Electricity Tariff Hike: Is it Lawful?
“There should be little cross-subsidy, such that one customer group pays a disproportionate portion of the cost of service.This will violate the principle of non-discrimination”
cont'd from page VII to them. This will be necessary in case of redress and to avoid disputes. For postpaid customers, power supply may be tracked manually. However, customers should note that electricity theft is criminalised, and meter bypass and refusal to pay bills is penalised in the Electricity Act 2023. The NERC Order mandates that Band A feeders should be metered. The Federal Competition and Consumer Protection Commission has recommended that, DisCos should be mandated to meter all Band A customers within 60 days. The feasibility of this within the timeframe is, however, questionable given the metering challenges in the sector. Is the Tariff Increase a fair move for Band A Customers?
Well, the feedback has been mixed, but, it is predominantly on the side of doubt by the populace. That is understandable, because it is a “chicken and egg situation”. Tariff reviews assume that if customers pay cost-reflective tariffs, they will get improved power supply, but, customers are concerned about the uncertainty of power supply for the minimum 20 hour-period because of previous supply history. Whilst we welcome a gradual transition to costreflective tariffs, transferring the burden of increased tariffs to a particular set of customers requires more detailed planning and an even better implementation. The liquidity risk, which was usually borne by the FG, is now being transferred to the highest-paying customers who can presumably afford it. This announcement was not preceded by wide consultations and dialogues with industry stakeholders. This new cost ought to be spread to ensure equity across all customer bands, apart from the vulnerable and life-line customers. However, this can be considered a pilot phase, and tariff increases across other bands can be expected over the coming months, especially as services improve.
Some of the unintended consequences of this increase is that the DisCos’ minimum remittance obligations (MROs) will increase, and it may be harder for them to meet their OPEX after the waterfall deductions. There is also the possibility of DisCos concentrating all their efforts and investments on Band A customers, to the detriment of other customers in the other bands to meet their new MROs. Also, the service level agreements between DisCos and TCN needs to be reviewed, to address any potential imbalance issues that may affect the DisCos’ ability to adhere to their respective service commitments to Band A customers. In addition, a number of Band A customers are industrial customers who will consequently, pass the cost to the very populace that the Government seeks to protect. Conclusion
In conclusion, it is important to understand that privatisation exercises such as the one which Nigeria has embarked on is a long journey and requires patience on the part of all, including the citizenry. The costs involved in ensuring steady power supply are humongous, and can only be assessed from potential investors through steady, reliable and consistent policies from the federal Government. For sustainability, the mode and consistency of implementation is what will inspire confidence in the market to ensure security of supply.
Even where setbacks are encountered, the consistent desire to attract investment should be undeniable. This is what motivates investments, and DisCos should invest in technology to drastically reduce energy theft. We must look to the potential benefits in the Electricity Act which will hopefully see more State participation in this sector, such that its disaggregation should create more off-grid solutions such as embedded generation and solar energy. A consistent drive for these solutions, will allow for better penetration of power supply to the populace. How Appropriate is the Recent Tariff Review?
Dr Sam Amadi
A few weeks ago, the Nigerian Electricity Regulatory Commission (NERC) announced that it has approved a new tariff rate for some customers grouped under Band A. These customers who were paying N68 for a kilowatt (kwh) hour of electricity, will, as from April 1, 2024, pay N225 per kwh. This is about a 230% increase, in one fell swoop. In electricity industry parlance, any single increase of more than 20%, constitutes a rate shock. This is an extraordinary increase, at a time that cost of energy and cost of necessities have gone up. For example, current food inflation is 35.41%. If you tie this to over 400% increase in petrol price arising from the immediate withdrawal of petrol subsidy, it means that Nigerians are facing a very difficult period.
Expectedly, Nigerian customers revolted against the increase. The logic of the increase is that, it will apply to only 15% of the customer base of the eleven distribution companies. Also, it will come with increase of power supply to these customers who are banded together under Band A. NERC has given assurance that, these customers will receive a minimum of 20 hours of regular electricity everyday. The rest of the customers who are banded under Bands B-E will have few hours of electricity, in some cases, less than 6 hours for those on the lowest band.
The approval took effect immediately, on April 1. The reports of activities of distribution companies days after, illustrate the problem with the tariff increase. Distribution companies began to smuggle customers into the lucrative Band A, such that those who were previously under Bands B and C were automatically deducted N225kwh. On the microblog site X, formerly know as twitter, the management of distribution companies apologised to customers who complained that they were billed Band A tariff when they do not receive anything close to 20 hours of electricity daily. According to Daily Trust Newspaper, the complaints were so overwhelming that, within a week, there were more than 30 such admitted wrong categorisations and over-billings. The regulator, NERC, had to intervene the next 24 hours to cite Abuja Electricity Distribution Company (AEDC) of numerous violations, and slammed it with a whooping N200m fine.
These actions foreshadow the problems that the new tariff will unleash in the sector, as the impacts of the tariff increase hit home. As we await reactions from distribution companies’ regulator and customers, we need to evaluate the process undertaken by the regulator to approve the tariff hike, and the regulatory issues surrounding the new tariff. Just and Fair Tariff
The is the prime obligation issue in of electricity the regulator, regulation to allow an efficient operator the right to recover the costs it incurred to supply electricity and a reasonable profit. This obligation is standard global practice that is now codified. Section 33 of the Electricity Act that replaces the Electric Power Sector Reform (EPSR) Act 2005 articulates the function of NERC to include “to ensure that the prices charged by licensee are fair to consumers, and are sufficient to allow licensees to finance their activities and to allow for reasonable profit for efficient operation”, and to “ensure that regulation is fair and balanced for customers, licensee, investors and other stakeholders”.
The twin obligation of ensuring just and fair tariff to licensees and regulate in a fair and balanced manner for the benefit of consumers, is at the heart of utility regulation.
The general power to regulate tariffs in the Nigerian electricity supply industry, is derived from Section 116 of the Electricity Act 2023. It declares that generation, transmission, and distribution are subject to tariff regulation. It further states in regulating tariff, the Commission can adopt one or more methodologies that, among other things, “allow a licensee who operates efficiently to recover the full costs of its business activities, including a reasonable return on the capital invested in the business”. The Commission must, through tariff regulation, “provide incentive for continued improvement of the quality of services” and “avoid undue discrimination between consumers and consumer categories”.
The critical thing about the power to regulate tariffs in the electricity industry, is that it is based on a methodology established by the Commission in line with the Electric Power Sector Reform (EPSR) Act (now repealed by Electricity Act 2023). NERC cannot issue tariffs contrary to what is in the methodology.The methodology is a regulation, and is gazetted. Therefore, it is legally enforceable against the Commission. If tariffs are changed in a manner not contemplated in the regulation, it raises issues about legality. Under cont'd on page IX