Uniform System of Accounts is vital for reducing risks in electricity supply

Wednesday October 9 2019

Julius Wandera

Julius Wandera 

By Julius Wandera

It is international best practice for business entities and other types of organisations to prepare annual reports at the end of their reporting period, which commonly falls in June or December every year, depending on the organisation.

The annual reports are not only a crucial tool for entities to account to stakeholders on the activities undertaken during the previous year, but also a means of painting a picture of the entity’s financial performance and sustainability.

In compliance with best practices, a major requirement of all the companies licensed by the Electricity Regulatory Authority (ERA) to operate within the Electricity Supply Industry (ESI), is preparation and timely submission of annual reports for review and use by the Authority.
Annual reports and other periodic reports have been useful in providing insights on the licensed companies’ financial, commercial, and technical operations, which information has aided regulatory decision-making on matters such as tariff determination.

Regulatory decision-making in the electricity supply industry has been augmented by the implementation of the Uniform System of Accounts by ERA, allowing for uniform presentation of information submitted by the licensed companies and fostering understanding of the cost of providing services in the industry, and Fair and Reasonable determination of electricity tariffs.

The Uniform System of Accounts presents various benefits to the electricity supply industry; including:

  • Heightening of Efficiency and Transparency in the Regulatory process since the prescribed reporting procedures and requirements are applied uniformly to all the Licensed Companies across the Generation, Transmission, and Distribution segments.
  • Standardisation (harmonisation) of reporting by the licensed companies on a consistent basis, which enhances regulatory efficiency.
  • Consistency of information – the regulatory information provided correctly by ERA’s licensed companies through USoA is consistent, thereby contributing to easier understanding and submission of applications for tariffs by the licensees.
  • Comparison of Financial performance of ERA’s licensed companies over time, within and across the regulated entities, becomes much easier with consistent recording of information. This ultimately enables the Authority to test the reasonableness of its tariff assumptions; and to develop metrics and performance measures for comparison purposes.
  • Certainty on regulatory reporting requirements – The Uniform System of Accounts resolves the issue of how much and what type of information should be included in an application to the regulator. This results into reduced information requests by the Authority and greater certainty on regulatory reporting requirements for key stakeholders in the industry.
  • Ease of the tariff determination process - considering that the electricity tariffs paid by customers are a composite of the costs incurred in the Generation, Transmission, and Distribution of Electricity, availability of accurate and consistent information on the cost of providing services in the ESI, through the USoA, simplifies tariff determination.
  • Due to the ring-fencing rules, electricity consumers are protected from bearing undue costs that are attributed to other (non-electricity-related) businesses that ERA-licensed companies may be engaged in. The adoption of USoA no doubt reduces regulatory risk of business operations and investment in Uganda.

As the implementation of the USoA continues, an important consideration is, how do we maximise the system’s benefits for the good of all stakeholders in the electricity supply industry? Can each one of us play our role?

Mr Wandera is the manager communications, Electricity Regulatory Authority (ERA).