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Final Decision and

Commission Order

Case U-0013-14

In the matter of investigating and implementing a Business Development Incentive electricity tariff for UNELCO in Efate

December 2014

Foreword

The Utilities Regulatory Authority (URA) Commission is pleased to issue this Final Decision and Order implementing a Business Development Incentive electricity tariff for UNELCO in Efate (case U-0013-14). Pursuant to its Preliminary Decision in July 2014, Commission staff held public consultations and received valuable comments from several interested persons. lviany of the suggestions have been incorporated in this Order.

The electricity network in Vanuatu, and in particular in Port Vila and  the  surrounding  area,  has  seen  little  growth in recent years while there is significant unused generation  capacity  in  the  UNELCO  system. The issue of excess capacity was raised by the URA Commission with UNELCO  in its last  tariff  Decision  in  2010'. An efficient and prudently-run utility company should be expected to make  efforts  to  clear  this  capacity and stimulate growth. No such action has been taken. The Commission called upon the URA staff to perform an analysis of the current unused capacity and develop recommendations to efficiently utilize generation capacity. The staff has recommended the Business Development  Incentive  (EDI) tariff  that offers an attractive price for incremental use, which covers all UNELCO's out-of-pocket marginal costs. Today the Commission  is  adopting  the  Business  Development  Incentive  tariff  for  the  Port Vila  electricity  concession.

The EDI tariff implemented by this order does not reduce UNELCO's  revenues  or profits,  and in the long­  run will provide lower prices for all customers. This program is not discriminatory as it is  available  to  all customers who meet  the  eligibility  criteria.  This Order is also consistent with Vanuatu Government initiatives to make Vanuatu a more attractive destination for businesses and industry, such as the National Trade Policy Framework,  and contribute  to lowering the cost of doing business in Port Vila.

We urge the Government, UNELCO and all interested persons to support the Decision and its implementation.

Johnson  Naviti, Chairman

Hasso Bhatia, PhD, CEO and  Commissioner

John Alilee,  Executive  Commissioner

1 Utilities  Regulatory Authority Electricity Tariff Review Final Decision  May 2010, section   4.12.1.

1. Introduction

1.1                   Case information

Table 1:Case information

1.2                    Purpose of this document

This document sets out the Final Decision and Commission Order in the matter of investigating and implementing a Business Development Incentive electricity tariff for UNELCO in Efate (URA case U-0013-  14). This Commission Order is the formal ordet to  Union  Electrique  du Vanuatu  Ltd.  (UNELCO)  to  carry  out the necessary actions to implement the provisions described in this Order. It lays out in detail the background and considerations supporting the Commission's decision, including many useful responses to submissions received during the consultation process.

1.3                    Background

The electricity network in Efate has suffered from a severe slow-down in demand growth since 2010. Growth in electricity demand is a key driver of network efficiencies. As demand grows there are further economies of scale, which can then translate into lower unit prices. The slow-down in growth in the Efate electricity network creates a significant constraint on efficiency improvements and lowering of prices.

The high cost of electricity in Vanuatu has been identified by the Government (set out in the National Trade Policy Framework) as a potential barrier to economic growth.  By offering  a reduced  tariff  for new  business and industrial customers, this potential barrier can  be  lowered. The  additional  load  and consumption  from  this tariff prograru will increase the utilization of existing capacity, which over the longer term will accelerate the requirement for investment in new, potentially more efficient, generation equipment. This in turn will accelerate reductions in the cost of electricity generation, which will result in lowering of tariffs for all. With greater utilization of the network, fixed costs will also eventually come down. This program is consistent with other Government initiatives to increase economic growth in Vanuatu, such as the National Trade Policy Fraruework  and the aims of National Energy Road   Map.

Against this context, in July 2014 the URA issued a Preliminary Decision describing a new Business Development Incentive (BDI) tariff intended to stimulate electricity demand growth by offering a significant discount for incremental network load. The Preliminary Decision was shared publicly  and  submissions  received from many interested persons. Subsequent follow-up meetings were held  with  UNELCO,  the  Vanuatu Chamber of Commerce and Industry (VCCI), the Vanuatu Investment Promotion Authority (VIPA)  and the Department of Trade, and a survey was carried out of VCCI members. This feedback has enabled the URA to refine and improve its design  for a BDI tariff.

1.4                 Case  chronology

1.5                 Legal context

The legislation governing the generation, supply and sale of electricity in Efate is established by the Electricity Supply Act, the Utilities Regulatory Authority Act and the Concession contract for the Generation and Public Supply of Electric  Power in Port Vila  between  the Government  of Vanuatu  and UNELCO.

The legal basis of this order is described in more detail in Section   4.

1. Tariff parameters

2.1                    Business Development Incentive (BDI) Tariff

The BDI tariff rate shall  be:

P = 54.06 vatu as of September 2014

Assumed power factor = 80%. High Voltage customers are subject to additional charges if theirpower factor is below 80%.

2.2                     Fuel price adjustment

The energy charge in the BDI tariff will be subject to a monthly adjustment  for changes  in the cost  of diesel fuel. The average landed price of fuel in Port Vila in September 2014 was 109.17 vatu per litre. The energy charge will be adjusted up or down by the same proportion as the landed price  of fuel in Port Vila varies from  the September 2014 fuel  price.

2.3                     Eligibility

Eligibility for the discounted tariff shall be restricted to new customers and incremental consumption of existing consumers. If existing consumption is allowed to switch to the BDI tariff, the loss of revenues shall have to be made up by raising all tariffs, thus negating the effect of the proposal. Therefore strict eligibility criteria must be set that will be verified prior to approval of the BDI tariff for a customer. This.tariff is only applicable for the network in Efate.

2.3.1    New customers

If the customer is a new connection, the customer will still bear the normal cost of  connection  and  any necessary network extension. The application will be cross-checked against recent disconnections and  reductions of subscription to ensure that customers are not simply shutting down one connection to  open  another in order to benefit from the BDI tariff.

2.3.2    Existing customers

An existing customer that wishes to increase their load can benefit from the BDI tariff, but only for the incremental subscription and consumption. If the incremental subscription is supplied through a separate meter, then the BDI tariff will apply only to the new meter. If the incremental load is supplied through an existing meter, then the BDI tariff will apply only to the additional subscribed load, and only to consumption greater than the average consumption of the previous 12 months from the first billing month under the new tariff. If the customer has previously reduced their load, then the standard tariff will be applied up to the maximum load for the customer in the last 12 months. This is to avoid  customers requesting reductions in load, only then to request increases using the BDI tariff.

2.3.3    Minimum new load

In order to be eligible for the BDI tariff, the new or increased load must be at least 9.9kVA (equivalent to a 15amp three-phase connection or greater).

2.4                    Curtailment provision

In order to address concerns around the level of excess generation capacity, customers that  opt for the BDI tariff must agree to a curtailment provision in the case of extreme and unusual circumstances requiring network load shedding due to insufficient generation or network constraints. The issue of net\vork capacity is discussed in further detail in Section 3 of this Order.

2.5                    Maximum capacity

Initially, the amount of total incremental capacity made available for this tariff will be restricted to 3,000 kW connected load, and the impact on system peak demand will be monitored.  A  periodic  review  of  peak  demand in consultation with UNELCO will determine whether any further increases of BDI subscriptions should be allowed.

2.6         Term of availability

A customer shall remain on the BDI tariff and benefit from this discounted tariff  for  five years,  after which they will revert to the standard tariff for their customer category. UNELCO will establish  a cross-checking process to ensure that customers do  not  circumvent  this  limit by terminating  and  re-opening  connections  for  the same load.

3. Tariff considerations

The criteria  for the design of the BDI tariff are that it:

• Stimulates system growth
• Maintains system reliability
• Improves the utility's ability to recover its prudently incurred costs and profit margins

3.1     Growth stimulation

The rate of demand growth is a key factor in driving long-run efficiency improvements in the Efate electricity network, as it drives the rate at which additional and more efficient generation units are required. Electricity growth has slowed dramatically since 2010. Over the years 2006 to 2010, electricity demand in kWh increased by an average of 7.65% per year. Since 2010, demand growth has  been  static, with  only 0.34% growth  per year.

 Figure 1: Electricity demand by year [...] 

Part of this reduction in growth may be related to a slowing of economic growth in general since  2008. However, since 2010 the Vanuatu economy has been growing at an average rate  of  3.17%, which  is much higher than electricity growth over the same period. 

Figure  2: Comparison of GDP growth and electricity demand growth [...]

As electricity demand grows, the fixed costs of the network  are  spread across more customers  and energy  sold, which over time results in lower tariffs. Slow growth rates restrict this and have the opposite effect, meaning that tariffs remain high. Unfortunately nothing has been done  over  this  period  to  attract  new  growth.

As the aim of the BDI tariff is to stimulate an increase in the growth rate, the discount must be significant enough to influence business decisions to the extent that it creates greater electricity demand. The results of a survey undertaken by URA staff (results shown in Section 5) indicate that a discount of at least 20% would be required to have an influence on investment  decisions.

It is part of the normal operations of a utility that new customers join, change their subscriptions and  terminate agreements (for example, in 2013 four new commercial customers subscribed per month on average). This customer churn will likely be impacted by the BDI program, the aim being to create  a net  increase in total customer  demand. In addition, the following safeguards are included   in the program:

• Available only to businesses
  • Minimum incremental load of  9.9kVA
    • Checks against previous disconnections  or load reductions by the same  customer.

3.2    Network reliability

In order to guarantee the reliable supply of electricity, generation capacity should exceed the maximum simultaneous demand (system peak demand) by a certain reserve margin. This reserve margin  or  buffer depends on the size and type of  system. 

As demand increases, peak demand may also increase, which reduces the level of available reserve margin. If, however, there is sufficient generation capacity already installed to absorb an increase in demand and still maintain reasonable reserv-e margins, then there is no immediate impact on reliability from  incremental  demand.

The table below  shows the capacity of diesel generators currently installed on the Efate network.

* UNELCO have indicated that generators GR 6 and 7 are nearing the end of their useful life and will be replaced in 2015.

The  maximum  simultaneous  demand  on  the  electricity  network  is  referred  to  as  "system  peak  load". The monthly peak load of the Efate network in 2013 is shown in the table below.

UNELCO uses an ''N-2'' reserve margin standard, which means there should be  sufficient reserve margin  to meet maximum demand in case of failure of the two largest machines. While a simultaneous failure is unlikely to occur, this standard is intended to protect supply if one of the two largest machines is  undergoing maintenance or is out of order and awaiting replacement parts. This standard is more  conservative  than  that used in many other countries, which is to ensure reserve margin is greater than the largest machine plus a percentage of peak demand. Large integrated systems in developed countries use Loss of Load Probability approach such as 'once inten years' or LOLH in planning the reserve margins, which typically results in 10°/o- 120/o reserve margin required over and above the peak load.. "Excess capacity" is defined as the amount by  which peak demand could increase from forecasted levels while still retaining sufficient reserve margin to support the probable aggregated loss of generation machines. The table below shows the calculation of excess capacity using different assumptions  based  on an N-2  standard.

In addition to the diesel capacity described above, the following generation capacity is installed or planned  to be installed  over  the next 12 months:

• 3 MW wind  turbines  (to be expanded to 4MW)
  • 1-1.5MW EU co-funded  solar plant (planned  for 2015)
  • 500kW DAE-funded  rooftop  solar plant (planned  for 2015)

There is also potential  for 4 MW Geo-Thermal power not included in this   analysis

These generation sources are intermittent and so must be supported by dispatchable (i.e. diesel) capacity. This additional capacity does, however, mean that the reserve diesel capacity will be less utilised and so available to be used by BDI  customers.

Adding incremental load does not necessarily increase peak demand by the same amount due to the diversity in electricity  use  patterns.  For  example,  the  total  current  subscribed  power  for  all customers  is  more than 50MW, yet peak demand is less than 25% of that amount. It is likely, however, that larger commercial customers will use a greater proportion  of their total subscription, particularly  <luting peak  hours.

In the Electricity Tariff Review Final Decision May 2010,  the  Commission  noted  "that the  current  network  capa,ity is much higher than peak demand, and the investment plan includes further investment to increase capacity. There are also separate plans under discussion around the addition of solar and geothermal capmity into the network. There is therefore a risk of an inefficient level of assets in Pott  Villa•   The  then  current  investments  were  however  recognized  in computing the consumer tariffs presently in effect. An efficient and prudently-run utility company should be expected to make efforts to clear this capacity and stimulate growth. To date, the URA is not aware  of any  action taken by UNELCO to utilise this excess capacity to stimulate growth and contain costs.

Given the evidence presented above, it is the opinion of the Commission that incremental subscriptions of 3lv!Wwill not significantly increase the risk of impairment to system reliability. As an additional precaution in case of extreme circumstances where load-shedding  may be necessary, BDI tariff customers will be subject to    a higher curtailment provision. This means that if the situation arises where system demand exceeds available capacity, BDI customers will be those whose supply is suspended first. The Commission's view is that this is highly urilikely given the level of excess capacity but nevertheless a necessary provision in the BDI tariff.

3.3                    Cost Analysis

The marginal cost of energy is the cost of providing one extra kWh. Ifincremental energy sold is priced at marginal cost, including marginal system losses, then the utility shall be able to recover  its incremental costs.  The BDI tariff is designed to  ensure  that the marginal  cost of providing incremental  energy is covered  and that  the utility does not  suffer a loss in serving such a  customer.

In order to calculate the marginal cost of energy, the impact on the utility costs  of  generating incremental energy must be estimated. The calculation of marginal cost depends on the time frame assumed for the incremental generation. For the purposes of this program, a time scale of five years -will be assumed, as this is the normal tariff review cycle. 

The immediate cost of providing an incremental kWh of energy is the cost of  fuel used to generate electricity.

While there are some renewable energy sources used to generate  electricity  in Efate  (3.025MW wind  and  87kW solar), it is assumed conservatively that any incremental  energy is produced  using diesel fuel  (coconut oil is assumed to be equivalent to diesel for the purposes of  this  estimation).  The  average  generation efficiency of the diesel generators in Efate is 252.43ml/kWh. The price of diesel fuel landed in Port Vila in September 2014 is 109.17 vatu per litre. System losses are on average 2.22% for transmission and 3.48% for distribution. Losses for supplying a High Voltage  customer  are assumed  to include only transmission,  while for a Low Voltage customer transmission and distribution losses are included. The table below shows the calculation of marginal fuel costs.

                Table 6· Calculation of marginal fuel cost

Other operational costs that vary with the amount of power generated or consumed include the cost of lubrication oil and any other maintenance costs. In the last tariff review in 2010, data provided by UNELCO showed the cost of lubrication oil as less than 0.3 vatu per kWb. For the purposes of this estimation, these incremental costs are assumed to be negligible.

Over the medium-term, an increase in demand may impact the required generation capacity. Also to ensure efficiency and reliability (as generation equipment gets older it requires more maintenance and there may be more frequent breakdowns), there is need for replacement of older inefficient machines  with  more  efficient ones and therefore for new investm.ent. The maximum possible level of this cost is if  every  kW  of  subscription contributed to an additional kW of peak load, and generation capacity must be increased by the same amount. The annual cost of the investment required is levelized over  the  expected  life  of  new  generation capacity. The calculation of this maximum cost is shown in the table below. 

1. Soum: Study of Equipment Prim in the power Sector, ESMAP Technical Paper, D Pauschert. Top end of cost range taken of diesel plant 1-5M IV, plus 25%.
2. Taken as equal to lViighted Average Cost of Capital used in the last electricity tanjf review

It is also possible that an increase in demand may require  investment  in network  strengthening.  UNELCO  have indicated that there is sufficient capacity in the network, and suitable existing plans to expand and strengthen it. For the purposes of the BDI tariff, no additional network costs are likely to occur and therefore have not been  included.

Investment in generation and network capacity is "lumpy'', meaning that it is characterised as periodic, large investments. This means that the actual cost to the utility will depend on the stage of the investment cycle. Levelising these costs provides a reasonable estimate on the average cost to the utility, and pricing at this level enables the utility to fully recover the incremental  cost of  supplying BDI customers including  a large portion  of the incremental  fixed costs.

By setting the BDI tariff where  the energy charge is equal to  the  fuel cost, and a monthly  fixed  charge equal  to the maximum monthly equivalent incremental generation cost, the  financial impact of the BDI program  on the utility  company is neutral inthe worst  case. In addition, there is a maximum  cap on BDI   subscriptions.

3.4                     Program eligibility and checks

This incentive tariff is avail.able to commercial and high voltage customers who create new load. This can be a completely  new  business  seeking  connection,  or  increasing  the  subscription  of  an  existing   business   connection. In  order  to  focus  on  incremental  demand  rather  than  natural  "churn",  the  new  load  must  be  at least 9.9k\v' (equivalent to a 15A three phase connection). Applications will be cross-checked against recently reduced or closed connections  in order  to  prevent  customers  transferring  existing  load  onto  the  BDI  tariff.  Once the new load becomes active, the BDI tariff will apply for 5 years, after which the load will revert to the relevant  standard tariff.

There will be a maximum limit of 3,000kW of new load that is available for  the BDI  tariff. This is  to protect  the utility from any extreme increases in system load that could be detrimental to the continued safety and reliability of the network. There will be an annual review of the program to determine how much incremental load has been created  and new capacity has  been installed,  and to decide whether  to continue the program.  This  will  be  done  in  consultation  with  UNELCO.  However  customers  once  on  the  BDI  will  continue   to enjoy the tariff for five years.

1. Power of URA to implement program

As part of UNELCO's submission  to URA in this matter, the power  of the URA  to implement  this program has been questioned. To clarify that the Commission has the power, this section discusses at some length the legal basis of this Decision requiring UNELCO  to implement this   program.

4.1                         Powers and Functions under the URA Act

Under the Utilities Regulatory Authority Act (URA Act) the URA  is  mandated  to  ensure  the  provision  of safe, reliable and affordable regulated services, maximize access to regulated services throughout Vanuatu and promote the long term interests of consumers (Section 2 of the URA Act). Additionally one of the primary functions of the URA is to exercise the  functions and powers  conferred by the URA Act or by any other Act   in furtherance of the purposes of the URA Act (Section 12(1)(a)). Further, the URA has been specifically empowered to determine maximum price which may be charged to consumers in relation to any aspect of a regulated service in any place  (Section 18(1)).

In order for URA to effectively  fulfil its functions, Section  13(1) of the URA Act empowers  the URA  to do all things that are necessary or convenient to be done for or in connection with the  performance of  its functions. Further, Section 13(2) of the URA Act specifically provides that, without  limiting  the  general powers  of the URA as set out under Section 13(1), the URA   may:

(a)          require a utility to furnish the URA with information  in the possession  or control of the utility or any of its related entities relating to a regulated  service, amongst  others,

(b)        require  a utility to confer with the URA  as to the manner in which it carries    on any specified  activity

inrelation to a regulated service, or

(c)          do anything reasonably incidental to any of its  powers.

Pursuant to Section 12(2) of the URA Act, the URA must exercise its functions in a way that considers the interests of, and impact  on, consumers and utility businesses  as well as Government  policy.

4.2                    Order not inconsistent with provisions of Port Vila Electricity Contract

Section 3 of the URA Act (as amended) states that "ThisAct applies to a regulated service to the extent that is not inconsistent with a provision in any wncession agreement under the Eledricity Supply Act [CAP 65] existing on or before the

commencement of this Ad or aprovision of any other Acf '.For the purposes of this Decision and Order, the relevant

concession contract is the Concession Contract for the Generation  and Public  Supply of  Electric  Power in  Port Vila entered into between the Government and UNELCO dated  15 August  1986, as amended  till  date (Port  Vila   Electricity  Contract).

UNELCO, in its submission, has claimed that "Matters relating to tarfifs are specifically provided far under UNELCO '.r wncession agreements with the Government of Vanuatu. For example, clause 5 of the Specifications Relating to the Concession far the Generation and Public Supply of E!edric Power in Port Vila outlines a detailed mechanism far the calculation of tariffsfor  the supply of electri,ity."

It should be clarified that only certain aspects of the tariffs have been set out in the Port Vila  Electricity Contract. To support its claim, UNELCO  has  given the entire  Section  5 of the Specifications'  as an example.  It is not clear what portion of Section 5 UNELCO  believes  the BDI  tariff  is inconsistent  with.  Section 5 of  the Specifications (as amended) comprises of numerous components, it sets out certain conditions of tariff calculation and obligations on parties. However, this Decision is not inconsistent with any such components, conditions or obligations. Section 4 of the 1998 Amendment' (amending Section 5 of Specifications)  is described in the italicised sections  below:

Electndty shall be sold to consumers on the basis of a two component rate made up of afixed fee and a charge proportionate to the quantity of electricity used.

The BDI tariff consists of a fixed monthly fee and a proportionate energy charge.

Depending on the type of agreement signed, thefixed fee is equal to a certain number of units of the base prii, per k VAcontradedfor. It coversfixed charges, the hire of the meter and the cost of maintaining the connedion.

The  fixed  fee in the BDI  tariff  is calculated  per kVA, and is calculated  to cover the  fixed costs of   the

incremental load.

However, for certain categories of consumers, as described below, thefixed fee is reduced to zero (0).

The BDI tariff is not available to customers who    have a zero fixed fee.

Asfromthe 1,1 August  1998, the pn,is at whfrh  the  Conmsionnaireis authorised  to sell  electri,itycannot  ex,,edthe  fol lowing base prices for the six (6) supply categories indicated hereinbelow:

A - Low Voltage Agreements - Small Domestic Consumers ... B -LowVoltageAgreement-Professional Uses (T.U.P.)... C-LowVoltageAgreement- Sportsfields  (I) ...

D - Low Voltage Agreement - Public Lighting ...

E - Low Voltage Agreement - Other Uses (T.U.) ...

F- High Voltage Agreements (M.T) ..."

The contract restricts the authorized prices UNELCO may charge consumers in these categories from exceeding the levels set out therein. This is not impacted or altered by this  Decision.  Rather,  this Decision authorizes a lower price under  specified  conditions  for  customers  within  the  above categories,  only a) if customer  adds new load, b)  has minimum  additional  subscription  of  9.9kVA and

c) accepts to be curtailed when requested. The BDI tariff is a special condition for customers  in  categories of B and F above and not a new category of service and therefore not inconsistent with anything in the concession tariffs. It is priced  lower as it is an inferior quality tariff due   to limitations.

3  Specifications  dated  15 August  1986 relating to the  Concession  for the Generation  and Public Supply of Electric   Power

inPortVilaentered into between the Goverrunent  of Vanuatu and UNELCO 'lanuatu.

4 Addendum dated 1 September 1998 varying the Tariffs of the Contracts for  the  Generation  and  Public  Supply  of Electric Power in Port Vila and in Luganville between the Government of the Republic of Vanuatu, the Honourable  Nlinister  of Lands  and Natural Resources  and Union  Electrique  du Vanuatu Ltd

The selling prices of electricity above which are calculated by referent, to the price P, shall be rounded off to the nearest 2 decmia/s for all uses.

Invoices shall be rounded off to the nearest vatu abovefar allfractions of a vatu equal orgreater than 0.5 and to the nearest vatu belowfar allfradions of a vatu below 0.5.

lnvoi,ing shall be done on a monthly basis.

The same rounding practices  and invoicing schedule will be used with the BDI   tariff.

Tarfifs  defined above shall be applied identically to all customers in both the Port Vila and Luganvil/e

Concessions.

This clause is no longer relevant as the referred Luganville concession expired on 31st December   2010.

The subsequent portions of the section regarding the charging of VAT, subscribed power and  power

factor are consistent with this Order.

Further, the program set out in this Decision is  not inconsistent  with  any  other tariff related  provision  in  the  Port Vila Electricity Contract as the program  although not contemplated  by the Port Vila Electricity Contract   (it could not have been  possibly anticipated by the parties in 1986) is neither prohibited  by it. The calculation  of base price P is not altered in any manner nor does the Decision propose an  alternative  method  of  calculating P.

Therefore, the program described in this Order is fully consistent and congruent with the Port Vila Electricity Contract including Section 5 of the Specifications (as amended). It is well within the Commission's power to issue this Order and implement this program, including instructing UNELCO to perform the actions listed in section 7 of this Decision and Order. It should be noted that an order of  the  Commission is binding on  the utility subject only to appellate review.

1. Responses to issues raised during consultation

The consultation process in this case involved a public meeting, follow-up meetings with UNELCO, VCCI, VIPA and the Department of Trade, as well as submissions received from various persons. Written comments were provided by UNELCO in their response to the Preliminary Decision, dated 21"July 2014. This section lays out the Commission's response to the comments received during the consultation process.

5.1    Power of URA to implement program

UNELCO has stated that:

"Fortherearons set out below, the Preliminary Decision thatpuports to implement a Business Development Incentive Tatfif (BDI Tat.ifl) is ''ultra vires" and beyond thepowers of the URAas conferred on it under the Utilities Regulatory Authority Act No. 11 of 2007....

Matters relating to tatfifs are spetijically provided for under UNELCO'sconcession agreements with the Government of Vanuatu. For example, clause 5 of the Spetijications Relating to the Concession far the Generation and Public Supply of Electric Power in Port Vila outlines a detailed mechanism for the calculation of tatiffsfor the supply of electricity...

Affordingly, the URA is not at liberty to unilaterally implement the BDI Tariff or the ancillary matters set out in the Preliminary Decision. "

URA response

Based on the reasons set out in section 4, the URA. Commission states that it is well within URA's power to issue this Order and implement this program and the  program  is  consistent  with  Port  Vila  Electricity Contract including Section 5 of the Specifications  (as  amended).

Under the URA Act, the URA is clearly mandated  to fulfil certain  functions and exercise certain powers.  One of the ways inwhich the URA conducts its activities and exercises its powers is via the Commission issuing orders. All its orders are independent acts of the Commission pursuant  to a majority vote, as provided in the URA Act (Section 11(5)). Another party cannot claim to want to be a signatory to such orders. Therefore UNELCO's contention  that this is a unilateral  action is without  merit.  Section  37 of  the URA Act requires that prior to exercising any powers contained in Sections 14(1), 17(1) or 18(1), the URA must consult with the utilities potentially affected; these sections pertain to issues of safety  standards,  reliability  standards  and setting of maximum price.

To allow due process and to ensure a fair and transparent procedure  in the  instant  case,  and  to  include interests and concerns of potentially affected stakeholders, prior to issuing  the  Final Order,  the  URA  published a Preliminary Decision on  8"' July  2014. URA  staff held  a meeting  on the matter with UNELCO  on l3<h August 2014 to hear their views and concerns, and subsequently requested supplementary data to confirm the analysis  (UNELCO refused  to comply with this request, in contravention  of Section 13(2)(a) of   the URA Act). Commission is satisfied that all parties have been afforded due process and interested parties including UNELCO  have  received  fair heating in this matter.

Furthermore, this proposal is in the interests of the utility and consumers as it makes more efficient use of existing capacity while also benefiting customers at large. The URA cannot deny consumers the benefits resulting from the BDI tariff because  of UNELCO's  inaction in this matter  to  date. UNELCO  has provided  no sound argument or valid reason why the proposed BDI tariff should not be adopted. Nor has UNELCO  shown how it shall harm anyone including its own interest. On the other hand URA staff  analysis  clearly  shows, undisputed by anyone, the benefits to consumers in the short and longer   term.

5.2                    Impact on existing businesses

During the public meeting the concern was raised that the program would unfairly benefit new entrants in the market over existing businesses as a new entrant would benefit from a reduced electricity bill for their entire connection, while existing customers would be paying the standard tariff. A contrasting view was also raised that the program is equally available to existing customers who can expand benefitting from having already established as well as other incentive schemes such as excise exemptions, acquired land and leases,  etc.  available to existing businesses. In order to investigate these concerns further, URA  staff undertook a survey  of existing businesses in conjunction with the Vanuatu Chamber of Commerce and Industry (VCCI), and consulted further with Government, and the Vanuatu Investment Promotion Authority (VIPA).  The  key findings from this exercise were:

• The results from the survey show that the vast majority of existing business are in favour of the program, and that a discount of at least 20% would encourage their plans for higher electricity subscription. The full results of the survey are presented in Annexe I
• The survey also showed that while not a determining factor, an electricity price discount is likely to

be a significant  factor in the decision whether   to invest in Vanuatu

• The response from VIPA was strongly supportive, as the  prograru  reduces  a  potential  barrier  to entry. Government feedback (received in writing in August 2014) suggested that  the BDI  program  was appropriately balanced in terms of benefits, and suggested that a survey is a useful exercise.

Based on these findings, the Commission is persuaded that the proposed BDI tariff will have a positive impact on existing businesses and new business investment, and has the general support of the business community, VCCI, VIPA and the Government. Furthermore, the URA feels that the argument that if this proposal does not benefit all customers it should not benefit any customers is specious.

5.3                    Level of excess capacity

During the public meeting and at a subsequent follow-up meeting, UNELCO stated  that  the  level  of  generation capacity is different than that stated in the Preliminary Decision. The figures  quoted  in  this  proposal  are the latest figures provided  by UNELCO, and no further updated information  has been    provided.

Furthermore, the BDI tariff has been calculated to include the marginal cost of expanding generation capacity  for BDI customers. If UNELCO were to cooperate and provide more accurate figures for the cost of existing generation plant and of the cost of new plant, then these figures could be further refined. BDI  tariff  adopted here is conservatively designed and is reasonable.

6. Commission order

Findings

Based on the staff analysis, public consultation, customer surveys and UNELCO's input, the Commission finds that:

• The proposed  BDI  tariff is an important  step towards  providing efficient,  reliable,  and  affordable service

to consumers;

• The proposed tariff shall utilize the excess  capacity in UNELCO's  generating  system  to  attract  current and new business customers to increase utilization of the network in Port Vila  which will eventually benefit all consumers;
  • Offering  a BDI  tariff  is  not  discriminatory  as it is  open  to  all consumers who  can  meet  the   eligibility

criteria;

• The URA Commission has the power to implement the BDI tariff  under  its  mandate  pursuant  to  the  URA Act; and
• The BDI tariff is not inconsistent with the provisions in the Port Vila Electricity Contract of   UNELCO

and is -within the framework of the tariff design in the concession.

The Commission therefore orders  that:

1. The Business Development Incentive Tariff program as described in Section 2 is adopted.

1. Participation in the BDI Tariff Program:

1. Customers wishing to avail of the program may approach UNELCO on and from 1,, February 2015 by informing UNELCO with their request for a new connection or increased subscription.
   1. Any new commercial or high voltage customer or existing commercial or high voltage customer that requests an increase in subscribed power will be notified by UNELCO of the program and the minimum subscription amount.
      1. If the customer requests to enrol in the program, UNELCO will cross-check against cancelled or reduced subscriptions for the last 12 months.
      2. Applications will be approved until a total subscribed new load    of 3,000kW is reached.

1. Program limits:
   1. UNELCO will inform the URA of total new load subscribed under the BDI tariff  on  a monthly basis. The limit of the program will be reviewed by the URA and UNELCO on a quarterly basis.
   2. The Order shall be submitted for Gazettal. The URA staff shall inform the utility once the Order is gazetted.
      1. Effective Date: The Order comes into effect on the date of its Gazettal.

1. Notice of Grievance

If UNELCO is aggrieved by this Order, it may request the Commission to reconsider the decision on issues aggrieved upon. A Notice of Grievance should be submitted within 30 days of the Order. The Notice should contain:

• The issue or issues  being contested
• A detailed description  of any facts or matters  supporting the grievance
  • Copies of any documents  supporting the  grievance
  • A detailed description of any alleged error of law or  fact
  • A detailed description of any relevant change in facts or circumstances since the Final  Order

A Notice of Grievance can be received until 5"January2015 and addressed to the Commission. The Notice may be:

• delivered in person at the

Office of the Utilities Regulatory Authority VNPF Compound

Corner Pierre Lamy & Andre Ballande Street Port Vila, Vanuatu

• mailed to

Case U-0013-14

Utilities Regulatory Authority

P.M.B 9093 Port Vila Vanuatu

• or emailed to

Hasso Bhatia, PhD

Chief Executive Offi«r

Utilities Regulatory Authority [email protected]

If the Commission receives a timely Notice of Grievance, it will conduct a review based on established procedures. If upon review the Commission determines that the grievance is justified, then it shall revoke, amend or vary the decision on the matter complained   of.

1. Execution Page 

CEO and Commissioner        Chairman

Hasso  C. Bhatia, PhD        Johnson Naviri Matarulapa Marakipule

Executive   Commissioner         Seal of the Utilities Regulatory Authority 

John Alilee

Annex I.   Survey results

This survey was carried out online in conjuoction with  the  veer.  veeI  members  received  an  email informing them of the survey and requesting their participation on 21s< August 2014. 12 responses  were received,  and  are  summarised below.