Inside NERC’s electricity tariff regime

ON Tuesday, 5th of January, 2021, the media was awash with a purported 50 percent increase in electricity tariff by the Nigerian Electricity Regulatory Commission (NERC).

Although the regulatory body issued a statement later to counter the report, it, however, explained that the said increase was just an adjustment rate for service bands A, B, C, D and E “by NGN2.00 to NGN4.00 per kWhr.”

This, according to the NERC, was to “reflect  the partial impact of inflation & movement in forex.”

The federal government, through the minister for power, Saleh Mamman, had also directed the NERC to inform all the Electricity Distribution Companies (DisCOs) to revert to tariffs that were applicable in Dec. 2020 pending when the ongoing dialogue between labour unions and committees reached a logical conclusion.

NERC is an independent body of the federal government that is charged with authority for the regulation of the electric power industry in Nigeria.

One of the primary functions of the commission, as contained in Section 32 (d) of the Electric Power Sector Reform (EPSR) Act, 2005, is to ensure that the prices charged by licensees are fair to customers and sufficient to allow the licensees to finance their activities and to allow for reasonable earnings for efficient operation.
In pursuant to the authority given under Section 76 of the EPSR Act 2005, the commission established a methodology for regulating electricity prices called the Multi-Year Tariff Order (MYTO). The MYTO provides a 15-year tariff path for the Nigerian electricity industry with limited minor reviews each year in the light of changes in a limited number of parameters (such as inflation and gas prices) and major reviews every five years, when all of the inputs are reviewed with stakeholders.

The MYTO 1,  introduced in 2008, was  applied from 2008 to 2012. Subsequently, following a major review of the methodology in June 2012, MTYO 2.0 was issued and it was to remain effective from 2012 to 2017. Following a minor review in December 2015, NERC issued a new MYTO called the MYTO 2.1 that was to take effect from January 2015 to 2018. In 2015, NERC revised and amended the MYTO 2.1 by removing the collection loss component of the electricity, resulting in the amended version of MYTO 2.1. The uproar created by the removal of the collection loss factor resulted in NERC reinstating the collection loss, translating into MYTO 2015, which was meant to cover the period from 2015-2024.

The MYTO spelt out the methodology for determining and reviewing tariffs based on assumptions on certain variables outside the control of the DisCos, including the inflation rates in Nigeria and the United States of America, the naira-to-United States -dollar exchange rate, gas prices and available generation capacity. To facilitate the transition to and maintenance of cost-reflective tariffs, the MYTO was meant to undergo biannual (January-June; June-December) minor reviews and major reviews every five years and where necessary, tariffs were to be adjusted to reflect any changes in the underlining assumptions.

However, the first minor review of the 2015 MYTO was only carried out in 2019, four years after its issuance.  Within the period where no review took place, there were significant changes to the macroeconomic variables upon which the existing tariffs were calculated and despite the government’s assurances to DisCos, the NERC failed to increase tariffs appropriately.

Previously in Nigeria, for electricity customers, there were five Tariff classes;

  • Residential (R1, R2, R3, R4)
  • Commercial (C1, C2, C3)
  • Industrial (D1, D2, D3)
  • Special (A1, A2, A3)
  • Public Street Lighting (S)

Across the 11 DisCos, the customers in D3, mostly facilities used for manufacturing purposes, had the highest tariff rates, while the customers in R1-residentials using household utilities with an energy demand of less than five Kilovolts-ampere (kVA)-had the lowest. Before September 1, 2020, these customer classes varied due to the infrastructural and operational costs associated with the supply and distribution of power to the varied customers.

However, the NERC, on March 31, 2020, issued a new order known as Service Reflective Tariffs (SRT) by which future tariffs for electricity consumers would be determined.

In the order, NERC unveiled  a report on the public hearings it had conducted to assess applications filed by DisCos for a review of their respective end-user tariffs. From the public hearings, NERC determined that end-users of the 11 DisCos were only willing to pay tariffs commensurate with the quality services provided by DisCos. Their willingness to pay cost-reflective tariffs was conditioned on receiving guaranteed hours of supply of good quality electricity and adequate metering. In essence, from the public hearings and consultations, end-user customers would prefer a tangible improvement in quality and quantity of electricity supply before agreeing to pay increased tariffs.

The order also stipulated the parameters for measuring DisCos’ services such as: hours of supply of electricity; reliability of supply which would be determined by the frequency and duration of interruptions; and quality to be determined by voltage and operating frequency prescribed in governing industry codes.  Future tariff reviews would now be based on consultations between DisCos and customer clusters, with DisCos required to provide firm commitments on the quality of service. There were also provisions for compensation mechanisms to be instituted to compensate customers for DisCos’ failure to meet performance targets.

Listed below are the various bands and descriptions to help you understand which band your home or business belong to:

Service Bands New Tariff Classes Number of Hours of Supply Old Tariff Class
Lifeline R1 R1
Band A A-Non-MDA-MD1

A-MD2

20 and 24 R2, C1, D1, A1
R3, C2, D2, A2, S1
R4, C3, D3, A3
Band B B-Non-MDB-MD1

B-MD2

16 to 20 R2, C1, D1, A1
R3, C2, D2, A2, S1
R4, C3, D3, A3
Band C C-Non-MDC-MD1

C-MD2

12 to 16 R2, C1, D1, A1
R3, C2, D2, A2, S1
R4, C3, D3, A3
Band D D-Non-MDD-MD1

D-MD2

8 to 12 R2, C1, D1, A1
R3, C2, D2, A2, S1
R4, C3, D3, A3
Band E E-Non-MDE-MD1

E-MD2

4 to 8 R2, C1, D1, A1
R3, C2, D2, A2, S1
R4, C3, D3, A3

Below are various price approved for all the 11 DisCos in the pricing regime by the NERC.

File: BBC Pidgin.

Exceptions to the new tarrif regime

During an online interactive section with consumers shortly after the new pricing regime, Dafe Akpeneye, NERC commissioner, Legal Licensing and Compliance, insisted that DisCos must not increase tariffs of customers enjoying less than 12 hours of power supply daily.

“Anyone who is enjoying less than 12 hours of electricity must not have their tariffs increased,” he clarified.

Akpeneye stated that customers receiving electricity service below the band they had been assigned could have the DisCos move them to the actual band of electricity service they received.

“Unhappy? Contest the band classification you have been assigned,” he said.






     

     

    He said in order to protect unmetered customers from exploitation by the DisCos, NERC came up with ‘Parity with Neighbours.’

    “This is the principle we are applying with unmetered customers. It basically means as an unmetered customer, you cannot be charged more than your metered neighbour,” the commissioner said.

    Akpeneye also disclosed that NERC had mandated all DisCos to invest in infrastructure in order to increase power supply to customers.

    In summary, electricity tariffs can change to reflect changing economic realities such as movements in inflation and exchange rate. Also, cost-reflective tariffs are expected to guarantee better electricity supply, but they also mean that DisCos should meter customers, rather than exploit them via estimated bills.

    You can reach out to me on Twitter via: vincent_ufuoma

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