NERC Sets Rules for Operators As New Tariffs Take Off

The Nigerian Electricity Regulatory Commission (NERC) yesterday issued guidelines to stop the blame game between the Transmission Company of Nigeria (TCN) and Distribution Companies (Discos) over the latter’s alleged incessant rejection of power.

The new guidelines came as the revised electricity tariffs to be paid by some electricity consumers, earlier approved by President Muhammadu Buhari and the NERC, commence today.

Under the guidelines, NERC said that, “the federal government under the Power Sector Recovery Plan (PSRP) financial plan has committed to funding the revenue gap arising from the difference between the cost reflective tariffs determined by the commission and the actual end-user tariff during the transition to the cost-reflective tariff.”

In documents containing the official communication between NERC and the Discos, which detailed the reviewed rules, obtained by THISDAY, the regulator said any rejection of power by either the Discos or under-supply by the TCN would now attract a “capacity charge.”

TCN has always complained that the country’s power supply situation is worsening because of the rejection of electricity allocation by Discos, noting that the problem persisted because the distributors can drop load and increase it at will without being penalised.

“Where it is established that the TCN is unable to deliver Discos’ load allocation, TCN shall be liable to pay for associated capacity charge. Where Discos fail to take its entire load allocation due to constraints in its network, the Disco shall be liable to pay capacity charge as allocated in its vesting contracts,” NERC stated.

The new order instructed the Discos on the modalities for billing customers who fall under different classifications with the commencement of the new tariffs, saying that Nigerians who receive less than 12-hour supply of electricity will not be affected in the latest increase until service improves.

“This order shall take effect from September 1, 2020 and shall cease to have an effect on the issuance of a new minor review order or an extraordinary tariff review order by the commission,” NERC stated.

It said the commission took the decision after it reviewed the application filed by the Discos, taking into consideration the outcome of the public consultations held in February and March and thereafter approved the new tariff regime that will cover from September to June 2025.

“The order reflects the impact of changes in macroeconomic parameters and revenue requirements and a revised tariff design that aligns rates paid by customers with the quality of services as measured by the average availability of power over a month period.

“Pursuant to the objective of incentivizing a continuous improvement of service for all customers, there shall be no tariff reviews for customers experiencing an average power supply availability of less than 12 hours per day over a period of one month.

“Unmetered customers within service bands A, B and C thus benefiting from a supply availability in excess of an average of 12 hours per day over a period of one month as affected by this tariff order shall be protected by the provision of order on capping of estimated bills in the NESI and federal government intervention on accelerated metering of all customers.

“The commission orders that you shall continue to maintain the lifeline tariff of N4 per kW for all customers consuming less than 50kw per hour of energy per month as a safeguard for the less privileged members of the society,” NERC added.

On the objectives of the order, NERC noted that it seeks to ensure that prices are fair to customers and sufficient to fully recover the efficient cost of operation, including a reasonable return on capital invested in business by the Discos.

The power sector regulator said the new guidelines would provide a path to a transition to full service-based cost-reflective tariffs by July 2021 and re-classify as well as disaggregate customer clusters on the basis of commitment to quality of service.

Upon evaluation, NERC said it considered and approved five tariff service bands representing relative quality of service experience.

It told the power distributors that it arrived at the new rates after considering the country’s rate of inflation for July 2020 as obtained from the National Bureau of Statistics (NBS), which was 12.82 per cent.

NERC further pegged the applicable exchange rate of N383.80 and gas price of $2.50/mmbtu and gas transportation cost of $.80 mmbtu.

However, it said there would be a “tariff freeze” for customers in bands D, E, directing that they shall be charged tariffs obtainable prior to the take-off of the new rates pending when power improves.

“Following consultations on directions on tariff policy, the commission hereby approves a deferment of the applicable tariffs for customers in service band D and E (less than 12 hours per day over a month),” it added.

NERC explained that where there is a failure to deliver a committed service level over the evaluated period of 60 days, the rates payable by customers should be retroactively adjusted in line with quality of service delivered over the same period of time.

It said under the current framework, the minimum market remittance threshold for Discos would be determined after deducting the revenue deficit arising from tariff shortfall from aggregate Nigerian Bulk Electricity Trading (NBET) Limited and Market Operators’ (MOs) market invoices.

The regulator stated that the Discos should be availed the opportunity to earn their revenue requirement only upon fully meeting payment obligations, including repayment of CBN -NEM facility, 100 per cent settlement of MO invoices and full settlement of 83 per cent of NBET’s monthly invoices, being the minimum remittance threshold prescribed in the order.