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Property and Environment

NERC begins process to review electricity tariff next year

Nigeria’s electricity sector regulator, the Nigerian Electricity Regulatory Commission (NERC), has begun the process of implementing a review of the electricity tariff by asking electricity Distribution Companies (DisCos) to submit plans on how to improve their service.

“The process will involve a review of the application of the capital expenditure allowances in the MYTO model for compliance with Performance Improvement Plans (PIPs) to be prepared by the Distribution Companies (DisCos) and approved by the Commission,” NERC said in guidelines it released for performance improvement plans it published May 10.

Under the current rules, the capital expenditure allowed for DisCos was N305 billion within five years, but this has proven unrealistic as the cost of metering alone for customers in Nigeria would cost N299 billion, according to Sunday Oduntan, executive secretary, Association of Nigerian Electricity Distribution Companies (ANED), at a customer engagement forum in Lagos last week.

So, the DisCos are unable to invest more than the N305bn in capital expenditure otherwise recovery of costs under MYTO will be impossible.

The MYTO is a methodology for determining electricity tariff in the Nigerian Electricity Supply Industry (NESI) and sets out tariffs for the generation, transmission and distribution of electricity in Nigeria. It employs a unified way to determine total industry revenue requirement that is tied to measurable performance improvements and standards.

 

According to the guidelines for the Performance Improvement Plans (PIPs) set by NERC for DisCos, it will cover the 2020-2024 tariff period but it will be subject to the contractual provisions of the Performance Agreements executed between the core investors and the Bureau of Public Enterprises in respect of the allowances for capital and operating expenditure in the remaining term of the agreement.

 

NERC will use the PIPs to define performance standards for DisCos in the next five years with emphasis on improvement in energy throughput and delivery by DisCos, reduction in aggregate technical/commercial losses and overall improvement in service delivery to customers.
The PIPs will form the basis for revenue requirement projections and also serve as the companies’ service charter with the consumers to which they will be held accountable by the Commission, according to the guidelines.

“The Commission expects an output-based plan that states the target outputs over the planning horizon, the programmes and activities that will lead to the realisation of those outputs, the human and material resources required, the projected costs and analysis of the risk factors and the proposed mitigation measures,” NERC said.

Based on the PIPs, the regulator will be able to assess DisCos’ performance in terms of loss reduction reliability and availability, metering, customer satisfaction, network expansion, safety and social responsibility

The DisCos would show not just running cost but provide explanations for costs under the new rules. This will check abuse as the regulator routinely accuses the DisCOs of keeping more revenue collected from customers than they should. DisCos pay other players in the value chain – power generation companies (GenCos), Transmission Company of Nigeria (TCN) and gas producers – through the Nigerian Bulk Electricity Trading Company (NBET).

For example, NERC said DisCos collected N106.6 billion out of the N171 billion of electricity invoice to customers between January and March last year and remitted 31 percent of the amount to the NBET to settle obligations to other market players.

But to develop this plan, all DisCos are required to demonstrate that they have effectively engaged with a wide range of stakeholders when formulating their plans.

“The Commission will not consider it sufficient for DisCos to set out the stakeholder engagement activities they have carried out without demonstrating what has been learnt from the engagement and how the lessons have impacted on the plans,” the Commission said.
Analysts believe this is a positive for the sector and long overdue.

“It is a positive for the electricity sector in Nigeria because the biggest problem it has right now is lack of cost-reflective tariff. This impacts every other segment, constrains investments and discourages service improvement,” Ayodele Oni, energy lawyer and partner at Bloomfield law firm, said.

Oni further said that NERC seems to be getting the policy right as it is implementing series of complementary policies including meter asset provider, sub-franchising and now tariff review at the same time.

“This new holistic approach is what is required to move the sector forward,” Oni said.

Source: By Isaac Anyaogbu

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