regulator is supposed to conduct reviews regularly and independently. ERC has yet to fulfill this function as regularly as the law dictates.

There is room for advancing the independence of ERC. Over the past 20 years, its technical capacity has increased substantially; the policy, legislative, and financial basis for independent functions has improved; and ERC has gained a greater voice in decision-making. However, the it has been unable to act freely on politically fraught matters—revealing the pressures that the commission’s chairman, who is appointed by the Kenyan president, and other board members, appointed by the MoEP, must contend with. The perceived deficiency in regulatory independence was highlighted by a step taken the recent ERC director general. In January 2017, seven months ahead of the expiry of his contract, the ERC DG unexpectedly took terminal leave under unclear circumstances. His decision came just after four IPPs that produced solar PV power jointly appealed to the cabinet secretary to have the regulator reconsider its decision to approve PPAs at a tariff lower than that provided in the feed-in tariff policy.

Regarding leadership autonomy, ERC earns a middling score—primarily because the leadership is, in effect, appointed by the political executive. As designated in the 2006 Energy Act, ERC’s chairperson is appointed by the president; the MoEP’s permanent secretary and director general also serves on the board; and the minister appoints the remaining members. Though there are strict rules pertaining to the balance of expertise and requisite qualifications, the presence of government officials and the rules of appointment undermine independence from political pressures or conflicts.

Nevertheless, when it comes to regulatory substance, Kenya performs relatively well (table 11). ERC determines end-user electricity tariffs, which, of course, is central to the financial viability of KPLC and the sector as a whole. The methodology used to determine the end-user tariffs is based on KPLC’s revenue requirement, that is, that the company’s revenue must be sufficient to provide a return and cover taxes on the regulated asset base, the cost of purchases of capacity and energy, and the company’s operating and maintenance costs. ERC is also responsible for approving PPAs between KPLC and various power providers—among them KenGen, IPPs, TANESCO, the Uganda Electricity Transmission Company, and the Ethiopian Electric Power Corporation. Regulatory objectives (i.e., allocative efficiency, productive efficiency, equity, and financial sustainability) are acknowledged and clearly specified in the sectoral legal framework, specifically in ERC ́s 2005 Retail Electricity Tariffs Review Policy. The relevant policies not only address substantive issues, but also the following formal objectives: simplicity, transparency, stability, and administrative feasibility. The ERC, with World Bank support, developed the sixth Cost of Service Study, which will provide the baseline for the next tariff cycle, expected sometime in 2019.

Kenya’s comprehensive regulatory framework for tariffs includes an automatic tariff adjustment mechanism (introduced in 1997) that allows exogenous costs related to inflation, exchange rate, and oil price to pass through to the user. Application of the mechanism has fortified the sector against external shocks by reducing the discretion involved in making tariff adjustments. However, the requirement for tariff reviews—which are to be carried out every three years according to the 2005 policy—has been inconsistently applied and delayed in some cases, jeopardizing the financial sustainability of the system. It is widely believed that the delays have occurred for political reasons, such as to forestall a drop in public opinion ahead of or immediately after national elections. As a result of these parallel institutional features—robust technical capacity and comprehensive 37