ERA Annual Tariff Review Report 2016

7/23/2019 ERA Annual Tariff Review Report 2016

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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.



Page 19 of 41

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.



Page 20 of 41

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:-



Page 21 of 41

(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.



Page 22 of 41

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;-



Page 23 of 41

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%



Page 24 of 41

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.



Page 25 of 41

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.



Page 26 of 41

(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.



Page 27 of 41

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.



Page 28 of 41

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.



Page 29 of 41

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.



Page 30 of 41

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.



Page 31 of 41

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



Page 32 of 41

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;-



Page 34 of 41

(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



Page 35 of 41

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.



Page 36 of 41

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.



Page 37 of 41

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.



Page 38 of 41

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



Page 39 of 41

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



Page 40 of 41

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%



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

Documents

ERA Annual Tariff Review Report 2016