Don’t take consumers for granted, energy experts charge DisCos
Three years after SBT, power supply stagnates at 3,500MW
Stakeholders and electricity consumers have described as rip-off, the new increase in electricity tariff being implemented across the country by distribution companies (DisCos), despite worsening state of electricity supply in the country.
Players in the industry have also accused the Nigerian Electricity Regulatory Commission (NERC) of secret dealings, insisting the process of tariff increase has remained opaque, instead of being transparent.
In an order with the number NERC/336/2022, obtained exclusively by The Guardian and cited as December 2022 Minor Review of Multi-year Tariff Order, the order permitted the DisCos to increase tariff, an order that took effect December 1, last year.
The Guardian gathered through the order that the tariff increase applied to consumers under band A and B. The increase for band A is about N10.77 and that of band B is N8.
Distribution companies across the country had, in accordance to the NERC Minor Review Order (MYTO), increased end-user tariff, a development, which has been happening twice a year in the last two years, as the Federal Government enforces a Service Based Tariff. The tariff in the new order is programmed to increase progressively through 2026.
NERC had, last year, “Pursuant to the Extraordinary Tariff Review Application, approved the Multi-Year Tariff Order – 2022 (MYTO – 2022) that took effect from January 1, 2022. The order was subsequently reviewed in July 2022 in line with the extant regulations.”
The regulator stated in the order that the tariff reflected changes in inflation rates, foreign exchange rate, gas price and available generation capacity, and retroactive claw back of unutilised capital expenditure provisions.
For maximum demand and non-maximum demand customers, who are under band A, an increase of N10 was introduced. Maximum and non-maximum demand customers under band B saw an increase of N8, as bands C to E did not witness any change.
“The Meter Acquisition Fund shall be centrally managed and used as securitisation for long-term financing to fund rapid closure of the current metering gap in the NESI – currently estimated at over 60 per cent. Accordingly, N0.75/kWh provision has been made in the DisCos’ revenue requirement as a contribution to the Meter Acquisition Fund in 2023.”
In September 2021, after years of permutations and repeated failed attempts, the “December 2019 Minor Review Order (MYTO)” for the 11 DisCos came into force. The tariff increase was termed service-based tariff.
By implication, the tariff was pegged on the promise of improved power. Residential and commercial customers were divided into bands, depending on the number of hours of electricity that they enjoy.
While the tariff was increased by more than 100 per cent, the end-users were classified into band A to band E. Those in band A were meant to enjoy power for at least 20 hours daily, band B, 16 hours daily, and occupants of band C were to enjoy 12 hours of power supply. Bands D and E are made up of those that would enjoy less than eight hours of power supply.
Though the power sector was privatised by the Federal Government on November 1, 2013, with the expectation that supply to homes and industries would, by now, exceed 40, 000 Megawatts (MW), eight years after and even after the SBT was introduced, data obtained by The Guardian from the Osogbo-based Nigerian Electricity System Operator showed that the distribution companies have, in the past two months, taken only about 3,500MW.
While NERC remained silent over the development, details of the new tariff increase was not made available to the media, as most DisCos equally did not provide the media with the increase across the bands.
The Guardian, however, gathered that some consumers, especially those under band A would now be paying about N70 per kilowatt per hour – what they used to enjoy for about N57.
Abuja Electricity Distribution Company (AEDC) had admitted to some consumers on Twitter that the tariff was increased “in compliance with NERC’s order.” Initially, when NERC introduced the SBT, band A occupants serviced by the Kaduna Electric Distribution Company (KEDC) were paying N56 per kilowatt/hour, while customers on band B pay N54 per kilowatt/hour, and those in band C pay N50, depending on whether they are residential or commercial users.
Under Ikeja Electricity Distribution Company, residential customers on single-phase band C were paying N42.73 per kilowatt/hour, up from N21.30 per kWh. The same class of customers serviced by Eko Electricity Distribution Company (EEDC), pay N43.01 per kWh, up from N24 per kWh. Those under the same band C in the franchise on the platform of Abuja Electricity Distribution Company (AEDC) were paying N45.69 per kWh, up from N24.30 per kWh.
ELECTRICITY Market analyst, Lanre Elatuyi, said while upward tariff review should not come as a shock to Nigerians, it ought to be properly communicated with detailed justifications.
According to him, the lack of proper communication amounts to disrespect to paying consumers.
“The tariff increase is inevitable as there is regulatory provision for it as contained in MYTO 2020- the methodology for tariff setting. The bi-annual minor tariff review is to reflect economic realities by capturing inflation and foreign exchange component of costs.
“The moral question is whether there is justification for tariff increase when there is no verifiable evidence of improvement in electricity supply to the consumers. Besides, there is no mechanism to monitor hours of supply by DisCos under each service band,” he said.
Elatuyi, who said he has been concerned about the tariff components, noted that end user tariffs reflect the costs of the entire value chain.
“Generation tariff is determined using a benchmark Long Run Marginal Cost (LRMC) of the most economically efficient new entrant. In NESI, the most efficient new entrant is an expensive OCGT plant with a thermal efficiency of barely 40 per cent. This has a bearing on overall system cost.”
Renowned energy economist, Prof. Wunmi Iledare, noted that while it is understandable that tariffs must be appropriate to guarantee adequate return on investments into the power sector, investors must not have a buy and sell business mentality.
“Power sector investment is long-term driven. The basis for tariff review must be to reward capacity delivery based on risked investments.
“It is not about DisCos’ tariff expectations. The onus is on the DisCos’ investors to prove and convince NERC and the public the basis for such expectations,” Iledare noted.
He said the DisCos have no commensurate investment to their expectations, adding: “They cannot even provide ordinary meters to consumers to adequately capture power consumption by consumers.”
Energy expert at the University of Lagos, Prof. Yemi Oke, said there was no justification for the tariff increase, stressing that NERC took Nigerians for granted. He described the tariff increase as “treasonable felony” against Nigerians, saying: “We have been reduced to nothing as a people and businesses…not even the decency or courtesy of information and adequate notices.
According to him, tariff methodologies have statutory bases and NERC has regulations but seems recklessly and mindlessly violating its own regulations by failure to ensure effective regulations of the sector.
“Part of regulatory efficiency is to set clear rules and guidelines with clear benchmarks. A prudent regulator will not encourage or condone clandestine increases in tariffs.
“It’s all a failure of direction, leadership and regulation. It will never improve sector efficiency or bring out those DisCos from technical insolvencies,” Oke said.
He said the regulator needs to be open, firm and decisive in its actions, even if tariffs need to be justifiably increased.
Oke said: “So, Nigerians don’t have a right to know? We’re now so ‘worthless’ that we keep paying more even when service has not improved. Instead of increasing the supply net, we’re over-tasking and over-billing the few existing customers.”