Automatic adjustment formula not panacea for funding shortfall – PURC

Implementation of the automatic tariff adjustment formula will not eradicate the funding shortfall of utility service providers, the Public Utilities Regulatory Commission has said.

Utility service providers, ECG and VRA, in a proposal submitted to PURC requested a 166% and 128% rise in tariffs with the utility regulator being able to grant them 78.9% and 36% respectively in the tariff review.

By reducing the proposed tariffs, however, the PURC left the utilities without sufficient funds to narrow a wide investment gap in the sector. The funding gap at the Electricity Company of Ghana (ECG) is US$170million per annum, and the Volta River Authority (VRA) needs to invest US$200million annually to meet electricity demand, which is rising at around 10 percent every year.

The Ghana Grid Company (GRIDCo) also said its plans of investing US$633million in the next three years may be put on hold if the PURC delays the implementation of the automatic tariff adjustment formula for electricity tariffs.

The other utility companies were also hopeful that the implementation of the automatic adjustment formula would see them rake in tariff that will suffice with their cost of operations and investment needs.

However, addressing a press conference on Tuesday, PURC Executive Secretary Mr. Samuel Sarpong described as erroneous “the impression that the automatic adjustment formular is always to increase prices and it is also a panacea for any future price hikes in electricity and water services.”

The AAF’s main objective is to review quarterly electricity and water tariffs to reflect changes in factors whose effects on the operations of the utility service providers were beyond their control.

According to Mr. Sarpong, “AAF is not a substitute to the major tariff review process the commission has just embarked on. The Commission would [continue to] undertake major tariff reviews as stipulated in our Electricity Rate Setting Guidelines where the utility companies would submit proposals to commission a holistic review of their cost.

The utilities regulator also dispelled assertions by utility providers that it had stayed the implementation of the tariff formular for the past two years saying that it has been implementing the formular since February 2011.

“The commission only ceased the implementation of the Automatic Adjustment Formular in June 2012 due to an accident of the West African Gas Pipeline and also the fact that the commission was going through major tariff review process,” Mr. Sarpong added.


Source: BFT