Confusion over NERC’s stand on electricity tariff

10 November 2015, Lagos – To be or not be? That is the question or the state of confusion facing Nigerians as regards electricity tariff. The confusion is aggravated by the recent declaration of the Nigerian Electricity Regulatory Commission, NERC that it is not going to increase electricity tariff by 40 percent.

*Sam-Amadi, NERC.

Dr Sam Amadi

Chairman of NERC, Dr. Sam Amadi, said the Commission will instead apply the principles of prudence and affordability in the current upward review of electricity tariffs in the country.

The review process of new electricity tariff is still ongoing and as such there is no way of knowing now what the percentage increase will be until the process is completed. This is why Amadi averred that “It is all speculative; we will not know until the end of the review.

We said that in the tariff proposals from the DISCOs, some have 40 percent; some 60 percent; some five percent and so on for different customer classes. At the end of the day, the final tariff that will be approved will be such that does not give the distribution company what it does not deserve and that commits the DISCO to quality service delivery.”

Amadi’s comments came not quite long after he had said that NERC was set to increase the tariff. According to him, the new electricity tariff proposed by the distribution companies, DISCOs, for approval by the regulatory agency would be ready for implementation by the end of October.

The NERC had at its recent public consultation where the proposed new retail electricity rates were jointly reviewed by stakeholders, explained that it would first review the figures presented by the DISCOs, with consideration to the diverse views of consumer groups, who were at the consultation before approving any rates.

The NECR Chairman at the public consultation said the new rates would be out and subsequently practical in the sector by the end of October.

“From the end of October, the country’s electricity sector is expected to operate with new set of tariff which is considered cost-reflective and capable of attracting investments in the sector.

“The new tariff is expected by the end of the month but we may skip our timeline to be able to do more thorough work. For example, we have to go to Kaduna and find out the numbers but essentially, our target is the end of the month. The policy for government is that we need a tariff that encourages investment. Ultimately, whatever they send to us, we are not going to give them a back of the envelop tariff. They have to satisfy all expected regulatory standards. The regulator does not allow people to recover more than what they are supposed to recover,” he said.

Due to the disagreements over the Commission’s review of the Multi Year Tariff Order, MYTO, 2.1 in May 2014, NERC had directed that consumers and DISCOs will have to sit down together to discuss and determine a mutually acceptable cost-reflective tariff to be paid in the power sector. Thus, by ceding part of its regulatory responsibilities of determining appropriate cost-reflective rates, the regulator gave both consumers and DISCOs the opportunity to transparently determine the right costs to be paid over the next 10 years.

Irrespective of the fact that the Electric Power Sector Reform Act (2005) empowers NERC to review electricity tariffs in favour of GENCOs and DISCOs, if market variables such as gas and its transportation cost, as well as naira to dollar ratio and inflation shift by over five percent. An estimated 40 to 50 percent of electricity consumers in Nigeria are not metered. The metering gap creates energy pricing credibility problems between DISCOs and their customers, as well as between NERC and DISCOs.

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