LERC was established in 2015 by an act of parliament, the Electricity Law of Liberia, 2015. Having been established by law, LERC has enhanced credibility, and this has a positive impact on investor and consumer confidence.
Clarity of Roles
LERC’s regulatory functions are set out clearly in the primary legislation. The obligations of regulated utilities are set out in secondary legislations and license conditions. This eliminates overlaps in roles and ambiguities in the obligations of sector entities.
LERC maintains a substantial “arms’-length” relationship with government and stakeholders. The requirement that board members be appointed by presidential order for a renewable term of two to four years and board members in turn appoint the CEO, limits the full “arms-length” relationship required by the regulator to operate independent of the executive. However, the required approval of nominees by the Senate limits absolute executive control over the selection and appointments. The terms of the commissioners are also staggered to allow for institutional memory and transfer of knowledge to new commissioners.
LERC rates low with regards to independence from stakeholders. There are no provisions in the primary law that prohibit the chief executive and commissioners from accepting appointments in the utility during and immediately after their respective terms of office. They are also not prohibited from holding other offices in in government within the energy sector, during their tenure or from having personal interests in the utility during their terms in office.
LERC has a high rating on its decision-making independence. The executive cannot overturn regulatory decisions of LERC and the regulator is not required to seek approval from the executive on regulatory decision, it is required to consult the public and stakeholders and seek their views on regulatory decisions. LERC undertakes public consultation to engage with civil society and relevant ministries before taking regulatory decisions. LERC is the final decision maker on tariffs, licensing and dispute resolution among regulated entities and customers.
The financial independence of LERC is rated substantial. By allowing the board to determine and charge license fees, LERC maintains a substantial arm’s-length relationship with the executive, in terms of sources of funds. The regulatory fees and levies are approved by the Parliament. Due to the inadequacy of the license fees the regulator has increasingly relied on government budgetary allocation to make up for its funding requirement. The board determines the staff salary levels and this enables LERC to attract, maintain and retain qualified staff.
There is a high level of regulatory development in Accountability as LERC reports directly to Parliament. The legislation requires the regulator to attend parliamentary hearings, however, annual reports are prepared and presented to the Executive. A formal mechanism exists for regulated utilities or other parties to contest the regulatory decisions of the authority but only through the existing judicial system of the country. This could be a lengthy and frustrating process for investors.
Transparency of Decisions
LERC’s rating on transparency is high. The authority makes stakeholders aware of the factors that are considered for regulatory decision making. LERC publishes all regulatory decisions, including the explanations and rationale behind such decisions on its website.
There is a high level of predictability of the regulatory landscape. Although the formal tariff methodology is in final draft form, there is already a predictable mechanism used by the regulator to disallow costs considered unreasonably incurred by a regulated entity. The documented procedures and schedules for securing licenses is published on the regulator’s website. Key regulatory documents can only be changed with the involvement of regulated entities and stakeholders.
LERC is rated substantial in terms of stakeholders participation. In accordance with the law, LERC involves regulated utilities and other stakeholders in decision-making through public hearings, ad-hoc meetings and submissions of written comments. It considers stakeholders’ inputs and responses and provides feedback on comments received.
Open Access to Information
LERC is rated high with respect to access to information. LERC has a website www.lerc.gov.lr which contains all the regulatory documents, license application forms, annual reports.
Economic Regulation –Tariff Setting
LERC receives a rating of substantial for the level of development in the economic regulation framework. There is a documented approach which makes provisions for a schedule and procedure for major tariff reviews and a formula for setting end-user tariff levels. Major tariff reviews are to be implemented once every three years and supported by annual minor tariff reviews. The regulator has carried out a recent (less than five years) study on the cost-of-service. There are no regulatory mechanisms to compensate utilities for the provision of ancillary services and for stranded assets. A lifeline block, connection subsidy and capital subsidy from government are tariff mechanisms adopted to make tariffs affordable to support low-income consumers, the poor and the most vulnerable but the utility does not receive and direct payments from government. The potential negative impact of this arrangement is that it could negatively affect the utility’s finances and service performance.
Technical Regulation – Quality of Service
There is a low level of development in LERC’s technical regulation framework. The regulator has the legal mandate to develop rules, codes and quality of service regulations, which are currently in drafts. Quality of Service regulations are still under development as well as a transmission code and distribution code.
The development of the licensing framework is rated high. The licensing framework covers both grid and off-grid systems, covering detailed procedures and guidelines for license applications. There is a separate simplified and light-handed license framework or procedure for off-grid and small sized systems. It is noted that the existing national utility (LEC) is currently exempted from licensing and payment of license fees
LERC rates low in terms of the level of staff to deal with all the aspects of its regulatory functions. This includes the areas of economic and tariff analysis and utility performance analysis.
Renewable Energy Development
Regulatory development for renewable energy in Liberia is at a medium level. LERC is in charge of renewable energy regulation, while the Rural and Renewable Energy Agency (RREA) is responsible for the formulation, development and implementation of the renewable energy strategy, the national policy for renewable energy development is not supported by legislation and there are no targets. LERC has issued the Micro Utility Licensing Regulations that allows the private sector to participate in grid-connected renewable energy investments. However, technology-specific model contracts or power purchase agreements for different renewable energy technologies have not been developed. The are no rules or grid code to guarantee access to the grid. Priority is however given for the dispatch of least cost renewable energy.
Mini-Grid and Off-Grid Systems
There is a substantial level of development of mini-grid and off-grid systems in Liberia. There is the Rural Energy Strategy and Master Plan to support the development of mini-grid systems - an integrated plan that sets a least cost electrification pathway including grid, mini-grid and off-grid systems and clearly demarcating areas for each system. The regulator has developed the regulatory framework to deploy mini-grid systems. Mini-grid tariffs are based on detailed mini-grid tariff schedule issued by the regulator. There are already financial incentives, in the form of grants, to promote the development of mini grid and standalone systems. There are currently no technical standards and licensing/certification for installers of stand-alone and individual home systems.
Energy Efficiency Development
Energy efficiency is at a low level of development. There is an energy efficiency policy aimed at improving the scale and scope of energy efficiency adoption. A National Energy Efficiency Action Plan was adopted in September 2016 but the level of progress is not reported. Minimum energy performance standards (MEPS) are reported to have been developed for Refrigerators, HVAC equipment but there is no corresponding labelling scheme. There are no requirements for importers or manufacturers of electrical appliances to report on the efficiency levels of the appliances they deal in and heavy energy consuming industries are also not required to undertake periodic assessments of their energy consumption patterns with the aim of improving efficient energy utilisation. There is a building code monitored by the Ministry of Public Works.
Financial Performance and Competitiveness
From the perspective of the utility the level of regulatory development for financial performance and competitiveness of the utility is low. The regulator has carried out a cost-of-service study on the utility, but the findings and recommendations are yet to be implemented. This affects tariff determination and undermines the financial integrity of the utility, especially in the absence of a transition plan agreed between the regulator and utility to achieve cost-reflective tariffs. Coupled with that, there is a mismatch between the maximum electricity losses that are factored into tariff setting and the actual losses. The utility is concentrated on two primary areas to cover costs: reduce commercial losses and connect more large customers to the grid. With loss rates of over 60% and collection rates of between 75 and 85% and the fact that collection rates are not factored into tariffs, the tariff levels are not adequate for the utility. A mechanism to deal with electricity theft developed by the utility is not enough to deter electricity theft.
Quality of Service Delivery
There is a low level of regulatory development in quality-of-service delivery from the perspective of the utility, as QoS regulations have not been developed to guide the operations of the utility. Important indicators such as the Systems Average Interruption Duration Index (SAIDI) and the Systems Average Interruption Frequency Index (SAIFI) are not monitored by the regulator.
Facilitating Electricity Access
There is a low level of regulatory development in facilitating electricity access. This could be as a result of inadequate implementation of the policy on access to electricity as there are no regulatory mechanisms aimed at providing access to electricity. Funds for rural electrification are provided by the government, the utility and Civil Society Organizations (CSOs) but the cost incurred is not considered in tariffs.
The regulatory law should be amended, or secondary legislation enacted to make provision for the following:
- A cooling off period after the terms of office of the CEO and commissioners before they can accept employment in a regulated entity.
- Prohibition of the chief executive and commissioners from accepting appointments in the utility during and immediately after their respective terms of office, or which equally prohibit their having interests in the utility during their terms in office.
- Prohibition for the regulator CEO from holding other offices in the government during their tenure in office.
- Prohibition of the appointment of commissioners who were previously staff of a regulated company.
- Finalize, publish and deploy the formal tariff methodology.
- A network connection policy should be developed as part of the tariff methodology or as a separate document to address related issues of commercial access to the grid.
Finalize, publish and deploy the Quality of Service regulations, national transmission and distribution grid codes. This will guide technical access and operation of the interconnected grid.
The regulator should develop a legal framework to facilitate and guide the deployment of renewable energy systems. In addition, model technology-specific power purchase agreements should be developed for all renewable energy technologies and sizes of generation plants. This will guide investors and utilities in concluding their negotiations.
The regulator should develop technical requirements and standards for stand-alone systems and mini-grid development. The policy should allow the private sector to participate in mini-grid electrification with mechanisms for integration when the national grid encompasses a mini-grid.
Energy efficiency legislations should be developed, covering development and adoption of minimum energy performance standards and a labelling system for electrical equipment.
- The regulator should carry out an assessment on the quality-of- service performance of the utility to serve as the basis of quality of service code/ regulations that set ceilings on key quality of service indicators such as SAIDI and SAIFI to be enforced.
- The regulator should develop, in collaboration with the utility, a loss reduction target and action plan with incentives and penalties to systematically reduce system losses.
- A consumer satisfaction survey should be carried out at least every two years. This should also be done to track the level of quality-of-service delivery by the utility and identify potential areas for improvement.