Vertically Integrated with Private Participation.
The Sierra Leone Electricity and Water Regulatory Commission (SLEWRC) regulates electricity and water. SLEWRC is a multi-sectoral regulatory institution established by an Act of Parliament, the Sierra Leone Electricity and Water Regulatory Commission Act No. 13 of 2011. As an institution established by law, SLEWRC has credibility, and this has a positive impact on investor and consumer confidence.
Clarity of Roles and Objectives
SLEWRC’s regulatory functions are set out clearly in the primary legislation that established it and in other regulations. The obligations of regulated utilities and their functions are spelt out in secondary legislations, license conditions and other related regulatory instruments. This eliminates overlaps in roles and ambiguities in the obligations of the entities.
SLWERC maintains a substantial “arms-length” relationship with government. The SLEWRC board has institutional representation, as specified by the law. Members of the board and the Chairperson are appointed by the President on the recommendations of sector ministers for a term of three years, renewable once. Although the Director General (DG) is appointed from among the board members by the board after consultations with the Public Services Commission, the appointment of the board by the executive limits the full independence required for the regulator to operate.
SLEWRC maintains a low level of stakeholder independence. The law does not prohibit the Director General (DG) or board members from holding other offices in government or private sector within the energy sector during their tenure. Neither the regulatory law nor any other law prohibits the DG or board members, from having any personal interest in the regulated electricity utility and there is also no provision in the law for a cooling-off period after the term of office of the DG or board members before they can accept employment in regulated entities. The lack of restrictions on the relationship with the industry could lead to conflict-of-interest situations.
SLEWRC rates as substantial in terms of decision making independence. The executive arm of government cannot overturn regulatory decisions of the regulator and neither does the regulator require approval from the executive on regulatory decisions. In accordance with best regulatory practice, there are provisions in the regulatory law that require the regulator to consult the public and stakeholders or seek the views other entities on regulatory decisions. The regulator is the final decision maker on tariffs and on issuing and amending licenses. While the regulator plays a facilitative role in resolving disputes between companies on the one hand, and between companies and their customers on the other, the regulator’s decision on disputes is final and binding.
By allowing the regulator to approve and charge fees and levies to fund parts of its operations with the approval of Parliament, SLWERC maintains substantial financial independence in terms of sources and adequacy of funds to enable it to attract, maintain and retain qualified staff. However, the government and the regulatory authority board are responsible for allocation of expenditures and they decide on the regulatory authority’s staff salary level which is based on public service salary scale.
SLEWRC maintains a high level of accountability with stakeholders. This is because it reports to parliament through the sector minister and is required to answer requests from parliamentary committees and attend hearings organized by them. SLEWRC has a legal obligation to produce annual reports on its activities, which is presented to Parliament for scrutiny. Regulated utilities may challenge the regulatory decisions of the authority through a specialized body thus avoiding a potential lengthy and cumbersome process using the normal judicial system.
SLEWRC maintains a high level rating for predictability. It has a documented tariff methodology, adopted in 2019, which sets out the procedures for tariff reviews. A predictable mechanism exists which is used by the regulator to disallow costs considered unreasonably incurred by a regulated entity. Although, it has not been changed for over five years, the methodology may only be changed in consultation with the regulated firms and stakeholders. The Electricity and Water Licencing rules, 2019 provides procedures for obtaining licences. Key regulatory documents such as licenses, contracts and authorizations may be modified by mutual agreement between parties to the regulatory instrument. A downside is that there is no timetable for major tariff reviews in the tariff methodology.
Economic Regulation – Tariff Setting
SLEWRC rates low on economic regulation. It has developed a well-documented tariff setting methodology, which includes a written formula that prescribes how end-user tariff levels are to be set. However, the methodology does not include a schedule for major tariff reviews or tariff indexation. End-user tariff-setting regulations avoid passing on inefficient costs to customers and the utility is required to seek approval prior to making any major investments.
There are no regulatory mechanisms that compensate generators for the provision of firm capacity or ancillary services, which could affect the reliability of the power system. Utilities are also not compensated for the cost of stranded assets. SLEWRC has not developed a network connection policy as part of its tariff methodology and has not carried out a recent study on the cost of service. The current tariff level is not cost-reflective. A lifeline block, cross-subsidy and capital subsidy from government are tariff policy mechanisms adopted to make tariffs affordable to support low-income consumers, the poor and vulnerable.
Technical Regulation – Quality of Service
The level of development of the technical regulation is rated as medium. SLEWRC has developed quality-of-service regulations to guide the operations of the utility. The regulations provide for monitoring the performance of the utilities regarding technical performance, quality of service performance, grid connection and access to technical requirements. An interim national transmission grid code for the inter-connected power system, developed in 2018 has been reviewed in 2020 but is yet to be approved. A distribution code has not yet been developed. No ceilings have been set for SAIDI and SAIFI and fines are not imposed on utilities based on their quality-of-service delivery. The regulator requires of the utility to provide information but does not publish performance assessment reports on the regulated utility companies. The regulator monitors the utility to address findings in the performance analysis through inspections of the utilities' infrastructure and reports. 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.
SLWERC is rated high on the development of its licensing framework having developed a licensing framework and guidelines for the electricity sector that covers both grid-connected systems and off-grid systems and contains procedures and guidelines for application, the approval process, license forms, and the format for the license. There is a simplified and light-handed license framework and procedure for off-grid and small sized systems.
SLEWRC is rated low on institutional capacity. It will require capacity building and strengthening to support its regulatory activities.
Renewable Energy (RE)Development
The renewable energy development framework is rated medium. Sierra Leone developed an RE policy in 2016 that was updated in 2019. SLEWRC is in charge of renewable energy regulation. The Renewable Energy Directorate of the Ministry of Energy is responsible for the formulation, development and implementation of the renewable energy strategy. The regulatory framework encourages the private sector to participate in grid-connected renewable energy investments. Electricity generated from renewable energy sources based on least cost is given priority for dispatch. The regulator has not yet developed technology-specific model contracts or power purchase agreements for different renewable energy technologies although the EWRC Tariff Rules, 2019 has provisions for different tariffs for different technologies and sizes of the generation plant.
Potential investors into the sector may directly solicit the Ministry of Energy (as off taker) and agree on a tariff in a power purchase agreement, which is then approved by the regulator. This practice reduces the authority of the regulator and limits its role to only approval of PPAs. Competitive bidding would be a better option for achieving best rates for renewable energy.This could be employed to increase the competitiveness of the sector.
Mini-Grid and Off-Grid Systems
SLWERC is rated high in the development of mini-grid and off-grid systems. The country is implementing the Rural Renewable Energy Project (RREP) a national program geared towards the development of grid connected mini grids. SLEWRC has developed mini-grid regulations, which clarify the arrangements for transfer of asset ownership and/or ongoing operation and maintenance when the national grid envelopes a privately owned mini-grid system. Fiscal incentives such as duty (and other tax) exemptions, capital subsidies and grants are available to promote the development of mini grids. Tariffs are based on cost of service instead of the end user tariff. Technical/quality standards for mini-grids and connection codes specifying technical standards for connecting mini-grid to the national grid have also been developed and are operational. The Mini-Grid Regulations provides two categories of licensing of mini-grids: Basic Mini-Grids (not more than 100 kW) and Full Mini- Grid (greater than 100 kW but less than 2 MW in aggregate). There is a national program for deployment of stand-alone systems. Although there are no quality standards for stand-alone and individual home systems, there is a licensing or certification requirement for autonomous/individual home system installers.
Energy Efficiency Development
The level of energy efficiency development is low. The National Energy Efficiency Policy of May 2016 is aimed at improving the scale and scope of Energy Efficiency adoption. Although , no energy efficiency target has been set for the power sector at the national level a Grid Loss Verification Project started in 2020 aims to identify losses in the power system, both technical and commercial, and develop a methodology to continually reduce the losses by monitoring the system. The Energy Directorate of the Ministry of Energy – instead of the regulator – is in charge of the system loss reduction program. There is no regulatory framework for energy efficiency as a whole in Sierra Leone. There are no financing mechanisms or incentives for energy efficiency. Minimum energy performance standards (MEPS) and labels have not been adopted for any appliance or equipment. A framework for energy efficiency needs to be developed and adopted for Sierra Leone as soon as possible.
Financial Performance and Competitiveness
There is a low level of regulatory development for financial performance and competitiveness of the utility. A cost-of-service study on the utility’s operations has been conducted by the utility within the last five years, but has not been approved by the regulator. The actual system losses as of February 2021 was reported as 44%. At the prevailing tariff, collection rates and loss levels, the utility is not covering its cost of operations through the tariffs. The funding gap is provided by government. There is no transitional path or roll-out plan agreed between the utility and the regulator to attain a cost-reflective tariff over a specified period. The regulator does not approve power purchase agreements signed between the distribution utility and sellers and does not recognize price adjustment clauses in the power purchase agreement for tariff adjustments. SLWERC has formulated a transparent procedure for reviewing the end-user tariff level but does not always follow this procedure for tariff reviews. A loss reduction target has been agreed with the regulator to reduce system losses. The distribution utility itself has put in place a mechanism to deal with electricity theft.
Quality of Service Delivery (Commercial and Technical)
There is low level of regulatory development regarding quality-of-service delivery. Although the regulator has developed a QoS regulations to guide the operations of the utility, it is not a regulatory requirement for the utility to undertake periodic technical audits or a valuation of its assets to establish the true state of the facilities. However, the utility performs the audits and valuation on its own for its own operational purposes. A draft service provider reporting rules document will oblige the utility to undertake periodic technical reviews valuation for tariff purposes, but it is yet to be approved by the Parliament. Important indicators like the System Average Interruption Duration Index (SAIDI) and the System Average Interruption Frequency Index (SAIFI) are regulatory requirements. However, the regulator does not factor them into electricity tariff setting.
Facilitating Electricity Access
There is substantial level of regulatory development in facilitating electricity access. The National Energy Policy, adopted in March 2012, provides specific regulatory mechanisms aimed at enhancing access to electricity. It is based on grid extension, distributed generation/mini grid, stand-alone renewable energy, and captive generation. Distributed generation technologies are allowed and promoted as a regulatory mechanism aimed at providing access to electricity. There is a ceiling set by a regulatory instrument (legislation, license or code) on the number of days it should take to provide an electricity connection to a customer after the customer makes payment. The regulator considers funds provided by government, communities or non-governmental organizations (NGOs) as well as the need for the utility company to recover the investment made by these institutions in rural electrification projects.
The regulatory law should be amended, or secondary legislations developed to make provision for the following:
- Staggering the terms in office for commissioners to ensure maintenance of institutional memory and knowledge transfer.
- A cooling off period after the term of office of the chief executive and commissioners before they can seek employment in a regulated entity .
- Prohibition for the CEO of the regulatory Commission from holding other offices in the government during his tenure in office;
- Prohibition of the appointment of commissioners who were previously staff of a regulated company;
- Parliament should approve the level of the annual regulatory fees and levies charged by the regulator.
- Develop a network connection policy as part of the tariff methodology or as a separate document to address related issues of commercial access to the grid.
- Develop a model regulatory accounting framework for utilities in tariff applications
- Conduct a cost-of-service-survey, which must be updated regularly to provide information on the true cost of service for tariff setting.
- Develop model technology-specific power purchase agreements for all renewable energy technologies. This will guide investors and utilities as they conclude their negotiations.
- Develop and apply technical standards for stand-alone systems
- Adopt a policy and legislation for energy efficiency.
- Establish minimum energy performance standards (MEPS) and labels for common electrical appliances.
- Establish and enforce a ceiling on key quality of service indicators like the System Average Interruption Duration Index (SAIDI) and the System Average Interruption Frequency Index (SAIFI).
- Conduct a consumer satisfaction survey at least every two years in collaboration with the utility. This will systematically track the level of quality-of-service delivery by the utility and identify potential areas for improvement.