The Electricity Tariff Hike: Facts and Myths
On 3 April,, 2024, the Nigerian Electricity Regulatory Commission (NERC) issued Supplementary Tariff Orders for Distribution Companies (DisCos) which announced an increase in electricity tariffs. However, this tariff increase from N66/kWh to N225/ kWh is solely applicable to consumers in the Band A category. The new tariff rates take effect immediately, and will apply to these customers from the April billing cycle. This signifies the phased transition, from the Government backed subsidy regime to a competitive market. The tariff rates for other customer classes remain frozen, subject to further policy direction from the Federal Government (FG).
The implications of the tariff increase on the Government, the market and the consumers, are complex. A balancing act needs to be maintained between the Government’s drive for cost savings and phased subsidy removal, the market’s need for liquidity and stable supply, and increased costs for consumers.
To be clear, some frequently asked questions which may stem from this development are outlined below: Why the Tariff Increase?
The tariffs paid by customers are heavily subsidised by the FG, meaning that Nigerians do not pay the actual cost of electricity supply which involves power generation, transmission, and distribution. However, the tariffs have now been revised to reflect the changes in the gas price, inflation, foreign exchange rate, and available generation capacity. Recall that the Nigerian Midstream and Downstream Petroleum Regulatory Authority had announced an increase in the gas to power price from $2.18 per MMBTU to $2.42 per MMBTU on 2 April. Coupled with the high inflation rate and frequent changes in the dollar rate, the tariff increase was imperative. So, the FG is implementing a transition plan to reduce tariff subsidies for all customers, and focus on only the vulnerable. Hence, the commencement with the Band A customers, which represents 15% of the customers. The other customer bands, will continue to benefit from Government subsidies under the order. Which Customers are in the Band A Category?
In 2020, NERC introduced the Service-Based Tariff (SBT) which classified customers into service bands, to ensure that tariffs paid by customers reflect the services delivered by the DisCos based on the hours of power supply per day. Other considerations are the quality of power supply, service interruptions, customer service, and adequate metering.
Under the SBT, consumers are classified in Bands A to E as follows:
• Band A: Minimum of 20 hours
• Band B: Minimum of 16 hours
• Band C: Minimum of 12 hours
• Band D: Minimum of 8 hours
• Band E: Minimum of 4 hours
So, not everyone is affected by the tariff increase, and customers can confirm if they are affected by checking their respective DisCos’ websites as well as NERC’s websites. DisCos are also to communicate these developments to their customers via bulk SMS. Can Customers Unilaterally
Migrate to Higher or Lower Bands?
No, customers are to formally write to DisCos, requesting migration. The DisCos may, on the other hand, determine that a customer cluster is due for migration, and present an application to NERC for approval. It should be noted that only feeders with smart meters, are eligible for upward migration. Upon approval by NERC, customers will be notified by the DisCo via SMS and other channels.
What Remedy do Band A Customers have, where the actual hours of supply is less than 20 hours?
The DisCos have outlined service delivery commitments, in their respective supplementary orders which is available on the NERC website. Where power supply is less than 20 hours for 2 consecutive days, the DisCo is to issue a public notice by 10 am the following day explaining the reason for the failure, and providing a timeline for service restoration to 20 hours. Where this occurs for 7 consecutive days, that customer area will be downgraded from Band A to the band that aligns with the actual hours of supply recorded. Where the DisCo fails to deliver on the committed service levels for 1 month, the affected customers will be compensated with free energy units. Customers have the right to submit their complaints to the DisCos and NERC, via all communication channels. How Often will the Tariffs be Adjusted?
On a monthly basis. The approved tariffs will be adjusted monthly, to reflect changes in the pass-through indices of inflation rates, Dollar-to-Naira exchange rates, and gas-to-power prices. So, customers should expect more frequent reviews, as against the previous 6-month minor reviews. Is the Tariff too High?
Actually, power supply from the grid is cheaper than alternative sources. The new tariff rate, is lower than the average cost of power consumption from diesel. If reliability and sustainability is guaranteed, grid power is a better option for electricity customers. What happens to Band A Customers who are not metered?
Metering is a must for Band A customers. They need to be able to track the amount of power supply being given