December 15, 2017

NERC’s Contentious New Steps on Electricity Tariff Review

NERC’s Contentious New Steps on Electricity Tariff Review

For obvious reasons, issues bordering on electricity tariff review have remained quite contentious among stakeholders in Nigeria’s electricity supply industry. Since the inception of reforms in the electricity sector, and introduction of the Multi Year Tariff Order – the regulatory framework that guides the economics of electricity trading in Nigeria – the processes of periodic tariff reviews, as mandated by the MYTO, have never really gone without some form of suspicious remarks and rancorous exchanges among stakeholders in the sector.

Allegations of inefficiency and profiteering through tariff reviews and increments are usually made against operators in the sector by consumer groups whose distrust of operators have not been helped by the sector’s inefficiencies. Eventually, interactions on tariff reviews always end up with parties not satisfied with the outcomes. Yet, NERC, which is the sectors umpire, would have to try to impartially arbitrate based on the extant issues to come up with a tariff structure it considers cost-reflective and good enough for the market.

Procedure 

As part of the business rules of NERC, the regulator is expected to, in conjunction with the electricity distribution companies, also called Discos, hold public consultations with all stakeholders in the electricity market before any review of electricity rates.

Usually, such consultations on tariff reviews are publicised and stakeholders, including all classes of consumers in the networks of the Discos as well as other critical stakeholders, like the organised labour, are expected to attend. This is aimed at broadening the decision making processes on the tariff.

It is mostly at these consultations that key decisions on the content of the new tariff are reached after considering the positions of the different stakeholder as regards the tariff. While arguments are raised for and against the tariff proposals at the consultations, compromises are often expected at the end of the process.

Past Tariff Reviews 

Despite the traditional procedure, the last tariff review exercise did not quite end well, after both residential consumers and industrial users refused to accept its outcome, and the industrialists preferred to stick with the previous tariff.

Industrialists, especially those with huge labour base in Nigeria, had in expression of their dismay with the tariff review, stated that the rates approved by NERC in the MYTO 2.1 were going to push them out of business. They alleged that the review was done in bad faith and without consideration of their thoughts. The manufacturers, which included hoteliers, steel manufacturers, and other service providers, told NERC then that the MYTO 2.1, which came into effect on January 1, 2015, was not acceptable to them on the grounds that the parameters upon which they were decided and foisted on them were unfavourable.

They also noted their resolve to contest the review and, if need be, shut down operations if the rates were allowed to stay.

New Steps towards Tariff Review 

As part of its responsibilities and steps on tariff review, NERC last week called out stakeholders to deliberate on the most preferred frequency of tariff for the market. At the meeting, stakeholders had options that included the existing biennial reviews, a monthly review, or an annual review, to choose from. NERC explained that the options had their respective benefits and drawbacks, stressing that the most preferred by the stakeholders would be adopted.

During the process, top electricity consumers, comprising the Manufacturers Association of Nigeria, Nigeria Electricity Consumers Advocacy Network, and Hotel Owners Forum Abuja, roundly rejected the proposal to adopt a monthly review of electricity tariff in the country.

The consumers, who were unanimous in their rejection of the proposal, said review of tariff should be done either annually or left to remain biennial as it is now. A breakdown of comments received by NERC from other consumers on the tariff review frequency indicated that most consumer groups rejected a higher review frequency.

NECAN, in its submission, noted that any increase in the review frequency will greatly affect electricity consumers, while MAN stated that the monthly or quarterly review and implementation of the tariff will be detrimental to the manufacturing sector.

Chairman of NECAN, Tomi Akingbogun, said the last tariff review resulted in over 95 per cent rise in electricity rates paid by consumers. He urged the federal government to protect the interest of electricity consumers. Akingbogun requested NERC to ensure that customer enumeration and adequate metering were done by all Discos in the country before implementing any tariff review.

On his part, HOFA president, Eze Ude, said the rates for hotel accommodation and other services in the sector were not reviewed monthly, explaining that there is no rationale for monthly review of electricity rates.

“It will not be fair to the end users to raise tariff either monthly or quarterly,” Ude stated.

Discos Choose Monthly Review 

But some of the Discos that were present at the meeting, especially the Eko and Ibadan Discos, indicated their support for a monthly review of tariff. They said their energy invoices were paid monthly and as such tariff should reflect the changes in the monthly energy payments.

Speaking through their association, the Association of Nigeria Electricity Distributors, the Discos also said monthly review of electricity tariff was a global practice, and not entirely new. They added that Nigeria would be standardising its power sector with the adoption of a monthly tariff review exercise.

For the electricity generation companies, Gencos, Executive Secretary of the umbrella body, the Association of Power Generating Companies, Dr. Joy Ogaji, said NERC should factor into the MYTO review about 2,000 megawatts of electricity that is stranded within the Gencos and which cost they bear.

NERC Trying to Douse Tension 

Attempting to douse tension that may follow the process, especially as regards the perception of Nigerians about rates review, Vice Chairman of NERC, Mr. Sanusi Garba, said in his address that the consultation was simply to consider changes in the frequency of tariff review by the commission.

Despite the consumers’ rejection of the proposal for a monthly review, Garba explained that the exercise was not about increasing the current tariff used by the market, but checking the various indices in the tariff and proffering a better review formula.

In a presentation made at the consultation, NERC said part of its concerns about the MYTO 2015 was the rise in foreign exchange from N198 to the dollar, to over N300 without a reflection of such changes in the tariff. It explained that this had resulted in revenue shortfall in the electricity market, in addition to the reduction in power generation resulting from gas constraints and vandalism of assets.

The commission also noted that the macroeconomic indices in the tariff were impacted, adding that while the previous tariff was computed on an 8.05 per cent inflation rate, inflation had risen to about 18 per cent afterwards.

On the implementation of the tariff after the review, a former Managing Director of the Nigeria Bulk Electricity Trading Plc, Mr. Rumundaka Wonodi, said he supported that tariff should be reviewed monthly but implemented quarterly. Wonodi, said NERC should create a stabilisation fund to bridge the gap between the review and implementation time to protect customers from feeling the shocks of such reviews instantly.

 

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