Legal Mandate

The Electricity Regulatory Authority (ERA) was established by an act of parliament, the Electricity Act, 1999 . As an entity established by law, ERA has strong credibility, which has a positive impact on investor and consumer confidence.

Clarity of Roles and Objectives

ERA’s regulatory functions are set out clearly in the primary legislation establishing it. Secondary legislations, license conditions, contracts, standards and other regulatory instruments detail the obligations of regulated utilities. This thus eliminates overlaps in roles and ambiguities in the obligations of entities.

Independence

ERA maintains a substantial level of “arm’s-length” independence from government. The sector minister, with cabinet approval appoints the chairperson and persons who are qualified to sit on the authority’s board for a tenure of five to seven years. Terms are renewable once. There is no provision for institutional representation on the board but there is a provision for staggering the terms of commissioners to ensure knowledge transfer and continuity. The board – rather than the executive – appoints the chief executive. This makes the CEO directly accountable to the board.

ERA rates substantial in terms of independence from stakeholders. Board members and the CEO are prohibited from holding other public offices within the energy sector during their tenure or accepting employment in the regulated utility after the end of their respective terms in office. A cooling-off period of a minimum of three years is required before they can join a regulated company. The CEO/board members are also prohibited, from having any personal interest in the regulated utility during their respective terms. Conversely, a person who is a shareholder, a member of the Board, an employee or a holder of license of any entity operating in the electricity industry, where it is likely to cause conflict of interest, is prohibited from appointment to the board.

Skills required of the authority head/board members are published in the law as are the criteria for dismissing authority head/board members during their terms in office. The majority of ERA permanent staff is recruited through a competitive process. These provisions ensure that the regulator’s decisions are not influenced by stakeholders.

ERA’s rating in decision making independence is high, as the regulator is the final decision maker on tariffs and on issuing and amending licenses. Furthermore, the executive arm of government cannot overturn regulatory decisions of the regulator and ERA is not required to seek approval from the executive on regulatory decisions but is required to consult and seek the views of the public and other stakeholder entities on regulatory decisions like tariffs and licensing. The regulator plays a facilitatory role in resolving disputes between companies on the one hand, and between companies and their customers on the other, but the regulators’ decision is legally binding.

By allowing the regulator to charge board approved fees and levies to fund its operations and allocate expenditures, ERA is rated substantial on financial independence in terms of sources and adequacy of its funds. Salaries of regulatory staff, which is higher than that of utility staff, is based on market assessments and benchmarks with other regulators in the country. This enables the authority to attract, maintain and retain qualified staff.

Accountability

ERA maintains a high level of regulatory development with regard to accountability to sector stakeholders. The authority has a legal obligation to produce an annual report on its activities, which it presents to Parliament, for scrutiny. Regulated utilities may challenge ERA’s regulatory decisions. Disputes are resolved first through the Electricity Disputes Tribunal (EDT), which is an independent body from the regulator, and then the National Court of Law for appeals beyond the EDT.

Transparency

ERA rates high in transparency, as the public has immediate access to key regulatory documents like license procedures and tariffs from the ERA website. Hard copies are also available on request. It is mandatory for the regulator to publish all major regulatory decisions taken by the regulatory authority and the rationale/reasons behind.

Predictability

ERA rates high in predictability. It has a documented tariff methodology, first published in January 2014, which the regulator, can only change in consultation with regulated firms and stakeholders. The methodology is updated every year to adjust for base tariff parameters. Major tariff reviews for the distribution utility are undertaken every seven years. Multi-year performance targets are set for energy losses, revenue collection rates, and operation and maintenance costs. Tariff setting is also informed by the cost of service, determined through a study. The Electricity Approval and Verification of Investments Regulations 2020, provides a predictable mechanism used by the regulator to disallow costs considered unreasonably incurred by a regulated entity.

ERA has published and documented procedures for obtaining a licence, including timelines and provides periodic updates to licence applicants on the status/progress of the licence application. Key regulatory documents like licenses, contracts and authorizations may be modified by regulatory decision, in accordance with procedures in the law.

Participation

ERA rates high in stakeholder participation. Stakeholder consultation is mandatory. The law provides for consumer and stakeholder engagements through public hearings during electricity tariff reviews and/or licensing. The regulator engages regulated utility companies, other industry players, consumers, non-governmental organizations (NGOs), civil society, policy makers and members of parliament in charge of the energy sector through public hearings and ad-hoc meetings. Other stakeholders with whom ERA engages include manufacturers, media and consumer groups. The regulator publishes comments received during the consultations and considers all stakeholder inputs in arriving at regulatory decisions. In addition, the regulator provides feedback on comments received from stakeholders.

Open Access to Information

ERA is rated high in open access to information. The authority has a public website www.era.org.ug/ which carries information on all regulatory procedures, regulations/codes, tariff methodologies and tariffs. Website information is updated regularly.

Economic Regulation -Tariff Setting

ERA is rated high in the development of its economic regulatory framework. It has developed a well-documented tariff setting methodology, which includes a schedule for major tariff reviews and a written formula that prescribes how end-user tariff levels must be set and an indexation mechanism. A quarterly review methodology has been introduced in 2021. The tariff setting regulations avoid passing on inefficient costs to consumers but contains provisions through which generators are compensated for the provision of firm capacity or ancillary services. Utilities are required to submit financial information according to regulatory accounting standards. The regulator carried out a study on the cost of service in 2018 and the current tariff level is reported to be cost-reflective. 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 vulnerable. Utilities do not receive direct subsidy payments from the government to support operation and maintenance activities but its funded through a cross-subsidy scheme funded by commercial and industrial consumers, for the benefit of residential consumers.

Technical Regulation - Quality of Service

ERA 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. Fines are imposed on utilities who fail to meet quality of service standards 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 can compel the regulated entities to provide financial and non-financial information and ERA publishes performance assessment reports on the regulated utility companies.

Licensing Framework

The regulator receives a rating of high for the licensing framework and guidelines for the electricity sector that it has developed. This is for both grid-connected and off-grid connected systems. There is a simplified and light-handed licensing framework and procedure for off-grid and small sized systems.

Institutional Capacity

ERA has adequate qualified and experienced staff to deal with all regulatory issues, including tariff modelling and engineering analysis.

Renewable Energy Development

ERA is rated high for its renewable energy development framework. There is a renewable energy policy and regulations that provide a legal framework for renewable energy development. ERA is in charge of renewable energy regulation but there is no specialized authority responsible for the formulation, development and implementation of a renewable energy strategy. There is provision for different tariffs for different technologies and sizes and electricity generated from renewable energy sources is dispatched in base mode, in line with the 2007 renewable energy policy. In 2020, the Electricity Regulatory Authority revised the Renewable Energy Feed-In- Tariff (REFIT) for on-grid RE development and under the Rural Electrification Agency, Uganda has developed an Off- Grid Electrification Master Plan using RE resources.

Mini-Grid and Off-Grid Systems

The framework for mini-grid and off-grid systems is rated high. Mini-grid development is governed by the Electricity Isolated Grid System Regulation 2020. An integrated plan for mini-grid development has been completed. Capital subsidies and grants are available to promote the development of mini-grids and stand-alone systems, which also benefit from connection subsidies from government. ERA 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 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, and the new regulations provide for compensation for operators of mini-grid systems under such circumstances. The tariff regime for mini grids is based on the cost of service.

Energy Efficiency Development

The energy efficiency development framework is rated high. There is a policy aimed at improving the scale and scope of energy efficiency adoption. 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. Licensees are also required to identify and implement loss reduction investments for approval by the regulator. The Ministry of Energy and Mineral Development is responsible for the formulation and implementation of the energy efficiency policy and strategy, while ERA is responsible for energy efficiency regulation. Minimum energy performance standards (MEPS) and a labelling scheme have been established for major household appliances and industrial electric motors. There is a requirement for periodic energy auditing and reporting by heavy energy consuming industries or enterprises, which is monitored by the utilities. There is no reporting requirements, on energy efficiency levels, for importers of electrical appliances.

The National Building Review Board is responsible for enforcement of the building code, which provides for cooling standards of buildings, under the Building Control Regulations, 2020.

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. ERA has recently conducted a Cost of Service Study on the utility’s operations and the findings are being implemented. Currently, the overall distribution energy loss recoverable in the tariff is set at 14% with a target of 12.78% by 2025, although the actual loss level is 17.5%. A collection rate of 90% has been factored in the tariffs but under the current loss levels and collection rates, the utility is not covering its total cost prompting the distribution utility and the regulator to agree on a loss reduction path to achieve a total loss rate of 14%.

ERA disallows unreasonable costs incurred by the utilities by reviewing operation and maintenance costs over a seven-year period. It sets costs as a target, disallowing excess costs of energy loss and non-collection of revenue in excess of the set target. Furthermore, investment costs added into the rate base annually are subject to approval and verification in accordance with the Electricity Regulations-2020 (Approval and Verification of Investments). Under these regulations, investments – and therefore costs – that are not used and useful, for reasons within the control of the company, are rejected. The authority deals with electricity thefts in line with the Electricity Act (Section 86 to 88). Power Supply from the Uganda Electricity Transmission Company is provided for under the licence for bulk supply, which is held only by UETCL. There is, therefore, only a single source of bulk power. The regulator approves power purchase agreements between the distribution utility and bulk suppliers before signature.The regulator approves price adjustment clauses in the power purchase agreements, which are used for tariff adjustments during the term of the power purchase agreements. The utility and the regulator need to work together to achieve the revenue and loss targets towards full cost recovery.

Quality of Service Delivery(Commercial and Technical)

Quality of service delivery is rated substantial. ERA has developed a Quality of Service Guidelines to guide the operations of the utility. The regulator, pursuant to provisions of the licence, requires the utility to undertake annual technical audits or a valuation of its assets to establish the true state of affairs. It is a requirement, specified in the license for the utility to calculate and publish its System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI). In addition, the utility discusses the SAIDI and SAIFI reports with the regulator. The indecies are factored in the electricity tariffs and the utility is fined for poor performance.This constitutes an incentive framework for a reward or penalty to the licensee if the SAIDI, SAIFI and the Customer Average Interruption Duration Index (CAIDI) targets are achieved. Time for utility company to respond to customer request for new connection, time for actual connection to be made , response time to customer complaints, time taken for reconnection after payment is made, response time for metering queries are areas of customer service with respect to connections and service delivery that are covered in the Quality of Service regulations.

Facilitating Electricity Access

Access facilitation is rated high. A New Customer Connection Policy and Connection Cost Methodology was published in 2019 provides a supply on demand regulatory mechanism aimed at enhancing access to electricity. There are ceilings set by regulation on the number of days that the utility should take to provide an electricity connection to a customer after the customer makes payment. Investments, including network and transformer upgrades, which are aimed at accommodating demand growth as a result of new connections, are funded through the tariff in line with the Investment. Approval and Verification Regulations 2020. Government provides funding for rural electrification but there are no regulatory mechanisms to recover the cost through the tariffs. If this mechanism is not streamlined, part of the true cost of operations of the utility may not be recovered.