Vertically Integrated with Private Sector Participation , Partially Unbundled
The Zimbabwe Electricity Regulatory Authority (ZERA) was established by, an Act of Parliament, the Energy Regulatory Act Chapter 13:23 of 2011. Having been established by law, ZERA has strong credibility and this impacts positively on investor and consumer confidence.
Clarity of Roles and Objectives
ZERA’s regulatory functions are set out clearly in the primary legislation establishing it. Secondary legislations, license conditions and other regulatory instruments detail the obligations of regulated utilities. This eliminates overlaps in roles and ambiguities in the obligations of entities.
ZERA maintains a substantial “arms’-length” relationship with government. The executive is involved in all appointments to the board. The sector minister appoints the board and board chairperson, with the approval of the President of Zimbabwe, but the board appoints the chief executive, additionally half of the members of the board are women. The appointments are for a once renewable term of two to four years. Although institutional representation on the board is not required, section 6 (2) of the Energy Regulatory Authority Act requires that experts in fields like law, finance, engineering, petroleum be included. There is no mechanism to stagger the terms of board members, which would ensure continuity and allow for institutional memory and transfer of regulatory knowledge.
ZERA rates low on independence from stakeholders. There are no provisions in the regulatory law that prohibit the appointment of the authority’s board or of the CEO if any of them has previously held a position in the regulated utility company. Although there are no provisions in the regulatory law that prohibits the Commissioners and the CEO from holding other public offices in the sector during their tenure, Section 11(4)(a) and (b) of the Public Entities and Corporate Governance Act (Chapter 10:31) prohibits such behavior. However, there are also no provisions in law, that prohibit them from accepting employment in the regulated utility company after the end of their term in office. These could influence the decisions of the authority.
ZERA maintains a rating of substantial in decision making independence. Although the authority’s decisions regarding tariffs, issuance and amendment of licenses are final and legally binding, it plays a facilitative role in the resolution of disputes between regulated utilities and their customers and the regulator’s decision is only advisory. ZERA is also handicapped in decision making independence because the executive arm of government can overturn regulatory decisions of the authority.
ZERA is rated high in terms of adequacy and independence of its sources of funding. Although the regulator’s major sources of funding are license fees and levies, the level of financial independence is reduced because the levels of fees and levies are determined by the executive instead of parliament. Contrary to best practice, the executive is the final approval authority of ZERA’s annual budgets, although the authority allocates and manages the budget received. The Government and the authority’s board jointly decide on the salary levels of regulatory employees which is based on market conditions. The level of the regulator’s salaries is considered to be above that of the regulated utilities, reflecting the success of ZERA to retain and maintain qualified staff.
ZERA rates high in accountability. There is a legislative requirement for it to answer parliamentary committee requests or attend hearings organized by parliamentary committees, ZERA also presents its annual reports to Parliament for scrutiny. The only formal mechanism through which regulated entities may challenge the regulatory decisions of the authority is through the existing judicial system. This can be lengthy and cumbersome and may affect investor confidence.
Transparency of Decisions
ZERA rates substantial in the transparency of its regulatory decisions and processes. The public has access to key regulatory documents from the regulator’s website and all regulatory decisions are published. The publication of major regulatory decisions is always supported by explanations, but the reasons/rationale behind decisions are not published as their publication is not mandatory
ZERA is rated high in predictability. ZERA’s tariff methodology, adopted in 2013 was revised in 2019. It sets out the procedures and schedule for major tariff reviews. The tariff code includes a predictable mechanism that is used by the regulator to disallow costs considered unreasonably incurred by a regulated entity. It can only be modified by the regulator in consultation with regulated firms and stakeholders. Key regulatory documents such as licenses, contracts and authorizations can be modified by mutual agreement between parties to the regulatory instruments. Procedures and timelines for obtaining licences, are well elaborated and published in the Electricity Licensing Guidelines issued in 2017. ZERA provides periodic updates to licence applicants on the status/progress of the licence application from until a final decision is taken.
There is high level of regulatory development with regard to stakeholder involvement and participation in the regulatory process. Stakeholder consultation, which is mandatory under the law, is solicited through public hearings, ad-hoc meetings with stakeholders, and the submission of written comments. In line with best practice, ZERA provides feedback on comments received from stakeholders.
Open Access to Information
ZERA is rated substantial with regard to granting stakeholders open access to information. The authority has a website https://www.zera.co.zw/, which contains all the necessary regulatory information and documents. ZERA’s information technology officer manages the website and ensures it is updated regularly.
The level of development of the economic regulation framework is medium. There is a well-documented tariff methodology, which although does not contain a schedule for major tariff reviews, allows the regulator to implement minor/automatic tariff adjustments when necessary. It also has a well-written formula that prescribes how end-user tariff levels must be set. The automatic adjustment mechanism has been used extensively in 2020. A Cost of Service Study has not been conducted in the last 5 years. In line with best practice, the End-user tariff-setting regulations avoid passing on inefficient costs to customers and reasons are given after tariff determination, in an explanatory note to explain why certain aspects of the utility’s tariff proposal were not allowed. The regulator is yet to deploy a regulatory accounting framework for use by the utilities in tariff applications. There are mechanisms to compensate generators for the provision of firm capacity or ancillary services although it doesn’t include provisions that ensure that utilities are compensated for the costs of stranded assets. Social equity is provided by a lifeline block subsidy scheme that protects poor and vulnerable consumers.
There is a high level rating for quality-of-service regulatory framework. All the appropriate regulations/codes, including transmission and distribution codes, have been developed to govern quality of service performance of utilities. The grid code and distribution code came into effect in 2017. The regulations cover time-bound customer service requirements and provide for fines to be imposed on utilities that fail to meet quality of service standards. ZERA also monitors the utility’s reporting on System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI). However, fines have never been applied for non-compliance.
The level of development of the licensing framework is medium. It covers only grid-connected systems and procedures and guidelines for application, approval processes, license forms and a schedule of license fees. There is however no separate simplified and light-handed licensing framework and procedures for off-grid and small sized systems.
The level of development of institutional capacity is rated substantial. ZERA has an adequate level of highly skilled human capacity to deal with all aspects of its regulatory functions, including the areas of economic and tariff analysis and utility performance analysis. This result has been attained based on the institution’s focus on technical trainings for staff and strategic recruitment of experts.
Renewable Energy Development
There is a substantial level of development of renewable energy in Zimbabwe. The National Renewable Energy Policy (NREP) was adopted in 2019 and renewable energy targets have been set. Technology-specific model contracts or power purchase agreements for different renewable energy technologies including feed-in tariffs (FiTs) have been developed. Net-metering regulations and Solar water heating regulations were approved in 2018 and 2019 respectively. There is a policy and legal framework that allows for private investment into the sector. The grid code provides and specifies renewable energy connection procedures.
Mini-Grid and Off-Grid Systems
There is a high level of development of the regulatory framework for mini-grid and stand-alone systems – both grid-connected and off-grid – with a level playing field for investment. Clear arrangements are in place, in terms of technical and quality standards and incentives, to facilitate mini-grid and off-grid systems. There is a certification scheme under which installers are licensed or certified to ensure high technical standards and safety of installations. A drawback is that a national program to support the scale up of mini-grids and a national electrification plan are lacking. Mini-grid tariffs are market based.
Energy Efficiency Development
There is a substantial level of development of the energy efficiency framework in Zimbabwe. The electricity regulator is in charge of energy efficiency regulation and the Ministry of Energy and Power development is responsible for the development and implementation of energy efficiency strategy. ZERA is required to develop the regulatory framework and implement regulations aimed at achieving the objectives of the law as it applies to electricity generation, transmission, distribution and end-use efficiency. MEPS have been developed for refrigerators, HVAC and lighting equipment and labelling is also a requirement for lighting. A major handicap is that there are no requirements for importers or manufacturers of electrical appliances to report on the EE levels of their appliances and mandatory auditing and reporting is not a requirement for heavy energy consuming industries.
Financial Performance and Competitiveness
There is a medium level of regulatory development for financial performance and competitiveness of the utility. With actual loss levels at 21.76% in 2020 and a collection rate of more than 90% factored into the tariffs, the utility is not covering its actual cost through the tariffs. A loss target of 14% has been set for 2021. A transitional path has been agreed between the utility and ZERA to index 2021 tariffs to 2020 tariffs. According to the respondent, there is a regulatory mechanism in place to deal with electricity theft. The distribution utility has also put in place a mechanism that involves smart metering and other technologies to deal with electricity theft. There is a 12-year jail term for tampering with ZETDC equipment.
Quality of Service Delivery
There is low level of regulatory development of the quality of service. The regulator has not developed QoS to guide the operations of the utility but the utility is required to undertake periodic technical audits to establish the true state of its facilities as specified in the distribution code and grid code. It is also required to calculate and publish its System Average Interruption Duration Index (SAIDI) and its System Average Interruption Frequency Index (SAIFI) and discuss the reports with the regulator. According to the respondent, there are no regulatory ceilings on SAIDI and SAIFI and they are therefore not factored into the electricity tariff setting.
Facilitating Electricity Access
There is a substantial level of regulatory development on access facilitation. Specific regulatory mechanisms with targets are in place aimed at enhancing access to electricity, including time bound indicators of utility performance with regards to connections and customer service. Funds provided by government, the utility, communities or non-governmental organizations (NGOs) in rural electrification projects are considered for recovery through tariffs. A mandatory levy is imposed on all consumers to provide funds for expanding access.
The regulatory law should be amended, or a secondary legislation enacted to make provisions for:
- A cooling off period after the terms of office of the CEO and commissioners before they can accept employment in a regulated entity.
- Staggering of the terms of commissioners to ensure maintenance of institutional memory and knowledge transfer;
- Prohibiting the CEO from holding other office in the government during his tenure in office;
- The regulator to report directly to parliament instead of the executive
The regulatory law should be amended, or a secondary legislation enacted to make provisions for the creation of specialized and independent body outside the regulator and the usual court system for aggrieved regulated entities to contest regulatory decisions
- Review and publish an explicit tariff methodology that is accessible to all stakeholders;
- 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.
- 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.
The licensing framework should be reviewed to make provision for separate simplified and light-handed procedure for off-grid and small sized systems.
- Develop a national energy efficiency action plan.
- Minimum energy performance standards (MEPS) and labels should be developed to cover a wider range of electrical appliances.
- Deploy and enforce clear ceilings for SAIDI and SAIFI, with incentives and sanctions to drive utilities to comply.
- Collaborate with the utility to conduct a consumer satisfaction survey at least every two years to track the level of quality-of-service delivery and identify areas for improvement along a pre-agreed roll-out plan.