Legal Mandate

LEWA was established by an act of parliament, the Electricity and Water Authority Act Number 12 of 2002. Having been established by law, it has the necessary credibility to inspire investor and consumer confidence.

Clarity of Roles

LEWA’s regulatory functions are set out clearly in the primary legislation that established it. The obligations of regulated utilities are set out in secondary legislations and license conditions. This eliminates overlaps in roles and ambiguities in the roles of sector entities.

Independence

LEWA maintains a substantial “arms’-length” relationship with government. Although there is no institutional representation on the board, the board chairperson and members are appointed by the executive for a renewable term of 2-4 years, renewable once. The CEO is also appointed by the executive. This limits the full “arms-length” relationship with government, required for the regulator to operate independently. The terms are staggered to ensure continuity and to allow for institutional memory and transfer of knowledge to new board members.

Independence from stakeholders is rated low. This is because there are no provisions in the law that prohibit the chief executive or board members from accepting employment in the utility after the end of their terms in office, even though it is prohibited for the CEO or a board member to have any personal interest in the utility or hold other public offices within the energy sector, while in office. Persons who have previously held positions in a regulated utility are also not prohibited to be appointed as commissioners.

Decision-making independence is rated high. There are no provisions in the regulatory law that allow the executive arm of government to overturn regulatory decisions of the authority. Regarding tariffs, the issuance and amendment of licenses and the resolution of disputes between companies on the one hand, and between companies and their customers on the other, LEWA’s decisions are final and legally binding. LEWA engages with the public through public consultation and liaison with relevant ministries before making regulatory decisions. The regulator does not need approval from the executive before taking regulatory decisions.

The financial independence of LEWA is rated substantial. By allowing the regulator to approve and charge fees and levies to fund its operations and approve its own budget, LEWA is independent financially in terms of sources and adequacy of its funds. This enables the authority to attract and retain qualified staff, who are recruited through competitive processes on fixed term contracts.

Accountability

LEWA is rated high in the measure of how accountable it is to stakeholders. It reports to Parliament through the sector minister and is required by law to produce and present annual reports on its operations to the executive. A formal mechanism exists for regulated utilities or other parties to challenge the regulatory decisions of the authority. A specialized body adjudicates over such disputes.

Transparency of Decisions

LEWA is rated high in transparency. All regulatory decisions taken by LEWA are accessible to the public through their website, www.lewa.org.. ls although the publication of regulatory documents and decisions is not mandatory under the law, LEWA publishes such decisions, including the rationale behind them.

Predictability

LEWA is rated high in predictability. It has documented tariff methodology, which may be changed only in consultation with regulated firms and stakeholders. The tariff methodology sets out procedures for major tariff reviews but does not clearly present a timetable or schedule for tariff reviews. It also has no automatic tariff adjustment or tariff indexation mechanism. There is a predictable mechanism used by the regulator to disallow costs considered unreasonably incurred by a regulated entity. LEWA also has published documented procedures for securing licences.

Participation

The level of development of the regulatory framework for stakeholder participation in LEWA is rated high. Stakeholder consultation is mandatory under the law. LEWA involves stakeholders in its decision-making process and publishes comments received during consultations as a summary of responses on its website. It takes the inputs and responses of stakeholders during the consultation process into consideration in making regulatory decisions, considers stakeholder inputs and provides feedback.

Open Access to Information

LEWA is rated substantial in open access to information. It has a website www.lewa.org. ls where it publishes all regulatory instruments, licensing procedures, annual reports and more.

Economic Regulation

The level of LEWA’s development of the regulatory framework for economic regulation is rated low. It has developed a tariff methodology, but it does not include a formula that prescribes how end-user tariff levels are to be set and also does not include a schedule for major tariff reviews. Furthermore, there is no automatic tariff adjustment or tariff indexation mechanism. As per best practice, the tariff-setting regulations avoid passing on inefficient costs to customers. The regulator requires regulated companies to submit financial information according to regulatory accounting standards. There are regulatory mechanisms to compensate generators for the provision of firm capacity or ancillary services. LEWA ensures that utilities are compensated for the costs of assets that are stranded as a result of changes in regulations. LEWA has carried out a recent study on the cost of service. A lifeline block, a connection subsidy, and a cross subsidy are tariff mechanisms adopted to make tariffs affordable.

Technical Regulation - Quality of Service

LEWA has a rating of medium for the quality-of-service regulatory framework. The authority has developed appropriate regulations, with the exception of a distribution code, to govern the quality-of-service performance of utilities. The performance indices include voltage, frequency, the Systems Average Interruption Duration Index (SAIDI) and the Systems Average Interruption Frequency Index (SAIFI) and handling of consumer complaints. Fines are not imposed on utilities that fail to meet quality of service standards. LEWA has not undertaken independent quality of service compliance audits on the regulated utility, but relies on the quality-of-service performance submissions by the utility. LEWA assesses these submissions, validates them, and communicates its findings to the utility, with recommendation for action.

Licensing Framework

LEWA’s level of development of the licensing framework is rated high. It covers both grid-connected sand off-grid systems and includes guidelines for application, and schedule of license fees, among other things. There is a simplified or light-handed license framework and procedure for off-grid and small sized systems.

Institutional Capacity

Institutional capacity development is rated low. The respondent indicated that LEWA has less than adequate qualified and experienced staff to perform its regulatory functions.

Renewable Energy Development

The level of development of Lesotho’s renewable energy (RE) framework is rated low. There are no policy document or legislation for RE development. There is also no framework that encourages the private sector to participate in grid-connected renewable energy investments. LEWA is in charge of renewable energy regulation and has developed rules (a grid code) that guarantee access to the grid for renewable energy, which is given priority for dispatch, based on least cost. The Renewable Energy Section under the Department of Energy is responsible for the formulation, development and implementation of renewable energy strategy. The regulator has not yet developed technology-specific model purchase power agreements for different renewable energy technologies. However, it has developed tariffs for different technologies and generation plant sizes.

Mini-Grid and Off-Grid Systems

The level of development of the mini-grid framework is rated substantial. An integrated plan that sets out a least cost electrification pathway, including mini-grid and off-grid systems demarcates clearly distinct areas for each system. There are regulatory policies that clarify the arrangements for transfer of asset ownership and/or ongoing operation and maintenance when the national grid encompasses a privately owned mini-grid system. Mini-grid energy cannot be sold into the grid although grants are available to promote their development. Mini grids of less than 100kW are exempted from licensing. Grants are available to support the development of stand-alone and individual home systems. There are quality standards for stand-alone and individual home systems. Autonomous and/or individual home system installers are either licensed or certified.

Energy Efficiency Development

The level of regulatory development of energy efficiency is rated low. There is neither an energy efficiency legislation nor specific energy efficiency target or action plan aimed at improving the scale and scope of energy efficiency adoption. LEWA is responsible for energy efficiency regulation, and the formulation, development and implementation of energy efficiency strategy is under the sector Ministry. There are no financing mechanisms and incentives for the development and implementation of energy efficiency projects. LEWA has not yet developed relevant building codes or minimum energy performance standards (MEPS) for appliances.

Financial Performance and Competitiveness

There is a low level of regulatory development for the financial performance and competitiveness of the utility. The regulator has carried out a cost-of-service study into the operations of the utility within the last five years. However, it is yet to implement all the recommendations. The regulator has formulated a transparent procedure for reviewing end user tariffs but does not always follow the schedule for major tariff reviews. With a maximum technical loss factored in the tariffs of between 12% and 15% and a collection rate of less than 50% of invoices, the utility is not covering its full cost of operation. A loss reduction target of 9-12% has been agreed between the regulator and the utility and a predictable mechanism is used to disallow costs, inefficiently incurred by the utility. In the absence of a regulatory mechanism, the utility has put in a mechanism to deal with electricity theft.

Quality of Service Delivery

The level of development for quality-of-service delivery is rated low. Quality of Service Regulations have been developed by the regulator to guide the operations of the utility, but it does not cover technical requirements for grid connection. However, it is a regulatory requirement for the utility to undertake periodic technical audits to establish the true state of the facilities. According to the conditions specified in the utility’s license, the utility is required to collect data on its SAIFI and SAIDI and discuss the reports with the regulator although there are no regulatory ceilings on SAIDI and SAIFI yet and they are not factored into tariff setting.

Facilitating Electricity Access

The level of development of the regulatory framework for electricity access is rated, low. There is an Electrification Access Fund in place for enhancing access to electricity and all consumers are levied to contribute to the Fund. There is no formal regulatory mechanisms to support electrification. A ceiling on the number of days it should take to provide an electricity connection to a customer after the customer makes payments is stated in law. Government provides funds for rural electrification, but no provision is made in the tariffs to recover the investment made by government.