Auditor General queries fuel cost charge in electricity bills

Kenya Power Engineer installs a transformer in Kiriguri village, Manyatta Constituency of Embu County. November 9, 2023. [Murithi Mugo, Standard]

Kenya Power overbilled electricity consumers last year as it sought to recover the higher fuel cost it incurred during the 2022 financial year. 

The Auditor General has pointed out a huge disparity between the money collected as fuel cost charge and the amount that Kenya Power paid to power producers as fuel costs. 

Electricity consumers paid Sh34 billion in fuel costs but the company paid Sh28.09 billion to thermal power producers, according to its annual report for the year to June 2023.

Through the fuel cost charge (FCC), consumers compensate thermal power producers for the costs they incur in acquiring heavy fuel oil that they use to generate electricity.

This cost goes up or down every month depending on how much thermal power is injected into the national electricity grid.

“In addition, given that the fuel costs are passed to the customers, they are expected to match the recoveries,” said Auditor General Nancy Gathungu following an audit of Kenya Power’s financials.

“However, fuel cost recoveries from customers of Sh34.16 billion exceeded the corresponding fuel costs of Sh28.09 billion reported under the cost of sales.”

In responding to the Auditor General’s queries, Kenya Power said the factors that led to the disparity included higher costs incurred during the 2021-22 financial year owing to the difference between the computed and applied fuel cost charge.

While the actual charges may have been higher, the rate applied on power bills was lower as the State implemented a 15 per cent discount power tariff.

“According to management, the mismatch is occasioned by power purchase costs recovery mechanism for future temporary power plants, geothermal steam charge and cost 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 applied fuel cost charge in the previous 2021-22 financial year,” said the Auditor General in the report.

The 15 per cent discounted power tariff that was in place last year saw the government suppress increases in fuel cost charge at a time when the cost of fuel had been going up.

In a move that appeared aimed at supporting the lower tariff, the Energy and Petroleum Regulatory Authority retained the FCC at Sh4.69 per unit of electricity between January and August last year.

This was despite different indicators showing that this component of the power bill should have been on the rise.

The cost of crude oil, for instance, rose to an average of $117.5 (Sh17,890 at current exchange rate) per barrel in August 2022 from $82 (Sh12,464) per barrel in January 2022.

The fuel cost charge increased to Sh6.79 per unit in September and went on to peak at Sh8.30 per unit in March this year.

Kenya tends to rely more on thermal power producers - which have been blamed for the high cost of electricity - during droughts when hydro power units reduce production significantly as was the case last year.

They are also called on whenever other power plants are unavailable due to either emergencies or scheduled maintenance.

Their output to the national grid, however, has been on the decline as the country commissions more renewable energy power plants.

Last year, the share of units that thermal power plants fed to the grid declined to 1,396 gigawatt hours (GWh) from 1,577GWh in the year to June 2022.

Despite the drop, the money that Kenya Power paid to the thermal power producers as fuel cost rose to Sh28 billion from Sh26.49 billion during the period, largely on account of higher fuel costs.

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