Vertically Integrated with Private Sector Participation.
The Electricity Regulatory function of RURA was established by Law N°21/2011 of 23/06/2011 and modified by Law n ° 52/2018 of 13/08/2018. The establishment of RURA by an act of the legislature enhances its credibility and this impacts positively on investor and consumer confidence.
Clarity of Roles and Objectives
RURA’s regulatory functions and the obligations of regulated utilities are clearly set out in the primary legislation and licence conditions. RURA also provides input towards formulating policy decisions for the electricity sector.
RURA maintains a substantial “arms-length” relationship with government. Although the RURA board has institutional representation as specified by law, and the Vice-Chairperson is elected by the board members, the requirement for the members of the board to be appointed by presidential order for a two to four-year term, renewable once, limits the full independence from government. The terms of board members are staggered to ensure institutional memory and transfer of knowledge to new commissioners. The Director General is appointed for 5 years, renewable once.
RURA maintains a high level of stakeholder independence. Provisions in the act prohibit the CEO and commissioners from accepting appointments in the utility during and immediately after their terms of office. A cooling-off period of between one and two years is required but the cooling-off period.
RURA rates high in decision-making independence. The executive cannot, by law, overturn regulatory decisions of RURA, impacts positively on investor confidence. The regulator is the final decision maker for tariff approval and issuing and amending licenses while playing an advisory role in dispute resolution.
RURA applies fees and levies to fund its operations and approve its own budget, thereby scoring a substantial level of financial independence. The regulatory staff salaries are based on the utility’s rates and higher than the utility’s and this enhances the ability of the regulator to hire and retain qualified staff.
RURA is rated medium in the measure of accountability. The law requires RURA to produce and present an annual report of its operations to the Prime Minister, and the report is published on its website. Regulatory decisions may be challenged through the usual judiciary system which may cause delays and undermine investor confidence.
RURA receives a high rating for transparency of decision making, The regulator publishes the rationale behind all its decisions and makes it accessible to the public online.
The level of development of the regulatory framework with respect to predictability is high. The regulator has developed a well elaborated tariff methodology. Although it is not formally adopted, there is a predictable mechanism used by the regulator to disallow costs considered unreasonably incurred by a regulated entity. RURA has documented procedures for securing licences with timelines, which is published. A drawback is that key regulatory documents such as licenses, contracts, authorizations, quality of service indicators may be modified only by regulatory decision, which may be affected by arbitrariness.
RURA rates substantial in stakeholder participation. There is a clear mechanism for stakeholder involvement in the regulatory decision-making process. Stakeholder consultation is mandatory and is solicited through public hearings, ad-hoc meetings with stakeholders, and submission of written comments. RURA provides feedback on comments received from stakeholders.
Open Access to Information
RURA has a public website www.rura.rw and rates high on open access to information. All key regulatory documents and information are made accessible online.
Economic Regulation – Tariff Setting
There is a substantial level of development in economic regulation. The regulator has conducted a study on the utility’s cost of service and has developed a well-documented tariff-setting methodology, which includes a formula for determining end-user tariffs, a schedule for major tariff reviews and an automatic tariff adjustment mechanism. The tariffs are reported to be cost reflective. There are regulatory mechanisms to compensate generators for the provision of ancillary services and for the cost of stranded assets. The utility is required to seek approval from the regulator prior to making major investments to ensure that investments are made only when it is needed to avoid unplanned tariff escalations.
A cross-subsidy scheme exists to protect low-income consumers through payments by a class of residential consumers. The government provides subsidies to the utilities but this may affect the cost reflectivity of the tariffs. The development and implementation of a model regulatory accounting framework for use by the utility in tariff application, will be beneficial to the power sector.
Technical Regulation – Quality of Service
RURA is rated high for its quality-of-service regulatory framework. The regulator has developed a Quality of Service code and other appropriate codes for monitoring technical performance, quality of service performance, grid connection and access to technical requirements. Fines are imposed on utilities that fail to meet quality of service standards. However, the regulator has not undertaken a comprehensive analysis on the utility’s commercial quality performance. It undertakes compliance audits in sampled areas, and it discusses the results of the analysis with the regulated utility. A Grid Code and Distribution code were adopted in 2013. Utility revenue requirements are linked to the performance of the utility including SAIDI and SAIFI and the revenues are affected if set targets are not achieved. The regulator also monitors other quality of service performance measures including for example, the time for new connections (from receipt of request, payment, etc),and response time to customer complaints.
There is a high level of development of the licensing framework covering both grid-connected and off-grid systems. This guides potential investors interested in entering the electricity market. It covers both grid and off-grid systems.
There is a substantial level of human capacity to deal with all the regulatory functions of the RURA, as the organisation has consistently made efforts to train their staff.
Renewable Energy Development
There is a substantial level of regulatory development for renewable energy. The electricity regulator is in charge of renewable energy regulation. The Rwanda Development Board, the institution in charge of promoting investment, has been leading power purchase agreement negotiations between independent power producers and the utility. RURA, as the regulator, then approves the negotiated prices. The electricity law allows the installation of systems with capacity below 50kW for consumption without license. A mechanism for registration of such systems is essential to enable the regulator to monitor the locations and cumulative generation capacity of such systems. This is to enhance planning, system reliability and avoid unnecessary redundancies.
Mini-Grid and Off-Grid Systems
There is a high level of regulatory development for mini-grid and stand-alone systems – both grid-connected and off-grid. There are clear arrangements in terms of technical and quality standards and incentives. There is also a licensing or certification scheme under which installers are licensed or certified. This ensures high technical standards and safety of installations. The government provides loans to mini-grid developers at low interest rates through Rwanda Development Bank and development partners provide performance based incentives of up to 70% of capital cost and technical assistance.
Energy Efficiency Development
There is a substantial level of energy efficiency development as enshrined in the Energy Efficiency policy, legislation and action plan. The regulator is in charge of energy efficiency regulation and uses tools such as minimum energy performance standards (MEPS), building codes and energy efficiency targets for the utility. Financial incentives are available and an energy efficiency target for achieving network loss reduction of 1% every year is expected to achieve the planned target of 15% by 2024 as per Energy sector strategic plan.
Financial Performance and Competitiveness
From the perspective of the utility, there is a medium level of regulatory development for financial performance and competitiveness of the utility. According to the respondent, the utility has carried out a cost-of-service study, but the report and findings have not been approved by the regulator. This position could affect tariff determination and undermine the financial integrity of the utility. A loss level of 19.39% and a collection rate of more than 90% are factored in the tariffs. A glide path of 1% loss reduction per annum has been agreed with the regulator. A mechanism to deal with electricity theft is yet to be developed by the regulator but the quality of service regulations require the licensee to read and physically inspect meters at regular intervals to avoid or minimize electricity theft and ensure that billing is done based on actual energy consumption. It provides the utility with rights to access and inspect the meter if theft is suspected. Meter tampering is an offence under the law, which also allows the licensee to disconnect and prosecute the customer if the latter has tampered with or has bypassed the utility’s meter or equipment. The regulator sets annual targets for the utility and these are imbedded in the tariffs. If the utility does not achieve the targets, it will not be able to achieve the revenue requirements set by the regulator. The regulator does not have a predictable mechanism to disallow costs that may be considered unreasonable, such as costs incurred by the utility as a result of non-transparent procurement practices.
Quality of Service Delivery (Commercial and Technical)
There is low level of development of the regulatory framework on quality-of-service delivery by the utility. There appears to be a disconnect between the utility and the regulator on the quality of service delivery performance monitoring and reporting. The utility collects important data on indicators like the System Average Interruption Duration Index (SAIDI) and the System Average Interruption Frequency Index (SAIFI) which are discussed with the regulator, although there are no regulatory ceilings for the indicators and no sanctions are imposed if the ceilings are exceeded. It is not a regulatory requirement for the Utility to undertake periodic technical audits or a valuation of its facilities/assets to establish the true state of the facilities. Under such circumstances, critical equipment replacements schedules may be missed, leading to outages and possible system collapse. The utility does report on other areas of quality of service performance; including time for connections, management of customer complaints, etc.
Facilitating Electricity Access
The rating is low for the level of development of the regulatory framework for facilitating electricity access. According to the respondent, the government provides funds for rural electrification but the investment is not taken into consideration in tariff determination. There are no ceilings set by legislation on the number of days it should take to provide electricity connection to a customer after the customer makes payment.
The regulatory law should be amended, or secondary legislations developed to make provision for the following:
- Removing any ability of the executive to overturn regulatory decisions of RURA and ensuring that there are alternative and independent sources of funds for the regulator such as levies and license fees to wean the regulator off government subventions.
- Parliament to approve the level of the annual regulatory fees and levies charged by the regulator.
The law should be amended or secondary legislation passed to ensure that modification of regulatory documents are made in consultation with regulated entities and stakeholders.
The regulatory law should be amended, or secondary legislations developed to make provision for the following:
- Creating specialized and independent bodies outside the regulator and the standard court system for aggrieved regulated entities to contest regulatory decisions.
- Regulator to send annual reports directly to parliament for scrutiny.
RURA should set and enforce ceilings on SAIDI and SAIFI as key quality of service indicators. It should conduct a consumer satisfaction survey at least every two years to track the level of quality-of-service delivery by the utility and identify areas for improvement.
The regulator should conduct a cost-of-service survey and update this survey regularly. This will better provide an indication of the true cost of service for tariff setting.