Introduction
Set up under the Energy Act 2006, the Energy Regulatory Commission (ERC) in Kenya was set up in 2007, as the energy regulatory authority. Succeeding the Electricity Regulatory Board (ERB), which was established by Electric Power Act, it assumed its mandate together with transfer of ERB rights, duties, obligations, assets and liabilities upon the coming into force of the Energy Act. Empowered with undertaking economic and technical regulation of electric power, petroleum and renewable energy sub – sectors through setting and reviewing tariffs, licensing, enforcement, dispute settlement and approval of power purchase agreements. It also regulates importation, exportation, generation, transmission, distribution, supply and use of electric energy and importation, exportation, transportation, refining, storage and sale of petroleum and petroleum products. Further also, it protects interests of consumers and investors whilst maintaining a list of accredited energy auditors, preparing national energy plans, issuance or revocation of licenses and permits for all undertakings and activities in the energy sector and enforces and review regulations, codes and standards.[1]
This paper purposes an understanding on the institutional and legal frameworks of energy regulation, particularly on and for the ERC, in its role on protecting consumer and investor rights under the energy governance whilst illustrating the principles of energy governance informing the commission’s mandate in its neutral bid to develop Kenya’s energy stability by guaranteeing competitive investments capable of meeting electricity market demand at a cost effective supply to consumers and hence guaranteeing choice in energy governance.
The heterarchical and hierarchical approach to energy governance takes in energy reliability and stability whilst ensuring safety and protection of consumers and investments given guarantees in access to information, public participation, and energy independence in electricity generation, transmission, supply, distribution and installation as a state responsibility potent of securing investments and ensuring compliance of investors in consumer protection.
Energy Governance
According to the fourth schedule of the constitution[2], Energy governance is a function of both the national government and county governments. Whilst ensuring protection of the environment and natural resources with a view to establishing a durable and sustainable system of development, the national government is mandated with setting out the energy policy including electricity regulation a function shared by the counties in developing and planning energy regulation.
The Energy Act 2006, the petroleum Exploration and Production Act and other energy related legislation provide for the institutional framework and legal framework upon which governance of energy resources, their use and management is premised. The Energy Act 2006 converts the Energy Regulatory Board from an advisory regulator to the Energy Regulation Commission that is a decision making regulator particularly on electricity.
Section 4[3] of the Energy Act establishes the ERC an institution mandated with regulating electricity as provided for in the act. Given the nascence and incipience of the county governance, there still exists not, understandably, an institutional framework nor a legal framework for management of energy. The national government therefore, through the ERC performs this function
The law on Energy recognising the dynamic developments in the energy sector continues to receive legislative amendments as espoused in the Energy Bill 2015 and the Petroleum Bill 2015. The new laws recognise electricity generation from nuclear sources while also proposing the creation of new institutions particularly the Energy regulatory Authority and the Rural Electrification and Renewable Energy Corporation. There is also a recognition on participation of county governments and local communities[4].
The policy framework on Energy was drafted in 2014 providing for the economic role of energy whilst ensuring sustainable, adequate, affordable, competitive, secure and reliable supply of energy to meet national and county needs at least cost, while protecting and conserving the environment[5].
Principles of Energy Governance
The fundamental principles on energy regulation encompass sustainability, reliability, cost-effectiveness, safety and protection, accountability, stability and neutrality of the regulator. It’s on this premise that the institutional and legal framework have been developed and or are being developed.
Neutrality of ERC
Section 5 of the Energy Act on the functions of the ERC provides for the regulation of electricity in a (i). Further also, 5(b) provides for protection consumer and investor interests. As a regulator the ERC is expected to proceed on this mandate with neutrality while also observing principles on energy and democratic governance. The regulation process (neutral policing of choice) and the regulation objective (necessity to account for consumer and investor protection) require discretional and intentional restriction of choice relative to energy production and consumption[6].
Development
Given the influence of public policy on regulation, the ERC should also take into account provisions of the national energy and petroleum policy as developed by The Ministry of Energy and petroleum together with other policy formulations by The Ministry of Planning and National Development given its responsibility of policy coordination in Kenya. The latter is at the forefront of the search for public policies capable of achieving Kenya’s key objectives of restoring economic growth, creating wealth, generating adequate employment and reducing poverty[7].
Therefore ERC must protect both interests of consumers and investors by ensuring development through investments which will then facilitate for electricity generation and hence stability in power supply upon which claims on consumer protection can be viable.
Stability
The electricity industry and market has tremendous impacts on public life in Kenya. There are three main sources of energy in Kenya. These are wood fuel (Biomass), petroleum and electricity, accounting for 70 per cent, 21 per cent, and 9 per cent of total energy use respectively[8]. However with its 9% stake of the national energy mix, electricity drives the daily operations of urban centres with efforts being made to ensure its penetration and connection to rural areas through the rural electrification and last mile government programmes.
Given the potential in application of electricity in economic stability and growth, the ERC should, taking into consideration the need for reliability and stability of electricity supply, prioritise increasing electricity production while also ensuring consumers benefit from competitive power production and supply.
Competition
Section 5 (d) of the Energy Act provides for monitoring, implementation of, and the observance of the principles of fair competition in the energy sector, in coordination with other statutory authorities. ERC should ensure the electricity sector is competitive and subject to free market mechanisms as opposed to the monopolistic approach upon which KPLC, KENGEN, REA and KENTRACO developed from. Being state corporations, regulatory objectives may be hard to achieve to the detriment of consumer protection. The ERC should therefore be unified by a regulatory policy seeking competitive practices aimed at achieving consumer friendly power supply choices and outcomes that can be upheld as regulatory standards through an Electricity Policy Review Mechanism that exemplifies international standards to meet local consumer needs.
Free Choice
Seeking to be neutral in its mandate, the ERC should accord the consumer the ultimate regulatory benefit, that is, freedom of choice as regards competitive electricity pricing by ensuring representation as provided for in the Consumer Protection Act on consumer representation on all regulatory bodies. This is to ensure that consumers have a right in undertaking participation in the ERC functions and therefore being part of the effort on protecting their interests and electricity market choices particularly when the regulator adopts unpopular regulations that tend not to be connected with demand and supply market expectations. This therefore creates a participation mechanism by ensuring consumers are represented in the commission’s appointments.
Demand and Supply
Section 6 of the Energy Act provides the commission with powers to regulate electricity market as expressed in (i-m). By setting, reviewing and adjusting electric power tariffs and tariff structures, and investigating tariff charges, the commission regulates the pricing mechanism of electricity. It is also empowered to approve electric power purchase and network service contracts for all persons engaging in electric power undertakings while also approving the metering system of electricity consumption. To this end therefore, the commission while regulating the pricing for electric energy can be a good arbiter between consumers and investors especially if disputes arose as to tampering of meters and raising of tariffs due to increase of power production costs. The Mechanism of dispute resolution is set out in (i) where the ERC can receive and investigate complaints or disputes between consumers and investors. (o) Empowers the ERC to impose sanctions and penalties on persons who are in breach.
Cost of Electricity
The cost of electricity consumption depends on the cost of electricity generation, transmission, distribution and installation. The ERC therefore cannot prioritise consumer interests over legitimate production interests. Section 45 provides for just and reasonable tariffs and tariff structures based on the principles of the commission particularly the tariff structure and terms of supply of electricity in Pricing and Tariffs Mechanism. The commission therefore permits for revision of tariffs by suppliers based on this grounds a move that may be contested by consumers as illustrated and remedied elsewhere in this paper.
Energy reliability and Stability
It is in the interest of the government, regulator, consumer and investor for there to be reliable energy to ensure stability of the electricity market. This can be achieved by providing for safety and protection of investments, guaranteeing access to information by consumers while also ensuring representation in regulatory decision making to guarantee energy independence upon which all interests are fulfilled along the electricity production and consumption cycle.
Electricity generation
Electricity generation in Kenya primarily relies mainly on Hydro-electric power (46%) and Geothermal (20%) with Wind (0.2%) and solar (0.1%) undergoing development and with KENGEN being the main power generating company. In times of drought the generator rely on diesel to meet demand even though it is an expensive source of electricity. Currently, Kenya generates 2000MW with the government intending to increase this output to 5000MW by 2019 and 19000MW by 2030. This could be due to projections on urbanisation and various development projects that could see demand for electricity go up. It has been therefore the government’s policy to adopt a mixture of sources that increase energy security.
Section 27 and 30 of the Energy Act provides for ERC’s licencing Mechanism on generation of electricity with a requirement for public notification and considerations on the impact of the undertaking on the social, cultural or recreational life of the community, the need to protect the environment and to conserve the natural resources in accordance with the Environmental Management and Coordination Act of 1999 and as amended in 2015 with a consideration of financial benefits to Kenya, the economic and energy policies in place from time to time, the cost of the undertaking and financing arrangements, the ability of the applicant to operate in a manner designed to protect the health and safety of users of the service for which the licence or permit is required and other members of the public who would be affected by the undertaking and the proposed tariff offered.
The commission can therefore exercise its administrative powers by refusal of licence to protect consumer interests if it feels the investment to be undertaken will impact adversely on the consumers and users of electricity.
Electricity transmission
Electricity transmission in Kenya was traditionally a role of KPLC. However developments in the industry have since seen that role bestowed upon KENTRACO with provisions in section 33 of the Energy Act stating the requirement for separation of network providers and suppliers. The implications to that are there being less monopoly in the electricity industry but given that both entities are owned by government it’s arguable that the liberation is truly effective.
As is with generation, transmission is also licenced by the ERC with similar provisions as discussed elsewhere in this paper as well as requirement for competitive applications. This ensures fair and just vetting of investor with surety that the best is mandated to undertake transmission in the interest of consumers. Section 31 does establish a liability mechanism as regards a requirement that the licensee or permit holders shall comply with all applicable environmental, health and safety laws while also stipulating that they are subject to liability under tort and the contract laws. This provides remedies for consumers in the event electricity transmission infrastructure and network is undertaken in such a manner that it pauses risks or causes damage to users and consumers.
Section 32 obligates a network provider to provide access to all existing and potential network users of that part of the grid owned or operated by them. Under this section also, the investors are required to provide information upon which tariffs, fees and charges shall be approved. This therefore enables the investors to be part of the process of determining electricity and can be seen to be a framework for justification and accountability.
By also requiring technical and financial ability of network providers while also providing limitations as to transfer of licences, the commission ensures stability in electricity transmission without disruptions thereto that may arise are these provisions to be absent.
Section 35 provides for administrative action that does not prejudice a licence holder by requiring a notification of 14 to 60 days to the licensee to meet obligations failure to which the minister may take up operations while also sharing profits and losses from the undertaking with the license holder. Subsection 5 provides that this arrangement shall not waive consumer rights or prejudice any claims which any consumer or other person may have against the licensee or permit holder arising from his failure to fulfil his obligations in terms of the conditions of his licence. Section 36 provides that the commission may revoke and suspend licences and permits if the network provider fails to meet the terms of contract or acts negligently. It also provides for consultations with the minister to allow on exceptional basis the undertaking to continue so as to disrupt electricity transmission that may adversely affect consumers or in case of selling the undertaking (section 37), for the minister to do so through tendering mechanism and proceeds therefrom to be given to the investor after meeting the operations and administrative costs.
Electricity distribution and supply
Given that largely electricity cannot be stored, investors tend to invest in infrastructure based on the ready market. This therefore explains why distribution and supply infrastructure is dense in urban and populated areas and sparse in rural areas. The government has committed to efforts of liberalising the supply of electricity though KPLC remains to be sole national supplier. The rural electrification authority has also focused in connecting the rural areas to the power grid.
Section 43 of the Energy Act requires that tariffs and charges on supply of electricity should be reasonable and just for them to be approved while taking into account any other issues which may have a bearing on the operations of the undertakings. The criteria for determining what is just and reasonable provides for protection of investor interests. The rates shall be in a manner that allows the supplier to maintain their financial integrity, attract capital, run efficiently and fully compensate investors for the risks assumed.
The Approval Mechanism establishes the supply form of contract which sets out the rights and responsibilities of the licensee and consumers in section 44. The requirements therein provide for fair and reasonable provisions when dealing with issues, including but not limited to limitation of liability of the supplier, disconnection procedures, account and meter deposits, consultation and notice of changes to any of the contract terms, metering, complaint handling and dispute resolution. This ensures that the supplier cannot act arbitrary or indiscriminately while fulfilling their obligations to the consumers.
Section 45 does provide for regulation of tariffs and charges as regards supply with provisions requiring just and reasonable rates that are subject to the commission’s principles. By providing guidelines on reviewing of tariffs and charges and further requiring a period of 40 days prior to their approval and enforcement, the commission allows a grace period for consumers to adjust while also ensuring the proposed rates are just and reasonable. Sub-section (5) permits a licensee to require a consumer to make such account deposit, commensurate with the consumer’s estimated electrical energy consumption, before electrical energy is supplied to them, which deposit may, from time to time, be revised by the licensee in order to take account of both the level of consumption and of any changes in electrical energy tariffs. This ensures security on investment. By also providing for prior consent of land use for supply purposes, the commission ensures that consumers have a say in the manner in which the supplier distributes power lines to their premises and hence safety and if in event the supply is such that it causes harm or damage they can be remedied by seeking redress in form of compensation from the commission.
Section 53 provides suppliers to use public land and infrastructure at no charge which aides in cost of electricity supply provided they comply with the law and in the event they don’t they become liable. Further also Section 57 provides for the supplier to be able to retain ownership of supply lines and to use them in connecting other persons provided it is in such a manner that does not prejudice the supplied consumer who may be entitled to reimbursement of a just and fair proportion of the original cost paid for supply. The commission determines the reimbursement in case of dispute provided its application is made within 6 years.
To also protect the investor from illegal power supply, section 58 provides for standards of metering with both consumer and supplier having the right to take part in the metering process with both criminal and civil liability applicable to tampering of the metering system. Any alteration to the metering and check mechanism must involve prior consent whilst also provisions on liability due to defective meters require either the consumer or supplier to account for them. This ensures protection against arbitrary modification that may not reflect the true quantity of electricity consumption to the detriment of both the consumer and or supplier. The commission also establishes rules on ownership of meters and protection against legal action in case of insolvency of the supplier hence ensuring consumer are not subjected to unnecessary disruptions.
On refusal and discontinuation of electricity supply, section 61 provides that in the event a consumer fails to pay the charges of supply or fails and neglects to make good any defects in his installation especially those tampering with power supply, they may be disconnected. The commission can receive and determine complaints arising from any action arising thereto.
The consumer also is prohibited to carry out any acts that may be construed to imply they are suppliers of electricity including use of electricity against the applied intended use without prior consent of the supplier. This is defined to be fraudulent and the commission may direct the discontinuation of supply apart from the criminal and civil liabilities prescribed in law.
State responsibility
The state can help in compulsory acquisition of land for electricity infrastructure while also ensuring investment security and investment compliance. Given the monopolistic nature of the electricity industry in Kenya its role still remains incipient especially with foreign investments. However the state in protecting investor interests will be required to ensure fair and equitable treatment of investors while also guaranteeing national treatment to foreign investments.
Conclusion
The ERC has so far established various mechanisms in the Energy Act 2006 for ensuring interest of both consumers and investors receive fair and just consideration under energy governance with the participation mechanism providing for the representation of consumers, the tendering mechanism requiring competitive investments and participation mechanism providing avenues for settlement of conflicting interest before the commission. The compliance mechanism serialized and constituted by the metering and check mechanism, the approval and licensing mechanisms and the pricing and Tariffs mechanism. The liability mechanism is used by the commission to enforce obligations, duties, rights and interests of consumers upon determination of bridge.
Therefore while this provisions and the mechanisms therefrom form the basis of facilitation of interest protection, there is still room for the ERC to further this mandated by ensuring it remains neutral and principled in undertaking consumer and investor interests protection whilst ensuring liberal and democratic sustainable governance practices are upheld in energy regulations.
Bibliography
1. The Energy Act, 2006.
2. The Constitution of Kenya 2010
3. National Energy and Petroleum Policy, 2014
4. Kenya: Integrated assessment of the Energy Policy, with focus on the transport and household energy sectors, UNEP, 2014
5. http://polity.org.za/article/new-energy-bill-in-kenya-tabled-the-good-and-the-bad-2015-05-20
6.
https://softkenya.com/government/energy-regulatory-commission-erc/#
[1] https://softkenya.com/government/energy-regulatory-commission-erc/#
[2] The Constitution of Kenya 2010
[3] The Energy Act 2006
[4] http://polity.org.za/article/new-energy-bill-in-kenya-tabled-the-good-and-the-bad-2015-05-20
[5] National Energy and Petroleum Policy
[6] The context of Law in shaping liberally democratic Governance
[7] Henry Obwocha on Integrated assessment of the Energy Policy With focus on the transport and household energy sectors
[8] Kenya: Integrated assessment of the Energy Policy ,With focus on the transport and household energy sectors
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