perspective. Electricity supply and pricing by municipalities (and actually all electricity suppliers) have, since 1922, been subject to Government control.The reason for this is that electricity is a strategic resource and as such plays a vital role in the economy.Much of the industrial and commercial sector is situated within local authority areas and thus, among other reasons, the inclusion of local authorities in price regulation.The ECB has been established as a regulator in the electricity industry for the main reasons – (1) that this industry is a monopoly and that monopolies can abuse their position in the market; and (2) to ensure an affordable and a sustainable service through tariff regulation.Regulators in market sectors are not unusual and we find many examples in Namibia.Monopolies can charge the customer any price they wish and provide poor service in return.The customer has no choice in selecting another supplier and thus must either accept high prices and poor service or no electricity at all.For many local authorities electricity has always been a “cash cow” used to obtain additional income to subsidise other necessary non-remunerative services.The ECB understands that this is necessary, otherwise local authorities will not be able to survive.However, the ECB has a statutory obligation to ensure that this additional income is reasonable and is not abused to the detriment of the electricity consumer and the Namibian economy.Mr Koep cannot on the one hand applaud a local authority for taking an independent stance while on the other hand not agreeing that it charges electricity tariffs to which it is not entitled.If Mr Koep applauds entities asserting their “independence” through possible non-adherence to the laws of Namibia, we wonder if he will still be doing so when, for example, the local authority discontinues his electricity supply due to a three-year outstanding parking fine or if it triples his electricity rates in order to subsidise uncollected electricity tariffs.In the absence of regulation, a local authority would be entitled to do so.Also, if there is no body which regulates tariffs then one can’t say the City of Windhoek is charging what it is “not entitled to” since there would be no principle of cost reflectivity and nobody would have in any case made a decision as to what it may charge.Mention is made by Mr Koep of various Electricity Boards.We do not understand this reference since there is only one Electricity Control Board.With the current electricity supply crisis experienced (there is not sufficient electricity being generated in the region to satisfy demand) increasing emphasis is placed on attracting foreign investment in the Namibian electricity generation sector.A typical example is the Kudu Gas Project.Namibia is in dire need of additional generation capacity and foreign investment is a prerequisite, as projects of these magnitudes (we are talking about billions of N$) cannot be funded wholly internally.No investor will invest in the power sector of a country where there is not an independent regulator to regulate electricity pricing and supply, since such investor would expose itself to various risks such as arbitrary political tariff decisions and operating in an unregulated environment.The ECB must ensure that tariffs are affordable and sustainable.This means the customer should pay a cost-reflective price (i.e.what it actually cost to bring the electricity to him/her) in order to ensure that an electricity business remains sustainable.Very high prices exploit the consumer.Very low electricity prices, on the other hand, will mean in the long term that the price cannot pay for the service and result in inability to pay the supplier (NamPower or Eskom for example) and ultimately disconnection leaving the whole of the local authority (even those who have paid for their electricity) without power.We have already seen this happening time and again in various towns in Namibia.Just imagine if NamPower had to disconnect the City of Windhoek due to the fact that they cannot pay their account! Mr Koep pertinently asks what the consumer is getting out of the exchange – let’s answer him: Affordable tariffs are in the consumer’s interest.The ECB follows a detailed, consulted and scientific tariff calculation in order to balance the interest of the consumer against the interest of the supplier to make a profit out of his/her business.In this regard, the ECB has since 2000 “saved” the consumer hundreds of millions through approval of reasonable tariffs and not the higher tariff applied for.(But for the ECB this money would have gone into the pockets of electricity suppliers.) This is significantly more than its income from its electricity levy.As regards the latter, the ECB receives, since 2001, 0.45 cents per unit of electricity which is less than half a cent and this levy has not been increased since its introduction in 2001.It should also be noted that this levy is on electricity and not on the taxpayer.The concept of regulation is not some foreign concept imposed by the vision of foreign consultants.As pointed out earlier electricity tariffs have been regulated in Namibia since 1922 but with the establishment of the ECB tariff regulation is now done by an independent regulator in accordance with a sound and accepted methodology.Extensive studies were done and culminated in the Energy White Paper.The following Energy Policy Statements are contained in the White Paper: Government will introduce an institutional system, with both regulatory and policy making functions, to monitor and regulate electricity price developments.Electricity tariff structures and prices will be based on sound economic principles, generally and as a whole reflecting the long-run marginal cost of electricity supply.Government will implement a modern and appropriate legal and regulatory framework for the electricity sector through the Electricity Act and associated regulations, and the creation and resourcing of a competent Electricity Board to regulate the sector’s operations.Government will ensure that adequate protection of electricity end-users and licensees is established through the creation and resourcing of the Electricity Board to be established under the Electricity Act.As regards consultation, the Electricity Act 2000 was widely consulted and two public workshops were held to which all members of the public were invited.It is, unfortunately, impossible for the Government to consult directly with each of Namibia’s 2 million inhabitants.If a member of the public did not use the opportunity to attend these public workshops, he/she cannot complain that he/she was not consulted.We extend a warm invitation to Mr Koep to visit us at our offices in Bismarck Street so that we can explain to him the intricacies of electricity regulation and the functions of the ECB.Siseho C Simasiku Chief Executive Officer, ECBElectricity supply and pricing by municipalities (and actually all electricity suppliers) have, since 1922, been subject to Government control.The reason for this is that electricity is a strategic resource and as such plays a vital role in the economy.Much of the industrial and commercial sector is situated within local authority areas and thus, among other reasons, the inclusion of local authorities in price regulation.The ECB has been established as a regulator in the electricity industry for the main reasons – (1) that this industry is a monopoly and that monopolies can abuse their position in the market; and (2) to ensure an affordable and a sustainable service through tariff regulation.Regulators in market sectors are not unusual and we find many examples in Namibia.Monopolies can charge the customer any price they wish and provide poor service in return.The customer has no choice in selecting another supplier and thus must either accept high prices and poor service or no electricity at all.For many local authorities electricity has always been a “cash cow” used to obtain additional income to subsidise other necessary non-remunerative services.The ECB understands that this is necessary, otherwise local authorities will not be able to survive.However, the ECB has a statutory obligation to ensure that this additional income is reasonable and is not abused to the detriment of the electricity consumer and the Namibian economy.Mr Koep cannot on the one hand applaud a local authority for taking an independent stance while on the other hand not agreeing that it charges electricity tariffs to which it is not entitled.If Mr Koep applauds entities asserting their “independence” through possible non-adherence to the laws of Namibia, we wonder if he will still be doing so when, for example, the local authority discontinues his electricity supply due to a three-year outstanding parking fine or if it triples his electricity rates in order to subsidise uncollected electricity tariffs.In the absence of regulation, a local authority would be entitled to do so.Also, if there is no body which regulates tariffs then one can’t say the City of Windhoek is charging what it is “not entitled to” since there would be no principle of cost reflectivity and nobody would have in any case made a decision as to what it may charge.Mention is made by Mr Koep of various Electricity Boards.We do not understand this reference since there is only one Electricity Control Board.With the current electricity supply crisis experienced (there is not sufficient electricity being generated in the region to satisfy demand) increasing emphasis is placed on attracting foreign investment in the Namibian electricity generation sector.A typical example is the Kudu Gas Project.Namibia is in dire need of additional generation capacity and foreign investment is a prerequisite, as projects of these magnitudes (we are talking about billions of N$) cannot be funded wholly internally.No investor will invest in the power sector of a country where there is not an independent regulator to regulate electricity pricing and supply, since such investor would expose itself to various risks such as arbitrary political tariff decisions and operating in an unregulated environment.The ECB must ensure that tariffs are affordable and sustainable.This means the customer should pay a cost-reflective price (i.e.what it actually cost to bring the electricity to him/her) in order to ensure that an electricity business remains sustainable.Very high prices exploit the consumer.Very low electricity prices, on the other hand, will mean in the long term that the price cannot pay for the service and result in inability to pay the supplier (NamPower or Eskom for example) and ultimately disconnection leaving the whole of the local authority (even those who have paid for their electricity) without power.We have already seen this happening time and again in various towns in Namibia.Just imagine if NamPower had to disconnect the City of Windhoek due to the fact that they cannot pay their account! Mr Koep pertinently asks what the consumer is getting out of the exchange – let’s answer him: Affordable tariffs are in the consumer’s interest.The ECB follows a detailed, consulted and scientific tariff calculation in order to balance the interest of the consumer against the interest of the supplier to make a profit out of his/her business.In this regard, the ECB has since 2000 “saved” the consumer hundreds of millions through approval of reasonable tariffs and not the higher tariff applied for.(But for the ECB this money would have gone into the pockets of electricity suppliers.) This is significantly more than its income from its electricity levy.As regards the latter, the ECB receives, since 2001, 0.45 cents per unit of electricity which is less than half a cent and this levy has not been increased since its introduction in 2001.It should also be noted that this levy is on electricity and not on the taxpayer.The concept of regulation is not some foreign concept imposed by the vision of foreign consultants.As pointed out earlier electricity tariffs have been regulated in Namibia since 1922 but with the establishment of the ECB tariff regulation is now done by an independent regulator in accordance with a sound and accepted methodology.Extensive studies were done and culminated in the Energy White Paper.The following Energy Policy Statements are contained in the White Paper: Government will introduce an institutional system, with both regulatory and policy making functions, to monitor and regulate electricity price developments.Electricity tariff structures and prices will be based on sound economic principles, generally and as a whole reflecting the long-run marginal cost of electricity supply.Government will implement a modern and appropriate legal and regulatory framework for the electricity sector through the Electricity Act and associated regulations, and the creation and resourcing of a competent Electricity Board to regulate the sector’s operations.Government will ensure that adequate protection of electricity end-users and licensees is established through the creation and resourcing of the Electricity Board to be established under the Electricity Act.As regards consultation, the Electricity Act 2000 was widely consulted and two public workshops were held to which all members of the public were invited.It is, unfortunately, impossible for the Government to consult directly with each of Namibia’s 2 million inhabitants.If a member of the public did not use the opportunity to attend these public workshops, he/she cannot complain that he/she was not consulted.We extend a warm invitation to Mr Koep to visit us at our offices in Bismarck Street so that we can explain to him the intricacies of electricity regulation and the functions of the ECB.Siseho C Simasiku Chief Executive Officer, ECB