GRAPHIC | CHRISPUS BARGORETT | NMG
|Business
Premium
How Kenya Power inflated electricity prices by Sh70bn in five years
Consumers paid an extra Sh70.35 billion in exaggerated power bills in the five years to February 2023 after the Energy and Petroleum Regulatory Authority (Epra) added illegal charges on their monthly fuel surcharge.
An analysis by the Nation and the Electricity Consumers Society of Kenya (ELCOS Kenya), and an Auditor-General’s report reveal that consumers have been overcharged by as much as Sh4.4 per unit monthly from January 2018 to date.
The monthly surcharge is based on a formula set and approved by the energy regulator to compensate for fuel-driven power generators, but Epra has ignored the formula leading to the exaggerated bills.
The latest Auditor-General report on Kenya Power revealed the utility had overcharged consumers by Sh23.17 billion in the year to June 2023.
Auditor-General Nancy Gathungu found that Epra had inserted charges outside the formula when calculating the fuel energy charge (FEC), allowing Kenya Power to collect the added charges. Ms Gathungu found that in the 12 months to June 2023, what consumers ought to have paid in FEC totalled Sh34.15 billion but they ended up paying Sh57.33 billion.
“According to management, the mismatch was occasioned by power purchase costs recovery mechanism for future temporary power plants, geothermal steam charge and costs of other power plants, power purchase costs that had not been factored in the approved base or non-fuel tariffs issued in 2018, and variances between costs and revenues resulting from computed and the applied fuel cost charge in the previous year 2021/22,” said Ms Gathungu.
FEC -- paid to thermal power producers to cater for the fuel that they use to generate electricity -- is one of eight components of the electricity bill and is the largest pass-through cost. It therefore has a huge bearing on the cost of electricity.
When these producers generate more thermal electricity, the FEC paid by consumers increases.
The formula that Epra currently uses to calculate FEC is fixed and was gazetted in March 2023. Epra uses this formula every month to calculate FEC by only adjusting it to cater for the amount of thermal units generated or imported.
The Auditor-General has questioned the legality of these extra charges, as consumers continue to suffer added costs that have pushed electricity prices to new highs.
“In the circumstances, the legality of inclusion of these non-related charges in the fuel cost charge recoveries could not be confirmed,” she added.
But between January 2018 and June 2022, numbers inserted in the formula revealed a lower figure compared to the levy that had been gazetted by Epra.
For instance, in June 2018, Epra billed consumers Sh4.75 per unit but calculations show that the actual bill using the set formula was Sh1.79 per unit. In September 2019, the energy regulator set a FEC of Sh3.45 per unit, which is Sh0.29 higher than the actual charge of Sh3.16 per unit using the formula.
In another example, in November 2022, Epra charged consumers Sh6.36 per unit instead of Sh3.19 per unit as per the set formula. The implication to consumers is that they continue to pay far higher prices for electricity brought about by added charges that have no legal backing, worsening the cost of living crisis.
Epra director-general Daniel Kiptoo had not responded to our queries regarding the exaggerated bills by the time of going to press. Kenya Power managing director Joseph Siror said the company was allowed to collect the amounts mentioned in the Auditor-General’s report.
“During the financial year 2022/23 there were some power purchase costs that had not been factored in the approved base/non-fuel tariffs (approved tariffs in November 2018) and therefore these costs were allowed by Epra to be recovered through FEC pass-through mechanism,” he said.
But this exploitation of the electricity formula to squeeze billions of shillings from consumers each month continues unabated today.
The analysis, for instance, shows that in December 2023, consumers would have paid a FEC of Sh2.94 per unit if Epra used the formula which it gazetted in March last year.
Instead, the energy regulator gazetted a FEC of Sh3.98 per unit after other components which are not included in the formula were added.
This translates to an overcharge of Sh1.04 per unit, totalling Sh929.68 million in one month alone.
“Any value different from the results of this gazetted fuel energy charge formula based on each month’s gazetted values is fraud and a criminal offence and should be carried by the signatory to this figure,” Isaac Ndereva, the executive director of ELCOS, said.
Epra’s decision to continue to add historical power purchase costs and other unexplained charges to the cost of power is a worry for consumers who are already heaving under the heavy burden of the rising cost of living.
Kenyans will until December pay higher power bills because the government has allowed Kenya Power to recover, from last month, the revenue it lost when former President Uhuru Kenyatta reduced electricity prices.
The tariff reduction was put in place in January 2022 and was to last until December of that year. But President William Ruto extended it for three more months – between January and March 2023 – leading to a projected revenue loss of Sh6.5 billion for Kenya Power.
It is this amount that has been loaded onto power bills in 12-month instalments to recover the lost revenue.
“The biggest scandal happened after the swearing-in of the new government where in six months, consumers had been overcharged by over Sh20 billion. From January 2018 to December 2023, Sh68.5billion had been collected unlawfully. This is money we still believe is owed to consumers and must be paid back,” said Mr Ndereva.
The effect of high power prices is being felt by both domestic and commercial consumers such as manufacturers, raising the cost of living.
Inflation shot up to a four-month high of 6.9 percent in January, up from 6.6 percent in December last year, propelled by an increase in power prices by as much as 17.5 percent.
