Kosrae Utilities Authority Cost of Service and Tariff Study

The cost of service and tariff study conducted for the Kosrae Utilities Authority (KUA) was a jointly funded exercise by the North Pacific ACP (African, Caribbean and Pacific) Renewable Energy and Energy Project (North-­‐REP) and the Pacific Power Association (PPA).

The exercise was conducted by DNV KEMA in October 2012.

The primary objective of the exercise was to assist KUA in its proposed new tariff structure given that KUA has not reviewed and /or adjusted its tariff since 1991.

The Final Report presents the results of analysis conducted including options that KUA could consider in the restructuring of its tariff. The approach conducted was twofold: tarifflevel analysis and tariff structure analysis.

The PPA is an inter­‐governmental agency and member of the Council of Regional Organizations in the Pacific (CROP) to promote the direct cooperation of the Pacific island power utilities in technical training, exchange of information, sharing of senior management and engineering expertise and other activities of benefit to the members.

The North-‐REP is a European Union and Pacific Community partnership jointly implemented with the Federated States of Micronesia, Republic of the Marshall Islands andRepublic of Palau. The EURO15.49m project was funded through the 10th European Development Fund.

Kosrae Utilities Authority (KUA) is a vertically integrated utility that supplies electrical power to the State of Kosrae, Micronesia. In the year 2011, KUA served 1,870 customers with a demand of 5,248,361 kWh. The peak load in that year was 1.06 MW.

The company is heavily dependent on external financing (grants) for undertaking investments. Most of the company’s assets have been funded by grants from the USA and other states.

KUA’s base tariff has not been reviewed and/or adjusted since 1991 and it is opportune to review the tariff in the fore field of possible private sector participation in the electricity industry in the Kosrae State. The review based on the findings will be required to provide recommendations on an appropriate tariff structure and on mechanisms to adjust the tariffs.

In this context KUA has asked DNV KEMA through the Pacific Power Associated (PPA) to undertake a study to review the current base tariff applied by KUA and recommend a tariff structure that balances the interest of consumers and the utility.

This Final Report presents the results of the analysis conducted by DNV KEMA and presents the possible options that KUA could consider to change the existing tariffs. The Draft version of this report has been presented and discussed with KUA and other stakeholders in the week of 25 September 2012. Based on this the draft version was further refined resulting in this Final Report.