Why New Electricity Tariff Took Immediate Effect – NERC Commissioner

The Nigerian Electricity Regulatory Commission (NERC) on April 3, 2024, raised electricity tariffs for customers enjoying 20 hours of power supply daily. Customers in this category are said to be under the Band A classification. The increase will see the customers paying N225 kilowatt per hour from the current N66. This development has been heavily criticised by many Nigerians, considering the immediacy of the tariff hike and the current hardship in the land. NERC Commissioner for Planning Research and Strategy, Yusuf Ali, was on Channels Television’s Politics Today programme during the week and he provided perspectives to what informed the decision of the regulatory body.

I know you have heard how angry people are about this increase. What goes through your mind?

I think it’s unfortunate but also understandable the circumstances facing Nigerians. I think the current review is seen as part of reforms that are not so easy to accommodate now but I want to that this tariff review is focused on only 15% of the customer base. The difficulty on the government is very clear; the cost of producing electricity is always going to be there, the only question you have to ask yourself at any point is who foot the bills. All around the world, three reviews in four years, considering the scale of the macroeconomic changes we’ve had in our own economy, doesn’t go anywhere near enough. So, for way of context before this review, we were operating a tariff that was determined in December 2022.

Now I’ll just choose one parameter that encapsulates the big issue that we’re facing; the issue of gas price – gas price for the power sector is indexed to the dollar. In December of 2022, when the tariff was set, the gas was set at $2.18 per MMBTU (one million British thermal units). That is about N930 for every unit of gas. As at today, when you consider the fact that gas price was slightly increased by 11% recently, now costing N3,500. Now we have a decision to make, if the thing cost this amount, as a commission, we’re in the middle of a very interesting triangle. We have consumers who are there to be protected, there’s the government who is aligned with the consumers to ensure that things are not too hard on them, but then we have the investors who are the people that put their money in.

The new tariff regime takes immediate effect but is this supposed to be the procedure? I thought there is supposed to be a notice before the increase kick in.

Yes, it took immediate effect and I think that is consistent with the provisions of our business rules with regards to this type of review. Now there are three type of reviews that we do and each of the reviews have different procedures to how you go about them. We have what we call the minor reviews which is what we did this week. There are minor reviews which is just month-on-month. Those ones do not require any consultation with consumers. Then we have major reviews which are bound to happen once every five years. For major reviews, we are required to have stakeholders’ engagement to get input in determining the new tariff. Then we have what we call extraordinary review between a five-year period if there has been a significant change in circumstances. In this case, our licensees, the DisCos, have a right to appeal to us, so that happened July last year.

They wrote to us and said they want a new tariff because dollar has changed and so on and so forth. For a week in the whole of July of last year, we held rate case hearings which is in line with international best practices. We invited consumers to discuss the proposal by the DisCos.

The consumers are the ones on the spot right now. Whatever policy or laws that exist out there supposed to have a human face. The consumers should be given time to adjust to the new tariff but when you say ‘with immediate effect’, in this economy? That is very harsh on consumers.

When you check the order that we issued in January, we were transparent about cost-reflective tariff. The change that has happened this April is that the government has said the subsidy we are willing to pay, our appetite is reduced, so design a tariff regime with the distribution companies that would save us N1.14 trillion and it’s important to highlight that number because as you know very well, the federal budget for this year is N27 trillion. If you do N1.14trn of N27trn, that’s over 4%.

What’s the place of a human face in this whole matter considering the hardship in the land?

 In addition to my work at NERC I’m also a consumer and I have family. The reality is there is some pain that comes with adjustment but the reality also is that you are very familiar with the Nigerian landscape. So, for example, Nigeria is very unique in the sense that it’s probably one of the few countries that has the highest level of prepaid metering around the world.

Let me just quickly explain on the issue of prepaid meters. The issue is the bills for electricity consumed in April, for example, will only become mature for the discos in May and June, that’s when they will have to collect the money and pay the suppliers of electricity. The challenge is if you allow a notice period, customers will bulk up and sell at different rates. So, for example, if this will be effective by end of April, people that normally buy only 20 units for one month will go and borrow money to buy more units to cover them for April, May, June.

You see why people say this is punitive because even if they buy that the same thing happens with fuel, you will still exhaust it and buy at the new rate.

No. I have some interesting data for you. Out of the about 1.8 million customers that are affected by this, 75% of the energy that will be consumed by that band goes to the industries. There were lot of people saying, ‘Oh, this is bad for industry, they will shut down’ and so on and so forth. For industries, the alternative if they don’t get great power is that they get diesel generator or CNG.

Let’s not even go there because alternative power supply is a choice but now NERC is compelling people to pay more for electricity tariff. These are two different things.

No, consumers have a choice and decide what energy to consume.

How do I know if I’m a Band A customer?

If you go check your bills or any vending that you’ve done in the last few months or the bill that you have paid for postpaid customers, usually there’s a requirement from the commission, it will tell you on this feeder and you’re a banded customer.

So, let’s say I spend 40,000 naira on electricity every month, how much am I going to spend now?

If your consumption stays flat that would be the case but the reality of human behaviour is that we very adaptable. The energy cost times three, you can adjust your own consumption to manage within your budget.

Help us understand your agreement with GenCos.

The Electricity Act 2023 is very clear that the commission has a mandate to determine tariffs that allow operators. This is across the value chain, — generation, transmission and distribution. Those stakeholders need to recover any investment that they make.

Several people are saying they are supposed to be in the so-called Band A but they don’t even get close to 20 hours a day. Aren’t there supposed to be sanctions?

On the issue of discos being sanctioned for not meeting service requirements, there are some cases that has been done but I also need to provide some clarification. A disco is just one part of the value chain, a disco is basically the last mile. What happens is every power plant for example needs to generate power, TCN needs to carry the power from Eko, Lagos State and carry it to Abuja and then Abuja DisCo will now be the last to bring it to your house.

Now what has happened is that the premise of the service-based tariff in the first design assumed 5,000 megawatt hours per hour. The challenge is once the generation is not available, you cannot hold a disco culpable for not delivering a service.

How do you monitor compliance of the disCos? How is it measured?

In the simplest form, the service-based tariff is based on feeders, so a feeder is basically like 11 kv line that supplies many households. Each of those feeders have meters. Now the commission has mandated the distribution companies to install smart meters on these 11kv feeders, so what smart meters do is that they can be remotely read so every hour or in some cases 15 minutes, in some cases 30 minutes and in the worst case 1 hour, the meter would read its data to a what is called a Meta Data Management System (MDMS). So, we can definitely see that if a feeder has a zero reading for any hour that means that there will be no supply for the customers on that feeder and that’s how we measure the compliance for service delivery.

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