INAUGURAL LEA NEWSLETTER

Foreword by The CEO

The Lesotho Electricity Authority (LEA) has a culture of communicating with stakeholders and the public. Through our website we aim to reach our stakeholders and the wider community effectively and let them know what we are doing. In this regard we are happy to give our visitors a brief but concise news of what is happening inside the Authority.

The phenomenon of regulation is still new to some of us. People want to know as to what are the benefits of regulation, or what do they stand to gain out of regulation of the electricity sector in Lesotho by the LEA?

The Lesotho Electricity Authority (LEA) has been established to look after the interests of all types and groups of electricity sector stakeholders. They can be classified into four main categories: the Government, Investors, Customers and Licensees. Each group has its own particular interests. For instance, Investors want clarity on the regulatory framework in the electricity sector so that they are able to assess their business opportunities. In the case of licensees, the bottom line is that they want to run electricity businesses that are viable and profitable. For the Government, which is the biggest stakeholder, among other things, priority is on the provision of electrical energy to domestic users, especially the rural communities in the country. Customers in most cases want affordable and reliable electricity supply.

Hence the LEA has a mandate to balance all these competing interests. For instance, the LEA has to see that the needs of electricity system operators and those of the consumers balance. That is, the Authority has the responsibility to see that electricity companies earn a reasonable rate of return on their investment that is necessary to provide good service, whilst ensuring that consumers are given quality service at just and reasonable prices.

People -the main ingredients in any business- do love to communicate. We love to learn, discuss and connect. Through this newsletter we hope to communicate effectively with you. I therefore welcome all visitors to this inaugural edition of LEA newsletter.

B. Kanetsi
Chief Executive

Regulator Involved in Electrification Efforts

One of the mandates of the Lesotho Electricity Authority is to help in efforts to expand the supply of electricity in the country. As a result, the LEA has been involved in a number of initiatives aimed at realizing this and has also been instrumental in setting up a framework that will also enhance regulatory benefits to all stakeholders. These initiatives are the National Electricity Master Plan (NEMP) study the electricity sector consultations on accelerated electrification and the Electricity Access Pilot Projects (EAPPs).

The LEA is a member of the Steering Committee (SC) of the NEMP which seeks to provide answers to all the plans both the Government and electricity sector stakeholders have on accelerating electrification in Lesotho. The significance of the LEA being part of the SC is that the body oversees how the consultants engage in the study and reviews reports from time to time, at different stages of the study. The NEMP is expected to chart a way forward for a systematic approach which would lead to attainment of the electrification target of 35% by 2015 and thereafter. The study is conducted by COWI International of Denmark and funded by the World Bank under the Lesotho Utilities Sector Reform Project (LURP). The consultants have not yet delivered the draft of the Electrification Master Planning Report. The study is still underway.

The regulator was also invited to attend an electricity sector stakeholders retreat convened by the Minister of Natural Resources, Mr. Monyane Moleleki, in which representatives of the electricity sector institutions discussed strategies of increasing access to electricity by more Basotho households. The retreat was held on March 23-24, 2007 at Katse Lodge. The LEA contributed in the discussions centred on finding both the financial and institutional frameworks that should be adopted and used to achieve accelerated electrification. A report on recommendations of the retreat is being compiled. It is intended that there would be a follow up meeting to make more progress on the matter.

Part of the stakeholders who attended the Katse retreat. The Minister of Natural Resources is sixth from the left.

Other institutions that were represented there were the Headquarters of the Ministry of Natural Resources, the Department of Energy and the Lesotho Electricity Company (LEC). At this juncture the private sector was not part of the discussions.

Within the framework of Electricity Access Pilot Projects (EAPPs) initiatives, the Authority recently visited the Ha Sekake EAPP in the Qacha’s Nek district in late March 2007, to see progress on the works there and to familiarize itself with it. The area is one of the four in the country which have been selected to test the various models for rural electrification. The three others are Dilli-Dilli/Sixondo (cross-border grid extension) in Quthing district, Semonkong (off- Grid stand alone hydro/ diesel) in Maseru district and Qholaqhoe (grid extension) in Butha-Buthe District. Ha Sekake will use diesel for generating electricity.

The Photo-voltaic or solar electrification projects have been planned for some parts of the rural areas in the Mokhotlong, Thaba-Tseka and Qacha’s Nek districts. Even here the LEA will be playing a part since it has a mandate to promote the expansion of electricity supply in Lesotho.

In the context of accelerating electrification process in Lesotho the Authority has already finalized the Rural Electrification Licensing Framework, although parts of it are being reviewed. Rural electrification licences based on the models mentioned above have been developed. The LEA has designed and is ready to issue licences for mini-grid, grid-extension and PV systems. The essence of the framework in all these licences is that of light-handed regulation. For example, the conditions of the rural licences on issues such as say the quality of service and supply standards are, in relation to the ones for Lesotho Electricity Company (LEC) (connected grid system), less stringent. This is done in recognition of the ecological realities of the rural areas and to encourage private sector participation in rural electrification by reducing regulatory costs.

Increases in rural electrification will benefit rural communities and lead to improvement in their lives.

LEA Determines the LEC Application For a Tariff Increase

On March 08, 2007 the LEA Board resolved not to approve a request by the Lesotho Electricity Company (LEC) to increase energy charges across all LEC consumer classes by 6% from April 01, 2007. Under section 24 of the LEA Act, licensees are required to file tariff adjustment applications with the LEA.

The LEC had lodged their application on 2nd January 2007 which triggered a modified letter from the LEA on 21st January 2007. The letter urged the LEC to submit a fully compliant proposal as required. Among others, the company was advised to include all charges to be collected from consumers in its application and also provide additional information.

On February 9th 2007 LEC resubmitted its Tariff Adjustment Application and it had not altered its request in any way but just provided the additional information requested by LEA.

As required by the LEA procedure the public was subsequently invited to make representations on the matter on 21 February 2007. They were given until 28 February to submit their comments. Responses were received from the industrial, general purpose and domestic consumers.

Their views were that the company should not be allowed to increase tariffs because the current main source (‘Muela) of energy was cheap and the benefits should be passed on to the consumers. The large consumers were concerned that any increase in the tariff (above 2%) would make their industries non-competitive and there might be a resultant increase in the security deposit required by the LEC.

To reach an objective determination of the application, the LEA Board also used information sourced from the Cost of Supply Study (COSS) commissioned by the Authority to determine appropriate tariff levels beginning April 2007.

An analysis of the application was duly made and in summary, LEC’s application was found to have no adequate justification for it to be approved. The LEA Board therefore did not approve the request for 6% increase by LEC. The Board determined that the charges paid by customers should remain the same as in 2006/2007.

In order to fulfill its broader mandate in terms of LEA Act 2002 the Authority also determined that the 2007/8 tariffs would include the LEA customer and rural electrification levies of M0.009/kWh and M0.01/kWh respectively

The new tariffs are shown in the table below.

Approved LEC Tariff Levels for 2007/2008 by the Lesotho Electricity Authority

Existence of QOSSS to Protect Licensees and Customers

For regulated distribution and supply entities to provide excellent service to stakeholders they should operate within confines or parameters which have been set as the minimum by the law. In this regard the Lesotho Electricity Company (LEC), currently the biggest distributor and supplier, (or any company engaged in a similar business in future), is expected to carry out its operations within the guidelines laid down by the LEA. These guidelines are referred to as the Quality of Supply and Service Standards (QOSSS).

The Quality of Supply standards set the technically acceptable operating limits of both the magnitude and frequency of the supply voltage. The quality of service standard, on the other hand sets the service levels in providing electricity to customers. In particular the quality of supply standard sets operating limits for voltage regulation, voltage unbalance, voltage flicker and voltage harmonics as well as for frequency regulation. The quality of service standard addresses issues such as time frames for provision of quotations and supply, faults’ handling, electricity account queries and complaints amongst others. The standards detail measures the licensees has to take to ensure that the electricity supply that gets to the customer is of good quality delivered at good quality service.

The QOSSS are part of the Composite Distribution and Supply licence issued to the LEC by the LEA. At the moment it has been decided by the LEA that LEC should be given enough time to study the guidelines and accordingly adjust their operations. It is intended that in future the LEC should attain world class service standards.

The Authority has also developed the Supply Rules. These set minimum technical standards for the construction, maintenance and operation of electrical apparatus as well as for installation of electrical equipment. Among others the main purposes of the Supply Rules are to;

• Protect persons from danger related to electrical works and installations
• Eliminate or reduce risk of personal injury or property
• Ensure users’ installations are safe
• Secure regular and efficient supplies of electricity
• Put obligations on licensees to comply with quality standards

In the formulation of both the Service Standards and the Supply Rules the LEA consulted the stakeholders who included the LEC. The issuing of QOSSS to licensees (LEC in this regard seeks to realise one of the fundamental duties of the LEA. This is to ensure the operation and development of a safe electricity sector in Lesotho for the benefit of both electricity users and utilities themselves.

Currently the LEA is developing the QOSSS that will be applicable in the rural electrification settings. The rationale for having a different QOSSS is that the requirements for sustainable and effective electrification in the rural areas are different from those existing in the urban centres in Lesotho. For instance, while it might be possible to connect some areas from the existing LEC network, in some areas electrification could be done instead by installing solar systems..

All these highlight the need to have a flexible QOSSS regime for the rural areas.

Part of the Ha-Sekake EAPP network being constructed.

The Cost of Electricity Supply Study Commissioned

In order to develop a coherent, effective and economically sound approach in determining and regulating the costs of power supply, the principles of charging for electricity services and cost recovery, the Lesotho Electricity Authority (LEA) commissioned a Cost of Electricity Supply Study in November 2006.

The study would further assist the Authority in establishing, maintaining and periodically reviewing the system for the setting of tariffs for electricity supply, including charges for connection to and use of the electrical network, as well as the levels of prices charged to different classes of customers in the country. The study has now been completed, and as mentioned, its recommendations have already been partially applied in determining LEC’s tariffs for 2007/08.

Specifically the objectives of the study were to:-

• Establish the opening regulatory Asset Base;
• Determine a regulatory depreciation method;
• Define the rate of return for the electricity supply industry;
• Determine the cost of supplying electricity and appropriate tariff levels that are in line with the proposed charging restrictions in the LEC license; and
• Develop a comprehensive and robust analytic framework model for tariff review by the Authority.

The Authority contracted SYNEX Consulting Engineers of Chile to carry out the study and the consultant has since submitted the Final Report with a number of recommendations on charging principles and the appropriate tariff levels to be charged by the Lesotho Electricity Company (LEC) to various customer categories starting from April 2007. Section 24 of the LEA Act gives the Authority powers to review and set tariff rates and charges.

LEA Issues Licences to LHDA and LEC

On December 19, 2006 the Lesotho Electricity Authority (LEA) Board issued a generation licence to the Lesotho Highlands Development Authority (LHDA) and a Composite Transmission and Distribution and Supply Licence to the Lesotho Electricity Company (LEC).

The issuing of the two licences meant that the Authority assumed its full regulatory mandate as spelled out in the Lesotho Electricity Authority Act of 2002 and the LEA Amendment Act No.6 of 2006. Currently, the LHDA and the LEC are the largest players in the Lesotho Electricity Supply Industry (ESI). The LHDA, through its ‘Muela Hydropower plant generates more than 70 Megawatts (MW) of electricity for use by customers in Lesotho. Under a Power Sales Agreement between LHDA and the LEC, the generated power is sold to the LEC. The latter is responsible for transmitting and distributing electricity from ‘Muela to customers in the country.

Under the new regulatory framework both the LHDA and the LEC licences provide that in cases where any regulatory information is sought by the LEA from the two it should be provided to enable the latter to execute its mandate. The LEA has a set of rules and regulations that are used to allow for smooth regulation of the electricity sector. The assumption of full regulatory mandate by the regulator was a positive step for the sector.

Awareness Activities to be Diversified

Since its establishment the LEA has continually set out to increase awareness of its existence and role among its stakeholders. These efforts are meant to give the regulator necessary publicity and build relationships with stakeholders. Over time these would help LEA establish favorable dispositions with stakeholders and promote its role in the community.

In the quest to achieve this, the LEA is set to engage in more outreach activities. In 2006 the LEA undertook sensitization tours to all the districts of the country and at that stage the LEA’s emphasis was on highlighting its existence and plans. As a follow up to that communication which took place then, the LEA will, in 2007, revisit the districts to discuss the progress made, issues of concern to stakeholders and the way forward. Things look more promising in the light of the fact that, the Authority is now in a position to pronounce itself clearly on some issues. This was not the case in the 2006 visits to districts by the LEA as by then it had not assumed its full mandate.

The LEA Board Chairperson, Mr. Zola Tsotsi and the Chief Executive chat with the acting Minister of Natural Resources, Mrs. M. Mahase-Moiloa during the 3rd RERA AGM & Conference held in Maseru in November 2006.

Other outreach activities will include taking part in national events such as the 2007 Public Service Day preparations and celebrations, and other public events from time to time. As the regulatory process continues there will be emergent issues which will need to be communicated. The LEA will engage the stakeholders through the mass media. This is to be done by holding discussions, writing regular newspaper columns or plain advertising. The use of publications such as customer rights and responsibility brochures is going to be increased. All the different methods will help stakeholders be aware of LEA developments.

In summary the emphasis will be on the use of specifically targeted messages to particular audiences. For instance the contents of the website will be updated regularly. One of the important outputs of the whole process will be to educate consumers on their rights and responsibilities. This will put pressure on service providers to ensure complaints are resolved efficiently.

The LEA has had a few notable awareness activities in the past year. For example in November, 2006 the LEA hosted the 3rd Regional Electricity Regulators Association (RERA) Annual General Meeting (AGM) and Conference. The Acting Minister of Natural Resources Mrs. Mpeo Mahase-Moiloa officially opened the occasion. Apart from RERA members, representatives of African Forum for Utility Regulators (AFUR) industrialists, representatives of Lesotho utilities and other dignitaries few graced the occasion. This came on the back of a successful exercise to launch the authority done by the Ministry of Natural Resources earlier in the year.

LEA Commences dispute resolution duties

On a daily basis there are literally hundreds of commercial arrangements or transactions that take place between the Lesotho Electricity Company (LEC) and its customers and all of these have different consequences. In addition, the LEC frequently interacts with the public in the normal course of doing its business. As can be expected, from time to time things do not go as planned and the parties end up in a conflict or dispute situation, which has to be resolved in some way. In addition to this, electricity supply sometimes causes harm or damage to persons or property, and disputes arising thereof have to be managed in one way or another.

It is here that the LEA comes in with its mandate as set out in the principal law. As one of its functions, the Authority must resolve disputes between licence holders and between license holders and their customers should such disputes be not resolved by the complaints procedure of the licensee itself.

In this context the LEA has experienced a period of activity in so far as attending complaints and queries is concerned. Long before the LEC and LHDA were issued with licences in December 2006 some complainants approached LEA for help. Most complaints submitted ranged from poor/ non-delivery of service by the former to queries about its quotations. Only two of these were still outstanding pending response from the LEC. The rest were finalized by end of March, 2007.

At the moment the Authority has not yet been called upon to intervene in a licensee to licensee dispute situation. As in the customer- licensee dispute case the LEA has established procedures to resolve those types of disputes.

An example of a potential wayleave dispute.