Micro Hydropower (MHP) Peru - Local Management and Governance Working Model

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This page summarizes experiences of management and working models for MHP in Peru. Most of the experience was gained before 2010, however it is still relevant.

Key Points of operation model

• The Owner needs to be clearly defined
• Users Committee formed for oversight (usually based on existing community organisation)
• Tariffs Defined
• Operator appointed by open competition
• Contract between owner and operator
• Supply contract between operator and each consumer

Often need training/awareness raising of consumers about the necessity to pay for electricity – and penalties for not paying on time – see below.

Tariff structure and metering

Tariffs for micro hydro and for grid extension based on declining block tariffs to ensure viability of system and to encourage productive uses.

Tariffs for diesel mini grids more likely to be fixed tariff per kWh as marginal cost does not reduce.

FirstBlock:'normally 60-70% of users – 20kWh per month – enough for 2 or 3 lights and radio and possibly small b&w tv. First 10kWh per month of this is fixed payment, regardless of whether consumed.

Second block:slightly lower per kWh for additional appliances, eg fridge, colour TV – small percentage of domestic users plus small shops/businesses – e.g. ice-making, selling cold drinks

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Thirdblock:lowest tariff for additional kWh above 2^nd block mostly for productive/industrial users, e.g. welders, ice-makers, workshops, millers

In return for lower marginal tariffs these users agree to avoid peak domestic consumption hours for operation of heavy loads

Meteringis essential for this type of tariff structure but it might be possible to offer the option of energy limiters for first block with a fixed monthly bill (perhaps less than that for the full 20kWh). The only advantage would be that consumers would know in advance their maximum monthly bill.

Experiencein Peru shows that expenditure by block one users is less than expenditure on kerosene, batteries etc. prior to electrification.

Ownership and contracts

The Owner has agreement with operator, which is a small enterprise, selected by competitive tender, and which would normally require training – see below.

Owner and operator are both represented on users’ committee.

Owner receives the users’ revenue payments from the operator on a monthly basis, together with a report on the state of the system and the list of bills paid.The operator is paid an initial base fee plus a regular fee (20% of revenue) and remainder of fund goes into a Rural Electrification Fund for operating expenses, spares, maintenance costs, system expansion etc. The accounts are available for inspection by the Users Committee.

Owner provides all necessary tools and equipment and provides technical and management training to the operator.

Operator must keep all equipment in good condition , carry out maintenance and provide regular electricity service and payment facilities.

If the equipment is damaged by negligence of the operator then the operator is liable.If the owner has not provided the equipment, spares etc then. . . .what?The operator would not be liable but might have a claim against the owner??

Owner provides office and workshop for operator.

Operator:

Operator is responsible for:

• Providing electricity service to subscribers at agreed hours
• Billing and collection of payments in accordance wit tariffs agreed with owner.
• Maintenance of all equipment
• Keeping owner informed with regular reports

Operator agrees to provide good and prompt service to users and allow access to equipment and books to owner and users association.

Failure to comply with the agreement will involve penalties and possible termination of contract.

Users committee is arbitrator of disputes between users and operator.

Users committee normally consists of a president, vice president, secretary (who keeps minutes) and at least two others.Members serve for one year, renewable once and then cannot be re-elected for at least one year.

The committee is responsible for:

• Overseeing the conservation of the electrical service.
• Establishing and applying sanctions for non compliance, especially between users and operator,
• Monitoring the operator’s monthly reports and deciding whether the contract should be renewed after the five year period.
• Meeting once per month
• Minutes to be kept
• Members do not receive a salary but get 30% discount off their electricity bills provided they attend regularly.
• Users can ask committee to arbitrate on disputes over bills with operator and committees decision is final apart from the right to resort to other legal means.
• Conducting their business without any religious, political, racial or social bias

In the event of any dispute over a bill, the user must first take it up with operator.If not satisfied can then take complaint to users committee member, who will hear both sides and then present findings with own opinion to the committee who will vote on their decision.

Tariffs, penalties, provision of public lighting etc are decided once a year.

Tariffs take account of:

• Average annual cost of operation, maintenance, generation, distribution, billing, tariff collection, spares, equipment and operator fees.
• Expected sales of electricity
• Generator capacity

Users are expected to pay within 15 days of billing.Penalties are applied for late payment per day.

Consumers are disconnected if their payments are outstanding for 3 months, and re-connection is only done after payment of overdue bills including penalties and reconnection cost

Bills may need to include tax

Revenue goes into Electrification Fund account.The operator’s fees are paid from this account and the balance used for spares, maintenance, new connections, re-positioning poles etc

Contract with the operator can be terminated if service is unsatisfactory.Normally for 5 years renewable.

Operator is paid fixed fee on signing plus 20% of revenue collected for management and admin service.