Discos to Fix Electricity Tariffs

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Amadi

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Power firms are now to fix the tariff for electricity in consultation with the consumers while the Nigerian Electricity Regulatory Commission gives the final approval

By Anayo Ezugwu  |  Apr. 20, 2015 @ 01:00 GMT  |

IN less than one month after the Nigerian Electricity Regulatory Commission, NERC, reduced the electricity tariff by 50 percent, the commission has said that the electricity distribution companies in Nigeria can now set their own tariffs based on the cost of operating in their various locations. Although such will be subject to approval by the commission, NERC stated that the Discos would have to interface with their customers before presenting the tariffs to the regulator.

Sam Amadi, chairman, NERC, stated this at the end of the regular monthly meeting with the power generation and distribution companies and the Transmission Company of Nigeria, TCN. He said the commission had in the past allowed the Discos to hold consultations with their customers on issues pertaining to tariffs, but noted that this time it would be the duty of the companies to set the tariffs and not that of NERC.

The permission for the Discos to fix their tariffs will take effect from July when the Multi Year Tariff Order will take place. According to the commission, the development will not lead to the jettisoning of the MYTO, but the tariff structure will be the framework for the idea. “The MYTO remains as the framework for tariff. What has changed is that the Discos will be required to engage with their customers before presenting a tariff application for approval. The customers will not be in the shadows anymore. The Discos will have to engage with the customers,” he said.

According to Amadi, NERC would only approve what would be brought to it by the Discos as the new tariffs after it had done all necessary consultations. It is not that we have not been doing that before now; we have been having public hearings. But the difference here is that the reason for tariff setting for generating the cost will be squarely that of the Disco. This is for three benefits. One, they are the ones who know the actual cost of power tariff. Two, they know their customers’ profiles better and know how those costs can be better distributed. And thirdly, they interface more with their customers.”

He explained that the methodology would allow each Disco to adequately factor in all its expenses arising from the operational challenges faced, while distributing power to its customers in its area of operation. The NERC boss noted that this was better than setting a tariff for a Disco without actually knowing the operational challenges the firm was facing. “For example, take the Yola Disco that is having problems with insurgents. Thank God we have contained the insurgency. Assuming it was very devastating for them; they could come and say the cost of doing business has escalated. And they have to prove it if that is the case.

“Now, part of the requirement is that they will go and conduct consumer/stakeholder consultations with their consumer groups. They will propose to them the rate of increase that they are asking for. Of course, you don’t expect the consumers to clap for them when they increase tariffs. But the idea is that if there are consumer complaints, within that period they will create legitimacy first, and acceptability and affordability. And then, our job will be to attend such consultations; observe what is going on, and at the end of the day, the Discos will send to us a report showing that they have done consultations.”

Amadi said the initiative would ensure transparency in the sector and maintained that no increase in tariff would be made without being approved by NERC. “Now what does this do? It puts a restraint to undue or unreasonable tariff review. Consumers will now be enlightened and they will know how the Discos are serving them and will know what is warranting an additional cost implication.

“NERC also will have to approve the system. When they send us their proposal, we will still have to do public consultation. But the idea is that it first starts with the consumers before they propose to us. And if they have done the first process thoroughly, the second level becomes easier because some of the outrageous elements would have been probably discussed. But ultimately, it is NERC that approves the tariffs but what we are doing is that the onus is on them (Discos) to justify to us the increase and to also tell us how far they have carried the consumers along,” he said.

The NERC had on March 17 reviewed the rates to be paid for electricity consumption in the country. In its review of the assumptions in the Multi Year Tariff Order (MYTO 2.1), NERC stated that it would be inappropriate for Discos to transfer collection losses that they record and have control over to consumers. The commission explained that its removal of collection losses from customers’ tariff has henceforth reduced tariff by more than 50 percent in some places across the country, adding that it would lead to lower tariffs for consumers.

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