Partially Unbundled with Private Sector Participation
The Egyptian Electric Utility and Consumer Protection Regulatory Authority (EgyptERA) was established by Presidential Decree No. 326 of 1997 and amended by Resolution No. 339 of 2000 to reorganize the Electricity Regulatory Agency. The law was further amended by the Electricity Law (Law No. 87 of 2015), to allow private sector participation, regulate the sector and also with specific objectives of protecting the interests of consumers. As an entity established by law, EgyptERA has strong credibility, which has a positive impact on investor and consumer confidence.
Clarity of Roles and Objectives
EgyptERA’s regulatory functions are set out clearly in the primary legislation, Electricity Law (Law No.87 of 2015), that established it. Secondary legislations, license conditions and other regulatory instruments detail the obligations of regulated utilities. This eliminates overlaps in roles and ambiguities in the obligations of entities.
EgyptERA maintains a substantial level of “arm’s-length” independence from government. The sector minister, with cabinet approval appoints persons who are qualified to sit on the authority’s board for a tenure of 2-4 years, renewable once. There is no provision for staggering the terms of commissioners to ensure knowledge transfer and continuity. The Executive appoints the CEO of EgyptERA. The criteria for dismissing agency head/board members during their terms in office is published and it’s only the Prime Minister who has the power to dismiss the CEO or board members. The majority of EgyptERA permanent staff are recruited through a competitive process. The Egyptian labour law prohibits the commissioners from holding other offices in government within the energy sector during their tenure in office. The Presidential decree No. 106 (2013) on conflict of interest prohibits the CEO from holding other offices within the energy sector during their tenure in office.
EgyptERA rates low with respect to independence from stakeholders. Although there are laws that prohibit the CEO/Commissioners from having interests in the regulated utility, there are no restrictions on the appointment of former staff of the regulated entities as commissioners or CEO of the regulatory authority. The CEO/board members are prohibited, from having any personal interest in the regulated utility during their respective terms. Board members and the CEO are also not prohibited from accepting employment in the regulated utility after the end of their respective terms in office.
EgyptERA’s rating in decision making independence is high. The regulator is the final decision maker on issuing and amending licences and resolution of disputes between regulated entities and their customers. EgyptERA is however required to consult the public, and stakeholders before taking regulatory decisions. The regulator makes recommendations on tariffs to the Prime Minister for approval and final decisions of the regulator on disputes is binding. Furthermore, the executive arm of government cannot overturn regulatory decisions of the regulator.
EgyptERA relies on fees levied on regulated utilities, license/certification fees, penalty fees and government budgetary allocation and is rated medium on financial independence. Government and the regulatory board determine the salary levels of regulatory staff which is said to be equal to the levels of utility staff. This enables the authority to attract, maintain and retain qualified staff and prevents poaching by the utilities of its qualified and well trained staff. Parliamentary approval of the level of fees will help reduce arbitrariness and executive influence.
ERA maintains a substantial level of regulatory development with regard to accountability to sector stakeholders. The authority reports to the Prime Minister and has a legal obligation to produce annual reports on its activities, which it presents to the sector minister and the Prime Minister. Regulated utilities may challenge EgyptERA’s regulatory decisions but this is done through the normal judicial system, which could be laborious and time consuming.
EgyptERA rates high in transparency, as the public has immediate on-line access to key regulatory documents like license procedures and tariffs from the regulator’s website. All major regulatory decisions taken by the regulatory agency and the rationale/reasons behind them are also published. The publication of major regulatory decisions and the reasons behind them is mandatory.
EgyptERA rates substantial in predictability. It has a documented tariff methodology, published in 2016, which can be changed by ministerial decision or by cabinet decree in consultation with the regulator. The methodology sets out the procedures for major tariff reviews. EgyptERA has a documented and published procedure for obtaining licences. Applicants are provided updates on the status of their licence applications from time to time. Key regulatory documents like licenses, contracts and authorizations may be modified by both regulatory and ministerial actions.
EgyptERA rates substantial in stakeholder participation in regulatory decisions. Stakeholder consultation is mandatory under the Electricity Law 87 (2015). The law provides for consultation with utilities, consumers, civil society organizations (CSOs), government through public hearings, ad-hoc meetings and submission of written comments. The regulator takes into account stakeholders inputs and responses received during the consultations in arriving at regulatory decisions and provides feedback on comments received from stakeholders.
Open Access to Information
EgyptERA is rated high in openness to the public with information. The authority has a public website www.egyptera.org which carries information on all regulatory procedures, regulations/codes, tariff methodologies and tariffs.
Economic Regulation -Tariff Setting
EgyptERA is rated high in the development of its economic regulation framework. It has developed a well-documented tariff setting methodology, which includes a schedule for major tariff reviews, a written formula that prescribes how end-user tariff levels must be set and an automatic tariff adjustment mechanism. The regulator has developed a model regulatory accounting framework for tariff applications, which includes mechanisms to compensate generators for ancillary services and for stranded assets. A drawback is that there is no requirement for the utility to seek regulatory approval prior to making major investments. EgyptERA has developed a network connection policy as part of the tariff methodology. The tariff setting regulations avoid passing on inefficient costs to consumers. Utilities are required to submit financial information according to regulatory accounting standards. A recent (less than 5 years) study on the cost of service has been carried out and the current tariff level is reported to be cost-reflective. A lifeline block, connection subsidy, cross-subsidy and capital subsidy from government are tariff mechanisms adopted to make tariffs affordable to support low-income consumers, the poor and vulnerable. Utilities receive direct subsidy payments from the government to support operation and maintenance activities.
Technical Regulation - Quality of Service
EgyptERA is rated high in its technical regulation framework. It has developed quality of service regulations for monitoring the performance of the regulated utility regarding technical performance, quality of service performance, grid connection and access to technical requirements. A grid code and distribution code have been developed and are being implemented. Fines are however not imposed on utilities who fail to meet quality of service standards such as System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) and which also include time-based service provisions such as the time taken by the utility company to respond to a customer request for a new connection, and the time for the actual connection to be made. The regulator collects utility performance data and reports from the utilities during annual renewal of licences and conducts performance assessments of the quality of service which it discusses with the utility.
The regulator receives a rating of medium for the licensing framework and guidelines for the electricity sector that it has developed. This is for only grid-connected systems and there is no simplified and light-handed licensing framework and procedure for off-grid and small sized systems.
EgyptERA has adequate qualified and experienced staff to deal with all regulatory issues, including tariff modelling and engineering analysis.
Renewable Energy Development
EgyptERA is rated high for its renewable energy (RE) development framework. There is a renewable energy policy and regulations that provide a legal framework for renewable energy development. EgyptERA is in charge of renewable energy regulation but the New and Renewable Energy Development and Usage Authority, established by Law No. 102 (1986) implements RE projects. The Supreme Energy Council is the specialized agency responsible for the formulation, development and implementation of a renewable energy strategy. There is a provision for technology specific tariffs under the RE framework. Electricity generated from renewable energy sources is dispatched in base mode and there are technology specific model contracts or PPA for different technologies. The grid code guarantees access to the grid for RE. Net metering regulations has been approved in 2020.
Mini-Grid and Off-Grid Systems
The framework for mini-grid and off-grid systems is rated high. An integrated plan for national electrification, including mini-grid development has been completed and is being implemented. No capital subsidies or tax waivers are available but connection codes are in place to govern the development of mini-grids and stand-alone systems. There are regulatory policies that clarify the arrangements for the transfer of asset ownership and on-going operation and maintenance when the national grid envelopes a privately owned mini-grid system.
The regulator has developed technical/quality standards for mini-grids and stand-alone systems and connection codes specifying technical standards for connecting mini-grids to the national grid. There are no mini-grid specific licensing/registration regulations, under which installers of mini-grids under a certain capacity are exempt from licensing. A licensing or certification scheme ensures that autonomous/individual home system installers are licensed or certified. Mini-grids may sell their excess electricity into the grid when the grid encompasses the mini-grid.
Energy Efficiency Development
The level of development of the regulatory framework for energy efficiency is rated high. There is a policy aimed at improving the scale and scope of energy efficiency adoption. The Egypt Strategic Vision 2030, NEEAP 2018/2021 and Electricity Law 87/2015 provide legal and operational backing. Targets have been set at the national level to reduce network losses (technical and commercial) as part of tariff setting targets given to licensed companies. “The Promising Plan” is being implemented by the electricity sector to enhance network characteristics and reduce losses. Licensees are also required to identify and implement loss reduction investments for approval by the regulator. EgyptERA is responsible for energy efficiency regulation and the Supreme Energy Council is responsible for the formulation and development of energy efficiency strategy. EgyptERA organises training programs for Energy Managers and Engineers from Distribution Companies to enable them to implement free Energy Audits for consumers. Minimum energy performance standards (MEPS) and a labelling scheme have been established for major household appliances and importers are required to comply. Fines are imposed on defaulting importers. The Ministry of Housing and Ministry of Electricity are responsible for the implementation of “The Egyptian Code for Energy Efficiency Improvements in Buildings” which provides for cooling standards of buildings.
Financial Performance and Competitiveness
The development of the regulatory framework for the financial performance and competitiveness of the utility is rated substantial from the perspective of the utility. A cost-of-service study been carried out on the Utility’s operations within the last 5 years by the Regulator and the results are being applied in tariff determination. The actual rate of collection of bills is 71-99% but the collection rate is not factored into the tariffs. The actual loss level (technical and non-technical losses) was 22.15% in 2019/2020 and there is no reduction target although at the prevailing loss levels and collection rate, the utility is not covering its total cost through the tariffs set by the Regulator.
A mechanism to cover costs that are not recovered through the tariffs has been put in place and includes, reducing the size of employment, reducing the technical and non-technical losses to acceptable rates and granting some distribution employees the status of judicial seizure to control thefts. The current level of the average end-user tariff set by the regulator is reported to be in accordance with the utility’s prudent costs of operation.
The regulator approves all Power Purchase Agreements (PPAs), before signature and price adjustment clauses in the PPA are recognized for tariff adjustments. The regulatory authority has formulated a transparent procedure/process for reviewing the end-user tariffs level and follows this procedure for tariff reviews. The last major tariff review was in June 2020, followed by a minor adjustment in July 2020. Fines and penalties against electricity theft are included in the provisions of Law No. 87 of 2015 and the interpretative rules are issued by EgyptERA
There is a predictable mechanism used by the regulator to disallow costs considered unreasonably incurred by the utility and this is administered through the principles laid down to calculate the cost of producing, transmitting and distributing electricity. The government provides funds for rural electrification in the country but the regulator does not make a provision in the tariff for government investment in rural electrification. This arrangement may not be sustainable as government will be expected to always provide funds for maintenance.
Quality of Service Delivery (Commercial and Technical)
The level of development of the quality of service delivery by the utility is rated low. A Quality-of-Service Code to guide the operations of the Utility developed by the regulator is in force. The Utility undertakes periodic technical audits or a valuation of its facilities/assets to establish the true state of the facilities in accordance with the established regulatory requirements. It is a regulatory requirement for the Utility to publish its System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) which the utility discusses with the regulator. However there are no regulatory ceilings and the indicators are neither factored in the tariffs or sanctions imposed. Time for utility company to respond to customer request for new connection, response time to customer complaints are some of the areas of customer service with respect to connections and service delivery that are also covered in the Quality of Service code.
Facilitating Electricity Access
Egypt has achieved 100% electrification since 2016. There are regulatory mechanisms in place with regards to electricity connections, including ceilings on the number of days to provide electricity connection to a customer after making payments. The waiting period is 29 days for residential and commercial consumers and 45 days for industrial consumers.
The regulatory law should be amended, or secondary legislations developed to make provision for:
- Staggering of terms of commissioners to ensure maintenance of institutional memory and knowledge transfer;
- The Regulator to report directly to parliament not the Mnister;
- Parliament to approve the level of the annual regulatory fees and levies charged by the regulator rather than the regulatory board.
- Setting salaries of regulatory staff by the board of the regulatory authority and to be based on utility salary scale.
Establish regulatory ceilings on SAIDI and SAIFI and either factor into tariffs or impose sanctions if ceiling is exceeded.