Home » Electricity price rise raises accuracy of cost reflective formula

Electricity price rise raises accuracy of cost reflective formula

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Sri Lanka’s overall electricity tariff hike of 75 per cent approved by the Public Utility Commission of Sri Lanka (PUCSL) considering Ceylon Electricity Board’s (CEB) cost reflective pricing methodology has raised issues relating to its accuracy and justifiability, official sources said.

The PUCSL can approve the tariff proposed by CEB and LECO only after adhering to cost-reflective methodology of recovering actual costs in a reasonable manner for its activities to be conducted efficiently, the Sri Lanka Electricity Act stipulates.

According to PUCSL, the CEB is targeting annual electricity sale revenue of Rs. 512 billion through this tariff revision although its actual average revenue was Rs.249 billion; several energy experts said adding that it was unjustifiable to approve such a price formula.

They categorically noted that this electricity pricing formula reflecting data compiled by CEB on costs is not based on any scientific and mathematical theories to evaluate the electricity spot price dynamics and it was formulated without considering the cost analysis using Finance Ministry or Central Bank statistics.

This was confirmed by several heads of economic think tanks as well as senior government officials serving in statistics, mathematical modeling and computing divisions and departments of finance and energy ministries.

According to Section 30 of the Sri Lanka Electricity Act, No. 20 of 2009, which governs the setting of electricity tariffs, the relevant licensees (CEB and LECO) are to set the tariff according to a cost reflective methodology approved by the PUCSL.

The electricity tariff must permit the licensee or power utility to recover all reasonable costs incurred in the carrying out of the activities on an efficient basis under this Act.

The tariff reflecting all reasonable costs for carrying out power generation and transmission activities efficiently must be approved by the Commission in accordance with general or specific policy guidelines endorsed by the Cabinet, Section 30 of the Act stipulated.

It cannot approve tariff revisions based on inaccurate and distorted or manipulated data and statistics.

The electricity bill of household consumers is to be increased by 95 per cent almost doubling the current bill and the lower segment of energy users in the category of less than 30 units will have to pay 264 per cent more than their present monthly bill in accordance with the present formula.

The higher end users of electricity consuming over 180 units will have to pay 75 per cent more than their current payment.

The increase in the electricity bill of commercial establishments is 37 per cent and industries 86 per cent, hotels 67 per cent, government institutions 90 per cent and places of religious worship 489 per cent.

Several heads of consumer protection associations said , this pricing methodology with disproportionate rates for various segments of the society will definitely be a burden for lower and middle income groups currently facing severe economic difficulties.

The PUCSL has made some adjustments to CEB’s electricity tariff revision with unbearable price increases to cover up its heavy costs including overheads corruption, waste and inefficiencies of the power utility, several energy experts and senior officials said.

Analysing the tariff structure proposed by the CEB and approved by the PUCSL with adjustments, former Energy Minister Patalee Champika Ranawake noted that the unbearable electricity price hike is a violation of the social justice principle.

This was an attempt to put the whole burden of heavy costs of the CEB due to its inefficiency, irregularities, weaknesses and corrupt practices on consumers, he said.

He added that successive governments and PUCSL should also bear the responsibility for not implementing cost effective pricing formula for nine long years since 2103 which should be devised by energy and mathematics experts based on two-factor model using differential equations to evaluate the electricity spot price dynamics.

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