NERC Places Six Months Embargo on Electricity Tariff Hike for Domestic Consumers

By Chineme Okafor in Abuja

After its recent review of the Multi Year Tariff Order (MYTO-2) framework, the Nigerian Electricity Regulatory Commission (NERC) has approved new electricity rates that are expected to start running from January 1, 2015 for Nigeria’s Electricity Supply Industry (NESI).

NERC however said the new electricity tariff which follows adjustments in some key factors that statutorily influence its review of the MYTO framework will not be applied to domestic consumers in the country for the next six months.

These consumers are categorised under Residential (R) 1 and 2 in the MYTO framework and form majority of consumers in the country’s electricity market.

The commission however explained that the six-month embargo on the new tariff for domestic consumers was informed by widespread complaints of poor electricity services to them by the various distribution companies.
It therefore said the R1 and 2 consumers would be exempted from paying the increased rates for the next six months until it reviews the MYTO at that period.

The Chairman of NERC, Dr. Sam Amadi, said in an interview in Abuja that the regulatory commission opted for such decision to protect domestic consumers from being exposed to increased costs without proportionate benefits.
Amadi said the commission had shielded ordinary Nigerians from the possibility of rates shock that could have accompanied the review.
He asked operators in the market to then improve on their service to consumers in compliance with the agreement they signed while acquiring the electricity entities.

Asides domestic consumers, Amadi however said that other classes of electricity consumers will have to pay the newly approved tariff which has been primed to start with the Transitional Electricity Market (TEM) at the same day.
“We approved an amended MYTO which means that we issued a new tariff order that continues with the framework of the tariff but now shows that for the remaining of the five years period, the figures are now different but we have not factored some changes like exchange rates and inflation.

“The implication of the increase in losses level is that the tariff will go up because the cost of distributing power will increase. Each of the distribution companies will however design a tariff on how to recover their revenue because what NERC has done is to insist that they will not increase tariff for R2 customers for six months,” Amadi said.

He further explained: “Essentially from today, the tariff should be up but what is happening now is that they are going to lose money for the next six months because of that caveat. We have taken a regulatory policy to say that they will not increase the tariff of residential consumers for the next six months until there is an improvement in service delivery and this is bitter for them because they will not recover that money for that six months but they have accepted it finally as a sacrifice they have to make.”
Amadi stated that but for the special consideration to domestic electricity users, every consumer class in the NESI would have been affected by the tariff hike.

“The bottom-line is that tariff should have increased for everybody from January 1, 2015 going by the increase in the cost of doing business; increase in gas price and new loss levels but because of the commitment that NERC has made to ensure that consumers are not exposed further to increased cost until there is some improvement, we have frozen the increment for six months for residential consumer but they will administer their tariff to other consumers and residential consumers given special consideration,” he added.

Speaking on the reasons for the new hike in electricity rates, Amadi said: “There has been an ongoing, long-running review of the MYTO; basically, the tariff is reviewed every six months in what we call minor review. The minor review however coincided with a special review which is based on the fact that when the new owners took over, there was an agreement that there will be a review of the Aggregate Technical Commercial and Collection (ATC&C) losses.
“This is simply to say that the new owners bought their assets with an understanding with the Bureau of Public Enterprises (BPE) and which NERC recognised that when they come, they will have an opportunity to validate the losses level which the BPE projected and upon which they bought the assets.”

“The implication is that when they did the review and together with NERC it will be verified and use the loss level to get for them a much more reflective tariff because tariff is based on many factors which one of them is loss.
“So, if we had projected that the loss level in the industry is 30 per cent, it means that 30 per cent of revenue in the industry will be lost but if suddenly it becomes 50 per cent, the implication is that we have underpriced the losses and therefore the tariff will be reviewed,” he explained further.
He stated that there was a lack of credibility with the losses data that was put forward and an agreement was then reached for a new and independent studies.

“It was agreed that there was no need to argue and that when they come in, they conduct independent study of the loss levels and verify with NERC who will put it back through a special tariff review if the study is ascertained to be credible and that is why it is a special review and not our normal six months review because this is based on one of the recognition of the agreement that they have to confirm that losses are as we projected. The commission has now accepted those losses level and it is now ready to put it into the tariff.
The new tariff that is announced is a review of the MYTO to factor the losses that are now different based on verification and studies, factor the new price of gas which has changed; basically, those are the two major components for now,” he said.

He also noted that with the commencement of TEM, the interim rules initiated by the commission to initially guide the market’s operations will have to be negated and all operators expected to trade in accordance with terms in extant contracts.
The commission, Amadi added would now progressively hold electricity distribution, transmission, generation companies, as well as other market operators to the terms and conditions of their licences.

“It is expected that the take-off of MYTO-2 will bring about improved service delivery as distribution companies are now expected to implement their investment plans for metering and strengthen their networks in line with their bid documents,” the chairman stated.

Culled from: http://www.thisdaylive.com