Vertically Integrated with Private Participation
The Energy Regulation Board (ERB) was established in January 1995 by an act of parliament and became operational in January 1997. The law was amended in 2019 by Energy Regulation Board Act No. 12 of 2019 to enhance the regulatory powers of the institution as well as address emerging issues and developments in the energy sector. The law gives ERB enhanced credibility, and this has a positive impact on investor and consumer confidence.
Clarity of Roles
ERB’s regulatory functions are set out clearly in the primary legislation establishing it. The obligations of regulated utilities are set out in secondary legislations, license conditions, standards, and other regulatory instruments. This eliminates overlaps in roles and ambiguities in the obligations of entities.
ERB maintains a substantial level of independence with government. Although the board has institutional representation, as specified by law, and the CEO is appointed by the board members, the requirement for board members to be appointed by the minister for energy for a renewable term of two to four years limits the full independence required for the regulator to operate effectively, free from governmental influence.
ERB rates low in terms of stakeholder independence. There are no legal provisions in the regulatory law or other laws in the country, that specifically prohibits the chief executive or commissioners from having any personal interest in the regulated utility or accepting employment in the regulated company immediately after their terms in office. Furthermore, the CEO and board members are not prohibited from accepting employment in the regulated utility after their term in office.
ERB rates high in independence in regulatory decision making. The regulator is not required to seek executive approval for its decisions. Although there are strict requirements for the regulator to consult the public and other stakeholders on decisions including approvals, the regulator is the final decision maker on tariffs, licensing and dispute resolution between regulated utilities and their customers, decisions which are binding. The sour side of the coin is that the executive can overturn regulatory decisions of ERB.
ERB rates low in financial independence. The major source of funding for ERB is from government budget allocation and the executive is responsible for proposing and discussing the regulator’s budget. Although the ERB board approves the regulatory fees charged to the regulated utilities, the board jointly allocates and approves the regulator’s expenditures with the executive. government teams up with the board to the government and the regulatory authority decide on the regulatory authority’s staff salary level, which is based on a scale developed by the Emoluments Commission and based on the outcome of market surveys. The average level of salaries of the regulatory staff is reported to be lower than those of the utilities. It is therefore difficult for the regulator to attract, maintain and retain qualified staff
ERB rates substantial on accountability to stakeholders. Although it is required to answer requests from or attend hearings organized by parliamentary committees, it reports to the sector minister, to whom it presents its annual report. Regulated utilities may challenge ERB’s regulatory decisions, and the law provides for the minister to set up an appeals tribunal to adjudicate over the matter.
ERB rates low in transparency. Although the public has access to key regulatory documents from the authority's website – with hard copies available on request – not all major regulatory decisions are accessible to the public. The publication of major regulatory decisions and reasons behind them is not specified in the law.
ERB is rated substantial in predictability. It has a documented tariff methodology and key regulatory documents, which it can change, as the regulator, only in consultation with regulated firms and stakeholders. Regulatory documents such as licenses, contracts and authorizations may be modified by mutual agreement between parties to the regulatory instruments. Procedures and timelines for applying and securing licences and permits from the regulator are published.
ERB has a substantial rating on stakeholder participation in regulatory processes. Stakeholder consultation is not mandatory by law, but the regulator consults regulated utilities and stakeholders before making major regulatory decisions. ERB reflects stakeholder responses and overall inputs during the consultation process, in its regulatory decisions and provides feedback on comments that it receives from stakeholders. A drawback is that ERB does not publish comments received from stakeholders during the consultation process.
Open Access to Information
ERB is rated high in open access to information. It has a public website www.erb.org.zm/ which contains all the necessary regulatory information that the public and stakeholders may require, in their dealings with ERB. An ERB information technology officer manages the authority’s website and ensures that it is updated regularly.
Economic Regulation - Tariff Setting
There is a low level of development in economic regulation. Although ERB has developed a well-documented tariff methodology, which includes a tariff indexation mechanism, a formula that prescribes how end-user tariff levels are to be set and a schedule for major or minor tariff reviews are lacking. The regulator has not developed a model regulatory accounting framework for use by the utility in tariff application but there is a mechanism to compensate for the cost of ancillary services. A cost-of-service study has not been conducted in the last 5 years, thus undermining the basis for tariff setting and suggesting that tariffs are not cost-reflective . A lifeline block tariff policy and mechanisms are adopted to make tariffs affordable, and utilities receive direct subsidy payments from the government to support low-income, poor, and vulnerable consumer, confirming the revenue gap in the tariffs.
Technical Regulation - Quality of Service
There is a high level of development in ERB’s quality of service framework. All the appropriate regulations/codes including transmission and distribution codes which came into effect in 2013 and 2016 respectively, have been developed to govern quality of service performance of utilities. Fines are imposed on utilities that fail to meet quality of service standards. The regulator collects information on operational service delivery, compliance with legal obligations by the regulated utilities, and financial performance, including cost of operating the regulated utilities. The regulator has undertaken quality of service compliance audits on the regulated utility in December 2020. The regulator monitors the utility to address findings in the performance analysis through annual follow-up reports.
The level of development of the licensing framework is high. It covers both grid-connected and off-grid systems to guide potential investors interested in entering the market. There is a separate, simplified, and light-handed, license procedure for off-grid and small sized systems
ERB is rated low with regard to the level of development of its human capacity. ERB lacks skilled persons to deal with some of the aspects of its regulatory functions, especially tariff modelling. There is a need to strengthen capacity to deal with all the associated regulatory issues. Once developed, all efforts must be made to retain and maintain the human capacity.
Renewable Energy Development
There is a substantial level of regulatory development for renewable energy. Zambia has carried out a renewable energy assessment to inform the commercial development of Zambia’s renewable energy resources. The National Energy Policy 2019 provides the legal, policy and regulatory framework that encourages the private sector to participate in grid-connected renewable energy investments. It allows a private operator the right to produce electricity from renewable energy sources on behalf of a consumer or a group of consumers connected to the national grid. The electricity regulator is in charge of renewable energy regulation and the Ministry of Energy is responsible for the formulation, development, and implementation of the renewable energy strategy. Technology-specific model power purchase agreements based on a feed-in tariff (FiT) and reverse auctioning are used, while the grid code, guarantees access to the grid for renewable energy.
Mini-Grid and Off-Grid Systems
There is a high level of development in the regulatory framework for mini-grid and stand-alone systems, for both grid-connected and off-grid, thus providing a level playing field for investment. Clear arrangements in terms of technical and quality standards and incentives are in place to facilitate mini-grid and off-grid systems. There is a scheme under which installers are licensed or certified to ensure high technical standards and safety of installations. No fiscal or financial incentives are available to promote the development of stand-alone systems but there are quality standards for such systems. There are no exemptions from licensing of any size of mini-grid, though certain requirements are waived for small size mini-grids.
Energy Efficiency Development
There is a low level of development of the regulatory framework for energy efficiency. No energy efficiency targets have been set at the national level and an action plan to reduce network losses is non-existent. ERB is responsible for energy efficiency regulation and the Ministry of Energy is responsible for the formulation, development, and implementation of energy efficiency strategy. There are no financing mechanisms for the development and implementation of EE projects, but tax waivers are fiscal incentives, in place to encourage energy efficient equipment acquisition. There is no building code, and minimum energy performance standards (MEPS) have not been adopted for any appliance or equipment. This makes Zambia an easy target for the dumping of inefficient electrical appliances.
Financial Performance and Competitiveness
There is a medium level of development in the regulatory framework for financial performance and competitiveness. The total revenue from tariffs is reported to cover less than 50% of the cost of operations of the utility and collection rates are not factored in tariffs. The regulator approves power purchase agreements between distribution utility and sellers before signature and it recognizes price adjustment clauses in the power purchase agreements for tariff adjustments. From a total loss level of 20% in 2020, a loss reduction target has been agreed between the utility and the regulator. The target for transmission losses is 6% whilst that of distribution has been set at below 12%. ERB has formulated a transparent procedure and schedule for reviewing the end-user tariffs level, but it does not always follow the schedule. It has put in place a regulatory mechanism – the “Order on Unauthorized Access, Meter Tampering and Bypass (2017)” – to deal with electricity theft. The regulator has a predictable mechanism to disallow costs considered unreasonable like costs incurred as a result of non-transparent procurement practices used by the utility.
Quality of Service Delivery (Commercial and Technical)
There is a substantial level of regulatory development in the quality-of-service delivery. It is a regulatory requirement specified in the licence for the utility to undertake periodic technical audits or a valuation of its assets to establish the true state of the facilities. The latest report was in April 2020. It is a requirement specified in a legislative instrument for the utility to calculate and publish its System Average Interruption Duration Index (SAIDI) and its System Average Interruption Frequency Index (SAIFI). The regulator factors a ceiling of the indices in tariff setting and specifies this in the utility license. There are regulatory (financial) sanctions specified in legislation if the utility records SAIDI and SAIFI above the regulatory ceilings. 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.
Facilitating Electricity Access
There is a low level of regulatory development in facilitating electricity access. The Electricity Act No. 11 of 2019 provides regulatory mechanisms aimed at facilitating access. The government, the utility and non-governmental organizations (NGOs) provide funds for rural electrification. In setting tariffs, however, ERB does not take into consideration the need and the cost incurred in rural electrification. This practice could lead to a shrinkage in the rate base, and it could deprive the utility of funds to maintain the system. There are no ceilings set by law on the number of days that it should take to provide electricity connection to a customer after the customer has made payment.
The regulatory law should be amended, or secondary legislations developed to make provision for the following:
- Diversification of sources of funds for the regulator, such as levies and license fees and independence in determining the level of fees to be paid.
- A cooling off period after the terms of office of the CEO and commissioners before they can accept employment in a regulated entity.
- Prohibition for the regulator’s CEO from holding other offices in the government
- Prohibition of the appointment of commissioners who were previously staff of a regulated company.
- Parliament to approve the level of the annual regulatory fees and levies charged by the regulator.
- Average level of salaries of regulator staff to be at least equal to those of utilities.
- Regulator to report directly to parliament.
The regulatory law should be amended, or secondary legislations developed to make provision for the creation of specialized and independent bodies outside the regulator and the usual court system for aggrieved regulated entities to contest regulatory decisions
The regulatory law should be amended, or secondary legislations developed to make provision for the mandatory publication of the rationale behind regulatory decisions
- Tariff methodology should be reviewed to include a schedule for major tariff reviews and formulae for end-user tariff setting.
- 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.
- Develop a model regulatory accounting framework for utilities in tariff applications.
- Carry out regular cost of service studies.
- Develop an action plan to reduce distribution network losses.
- The regulator should conduct a consumer satisfaction survey at least every two years to track the level of quality-of-service delivery by the utility and to identify areas for improvement.
- Establish a law on energy efficiency and develop a national energy efficiency action plan.
- Develop and enforce a minimum energy performance standard (MEPS) and labelling system for electrical equipment
The regulator should undertake a cost-of-service study to determine the true cost of supplying electricity to consumers in Zambia. It should also agree with the utility on a transitional path towards reaching cost-reflective tariffs