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flash_on Getting Electricity

This topic tracks the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse. In addition to assessing efficiency of connection process, Reliability of supply and transparency of tariff index measures reliability of power supply and transparency of tariffs and the price of electricity. The most recent round of data collection for the project was completed in June 2016. See the methodology for more information.

Good Practices

- Streamlining the approval processes
- Regulating the electrical profession
- Increasing the transparency of connection costs and processes
- Lessening the burden of security deposits
- Implementing automated systems for outage monitoring and restoration of service
- Increasing transparency and accessibility of existent and new tariffs
- Notifying customers in advance of planned outages

Over the years, several economies have been adopting good practices in the area of Getting Electricity. These practices contribute to a more efficient electricity connection process and include streamlining procedures with public agencies or within the utility, regulating the electrical profession to ensure the quality of internal wiring, increasing the transparency of the connection cost and lessening the burden of security deposits. Several initiatives have also been adopted to improve the reliability of electricity supply, such as imposing financial deterrents to limit outages, and the monitoring of power outages and the restoration of service through automated systems, Improved access to information is another aspect benefiting electricity ; many economies publish electricity tariffs and tariff changes on various outlets (websites, newspapers, etc.), while also notifying customers in advance in the case of outages.

Streamlining the approval processes

Among the procedures most commonly transferred to customers is applying to the municipality or the department of roads or transport for an excavation permit or right of way, so that the utility or a private electrical contractor can lay the cables or extend wires for the connection. Customers seeking a connection undertake such procedures in 38 economies. Wait times range from 4 days in Bolivia to 90 days in the República Bolivariana de Venezuela. In some economies an entrepreneur seeking to get an electricity connection must obtain several clearances and licenses from multiple agencies. In Dhaka, Bangladesh, a new connection requires two clearances from the Ministry of Energy’s Chief Inspector’s office, in addition to an excavation permit from the City Corporation and a notification to the police department. At the same time, his counterpart in Taiwan, China, only needs to apply for a new connection with the utility, who is in charge of obtaining an excavation permit and carrying out the connection works for the client. In 2014/2015, Taiwan Power Company, the utility providing connections in Taipei, and local city administration revised their internal administrative processes and expedited the time needed to obtain an excavation permit, thus reducing the time required to get connected to the grid. 

Therefore, decreasing the number of interactions with different departments is an efficient way of simplifying the process of getting a new connection to the grid. Particularly with regards to the excavation permit or right of way, the utility being responsible for obtaining these documents is a simple way to remove the burden from the entrepreneur. Furthermore, the existence of multiple clearances and approvals for a new connection impose on the entrepreneur the difficulty of visiting each agency and of waiting for each approval, so streamlining the approval process can be a major contribution to the ease of getting electricity. 

Regulating the electrical profession

The safety of internal wiring installations is a concern not only for those using a building but also for utilities. One customer’s faulty internal wiring can lead to power outages affecting other customers connected to the same grid. In most economies customers therefore need to comply with certain procedures aimed at ensuring safety and quality. However, different approaches are taken to address safety issues.

Some economies address safety by regulating the electrical profession, establishing clear liability arrangements for electrical contractors. In economies such as Latvia and Paraguay, the quality of the internal wiring is the responsibility of the electrical contractor who did the installation. The utility simply requests certification by the electrical contractor that the internal wiring was done in accordance with the prevailing standards, usually established by the relevant professional bodies. In Singapore and UAE, the electrician in charge of the internal wiring must be approved by and registered with the relevant agency, which is responsible for the safety of electrical housing installation. The utility refuses applications for new connections if they involve an electrician who is not registered.

Other economies regulate the connection process by requiring customers to obtain additional inspections and certifications from the utility or outside agencies before a new connection is granted. This approach leads to a greater burden on customers and longer average connection delays, comparing to regulating the electrical profession.

As a first step toward creating a supportive institutional framework for ensuring electrical safety, economies can regulate the electrical profession. Yet regulating the profession might not suffice if professional standards are poorly established and qualified electrical professionals are in short supply.

Such risks are even greater in economies where needed safety checks are lacking. In many economies, particularly in the Middle East and North Africa and Sub-Saharan Africa regions, internal wiring installations are never checked. At the other extreme are governments that require multiple checks, imposing an excessive burden on customers seeking an electricity connection. In some Eastern Europe and Central Asian economies, for instance, internal wiring must undergo two checks. It is thus necessary to implement the practices that are best suitable for each situation; for instance, certifications from the utility or outside agencies might be necessary until standards for electrical professionals are enforced and well-regulated in a way that they are able to ensure the safety of electrical installations.

Increasing the transparency of connection costs and processes

The type of connection works vary depending on the network’s capacity (1). If capacity is constrained, a more complicated connection may be required to expand the distribution network. And the required capital investments (e.g., installation of a distribution transformer) may be covered by new customers. This obligation, more common in low-income economies, substantially raises total connection costs.

Connection costs should be as transparent as possible, to allow customers to contest them when they feel they are overpaying. As utilities allocate the costs for new connections between existing and prospective customers, they also have to balance different considerations of economic efficiency and fairness. For example, capital works needed to connect specific customers are different than those needed to accommodate projected growth - or to improve the safety or reliability of the distribution network. Nonetheless, because it is difficult to distinguish between the different kinds of capital works, it leaves room to make new customers pay for investments in the network.

In many economies connection costs are not fully transparent. Utilities present customers with individual budgets rather than clearly regulated fees aimed at spreading the fixed costs of expanding the distribution network. Costs can usually be divided into 2 categories: a regulated connection fee based on a formula or set as a fixed price; and variable costs for the connection, accounting for the actual labor and material required. 

Iceland and Chile are economies that provide clear regulation of fees. For the 140-kilovolt-ampere (kVA) connection assumed in the case study, costs are fixed and based on an average for similar projects in the area. Information on fees also tends to be more easily accessible in higher-income economies—in a regulation, on a website, or through a brochure or board at a customer service office. When it comes to electricity tariffs, some utilities also provide more than just the price per kilowatt hour. The utility in Brunei Darussalam, for example, uses an interactive tool to encourage energy saving behaviors. A customer can create a model of energy consumption according to the number of appliances used. Besides promoting understanding of electricity bills, these tools help analyze electricity usage.

The low capacity of a network does not necessarily mean higher costs for customers (2). Where the new connection requires a more complicated installation that means installing a distribution transformer, utilities can still regulate costs. In Papua New Guinea the customer initially pays the costs associated with a network expansion for a new connection, but the utility then reimburses the customer through deductions in electricity bills.

Similarly to being transparent on prices, utilities can also post all the necessary information about procedures and paperwork for new connections on their website, in their office or in other public offices. They may also post their performance standards, such as for turnaround time. In France the distribution utility ERDF has a detailed document on its website that describes different connection schemes and the formulas used to calculate the connection costs.

Lessening the burden of security deposits

About half of the 190 economies surveyed in 2015/2016 charge security deposits to customers as a guarantee against nonpayment of future electricity bills. Security deposits are particularly common in Latin America and the Caribbean, and in Sub-Saharan Africa. While they average about $10,000, they can run as high as $40,000 in the Bahamas (3).

Figure 1 - Utilities in Sub-Sarahan Africa with lower cost recovery rates are more likely to charge security deposits

Because most utilities hold the deposit until the end of the contract and repay it without interest, this requirement represents a substantial financial burden on small and medium-size businesses, especially those facing credit constraints. In the Central African Republic a medium-size company effectively grants the utility an interest-free credit of about 1,400% of income per capita—and meanwhile is prevented from putting the money to a more productive use. Because security deposits are supposed to protect utilities against the risk of nonpayment, it is not surprising that they are more likely to be charged in economies where utilities cannot count on efficient court systems (4). But utilities might charge security deposits not only to protect themselves against financial losses from delinquent customers, but also to improve their cash flow. Analysis of a sample of 24 utilities in Sub-Saharan Africa in 2010 found that those with a lower cost recovery ratio are more likely to charge a security deposit (figure 1) (5).

Where cash flow considerations are not the motivation for charging security deposits, but utilities still feel that they must rely on them to deter nonpayment, they should at least consider lessening the financial burden of security deposits. A start would be to return the deposit after 1 or 2 years and not at the end of the connection contract. Alternatively, returning the deposit with interest is also a good practice that some utilities already pursue. In 19 economies utilities also allow customers to settle the security deposit with a bank guarantee or bond rather than deposit the entire amount with the utility. The service cost for such bank guarantees usually amounts to less than the interest that customers would lose on the deposit. More importantly, bank guarantees allow customers to keep control of their financial assets and improve their cash flow.

Implementing automated systems for outage monitoring and restoration of service

Positive changes to the quality of power supply are best achieved with substantial investment and a long-term approach targeting transmission losses and inadequate generation capacity. Addressing these issues is often outside of the utility’s control. However, utility companies have practical tools at their disposal to address the source of power failures, and restore the service when outages occur.

Whether planned or unplanned outages, the speed and efficiency at which power can be restored depends largely on the type of control systems and tools available to the distribution utility. The traditional approach for restoring power that is used by many utilities is through dispatching maintenance crews to the fault location following customer calls. This may take several hours to complete, depending on how quickly customers report the power outage and the maintenance crew locates and solves the problem. Hours without power in turn pose financial risks to businesses in the form of equipment and inventory damages and spoilage. Instead of relying on call centers to keep track of power cuts, utilities may significantly reduce power restoration time and equipment damages through electronic systems such as SCADA (Supervisory Control and Data Acquisition) and IMS (Incidence Management System). A modern SCADA system is one of the most cost-efficient solutions that not only helps utilities increase reliability through automation but also helps to lower costs and enable problem areas to be detected and addressed automatically and remotely.

Doing Business finds that in 126 economies, utilities were able to benefit from these automated systems to monitor power outages and in 136 economies, they used such systems to restore service, which allowed them to provide a more reliable service to their customers.

Increasing transparency and accessibility of existent and new tariffs

Efficient pricing is central to a well-functioning power sector. Utilities need to be able to recover their costs and make profit through imposing reasonable tariffs on its customers. At the same time, the private sector takes into account the cost of electricity when making investment decisions, often encouraging implementation of energy efficiency measures targeted to curbing the energy costs in their business operations. Tariffs, as well as any changes to those, have to be transparently communicated to the end-user. They can be communicated to the consumers online, through printed media, brochures in the utility’s office, public hearings, etc. This is important in order for consumers to be able to plan their expenses, better understand the utility billing system, as well as to be able to contest the charges when needed. Businesses want to know in advance of any change in expenditure so that they can adjust their allocation of financial resources accordingly. In some economies, the law requires utilities to announce changes several billing cycles ahead. In others, the regulator helps ensure that tariffs are published through different media outlets and that adequate information and details are provided so customers can calculate their prices. In Pakistan, for example, customers are informed if the regulator and the utility even have a consultation on potential tariff changes.

Setting financial deterrents to limit outages

Many economies have established a robust independent regulatory framework with the right oversight and incentives to improve the reliability of supply. Regulators, in some economies adopt a strategy to reduce outages by setting a limit on the frequency and duration of outages and then requiring utilities to pay compensation to customers if they exceed that limit. In United Arab Emirates, the utility is paying a compensation to customers experiencing electricity supply interruptions that are longer than 12 hours. Alternatively, regulators may impose a fine on utilities. In Georgia, the regulator imposes penalties on utility if the frequency and duration of outages are worse this year than in the previous year, and if the utility fails to warn the customers about upcoming planned outages not less than 2 days in advance. In 73 of the economies where there is an independent regulatory oversight, distribution utilities compensate customers or are required to pay fines if outages exceed the limits set by the regulator. The size of such penalties varies across economies. But those using such compensation mechanisms had 16 power cuts on average in 2015, lasting for approximately 37.5 hours, while economies having no financial deterrents to limit outages, had six times more outages for a total duration that was seven times longer.

Notifying customers in advance of planned outages

Customers can plan around power outages and possibly reduce their losses if they are notified in advance of the occurrence of an outage. Many utilities notify their customers of the time and duration of a planned power outage; it is common for outages to be announced on television, in newspapers and on social media. Some utilities even notify customers personally through mailed notifications, as in Switzerland, or even over the phone for customers with larger subscribed capacity as in Saudi Arabia. Moreover, in Botswana and Lebanon where outages are frequent due to load shedding, utilities publish on their websites a load shedding schedule that is regularly updated.

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1. Doing Business distinguishes between 2 cases: connecting to the low-voltage network and connecting to the medium-voltage network. The first case involves laying low-voltage underground cables or installing low-voltage overhead wires from the metering point to the closest connection point on the network. The second case usually occurs when the capacity of the utility’s low-voltage network cannot accommodate the power demand of a customer. This case involves installing a distribution transformer and connecting it between the customer’s installation and the utility’s medium-voltage network. According to the standardized case study, the customer requests a nontrivial but still relatively modest 140-kilovolt-ampere (kVA) connection. By comparison, the demand of a residential connection is about 20 kVA.
2. Connection costs are not just a function of the general infrastructure in an economy. They vary significantly among economies within income groups, suggesting room to reduce the cost regardless of existing infrastructure.
3. The number of economies where utilities charge security deposits does not include those where security deposits are rolled over into consumption bills for the first 3 months (Tunisia and the United States).
4. World Bank 2011.  Doing Business 2011: Making a Difference for Entrepreneurs. World Bank, Washington, DC.
5. The cost recovery ratio is based on the average effective tariff and the costs of power production (operating and capital expenditure). Since capital expenditure is a harder data point to get, a replacement cost approach was used in which physical assets on the ground were considered and the unit costs of replacing these assets were used to estimate their total value. These estimates were then averaged over power consumption.