Tariff Hike: NLC, CNPP, Consumers Plot Against NERC, Operators

Geregu Power Plant

The plans to review electricity tariff has provoked customers of the distribution companies. The Nigerian Labour Congress (NLC), the Conference of Nigeria Political Parties (CNPP) and others are angry. The consumers warn against a price hike in the face of a metering deficit, low investments in infrastructure and lingering insufficient supply.

Should the Nigerian Electricity Regulatory Commission (NERC) and the Presidency approve the new tariffs being proposed by the Electricity Distribution Companies (DISCOS) and Generation Companies (GENCOS), two options will be opened to customers – to pay and depend on the firms for the utility or, find alternative power source.

The Nation report continues:

If the plans are anything to go by, customers of the Abuja Electricity Distribution Company (AEDC) will record 25 per increase, Benin Electricity Distribution Company (BEDC) will have to contend with 21 per cent hike,  Ibadan Electricity Distribution Company (IEDC) have a marginal  1.76 per cent increase to cope with. The Enugu Electricity Distribution Company (EEDC) have 19.25per cent rise to bear.  The commission’s Principal Manager, Market Competition and Rates, Aisha Mahmud, dropped the hint at a presentation to stakeholders in the sector, including the generating and distribution companies, of the Consumer Forum and others last Tuesday at Abuja. There was no information yet on what customers of  Port Harcourt, Ikeja, Eko and other companies will paying at the frozen point to allow a comparative analysis of their new tariffs.

The upward review in tariff is coming with some contrasts that could confuse analysts to simply admit that NERC is doing electricity consumers the favour of reducing the tariff.  Truly, the commission had last year frozen the tariff at a period that the customers were expected to pay more for electricity following its bi-annual minor review. The Federal Government suspended the implementation of the said tariff increases that would have been effective from July, barely two months into President Muhammadu Buhari’s presidency.

NERC tinkers with tariff

But, today, NERC is reviewing the tariff in accordance with its order. The baseline for the new review is April 30, when power supply achieved marginal increase over the output recorded in the last review that was not implemented.

Following the surge in power supply in the period under review, the average cost of electricity fell, necessitating customers to pay less. Although the tariff will be lower than the one that was not implemented, it is still higher than what it was when it was frozen last year – the price that is still effective. That the new tariff will be effective retroactively from July this year shows that the customers would pay arrears from July.

In his opening remarks at the stakeholders’ consultation forum, NERC chairman Sam Amadi noted that the public hearing was for a minor review of the few indicators that the electricity market had to track. Dr. Amadi exonerated the commission from the outcome of the review which he attributed to economic fundamentals.

He said: “Our job is to track them; we don’t manufacture them; we don’t create them, but we track them to ensure that they are actually reflected in the modem. We retrieve them from the official sources that are authorized by law. So, whatever you see here know that we traced the macroeconomic data as they develop over the months and feed them into our formula so that the outcome will be clear to all. The chairman urged the consumers on active participation since the burden will always fall on them. Amadi asked the advocacy network to help mobilize consumers for participation in the public hearing.

Taking the stakeholders through the procedures and variables the NERC adopted for the review, Mahmud insisted that Section 76(8) of the Electric Power Sector Reform Act conferred the powers for adoption of a tariff methodology, the Multi-Year Tariff Order (MYTO).

The MYTO, according to her, provides a 15-year tariff path for the  electricity industry, with minor reviews bi-annually in the light of changes in a limited number of parameters (such as inflation, exchange rate, gas prices, and generation capacity) and major reviews every five years, when all the inputs are reviewed with the stakeholders.

But, for this ongoing bi-annual review, Mahmud stressed that NERC obtained the data on the official rate of inflation and exchange rate for the period ending April 30, 2015, from the website of the Central Bank of Nigeria (CBN). It also requested information on generation capacity as at April 30 from the System Operator (SO) of the Transition Company of Nigeria (TCN) and also studied the daily generation report of the SO.  The commission requested for information from the Nigeria Bulk Electricity Trader (NBET) on tested capacity for all generators.

The inflation rate that NERC received from the CBN, said Mahmud, shows a figure of 8.3 per cent as at April 30, but MYTO2 had an assumption of 13 per cent inflation rate. Subsequently, after the 2014 minor review, the inflation rate was reviewed down to 7.8 per cent.

On exchange rate, she said that the data from the apex bank website shows an exchange rate of ₦197 to US$1 as at April 30. MYTO-2 was benchmarked at the ₦178 to US$1, noting that MYTO-2 also allows a charge of one per cent above the CBN rate to cover Letter of Credit and other bank charges. She said that the adopted exchange rate for the review was therefore CBN’s exchange rate +1 per cent which equals 198.97.

Mahmud explained that gas prices had been regulated since the adoption of the MYTO in 2008 and the regulated prices were applied in the 2012-2016 price regime. She added that the Federal Ministries of Petroleum Resources, Power, the CBN and NERC reached an understanding in August last year on a gas price of US$2.50/mmbtu and transport cost of US$0.80/mmbtu.  There was a decision that the gas transportation cost of US$0.30 should remain until the GENCOS prove otherwise like the Geregu Power Plc., which stated in its gas transportation agreement with US$.75.

In terms of generation capacity, she noted that the system operator’s daily report was used to derive the data which the commission adopted for the minor review. She said that the average peak capacity is 3,832MW while average power sent out capacity is 3,404MW.

On the whole, a summary of the result of the minor review shows that inflation was 7.8 per cent when it was last amended in 2014. But, it hit 8.9 per cent in April 2015. Exchange rate that was ₦166.18 when it was last amended last year, soared to ₦198.97 in April. Gas price/mmbtu which was US$2.80 during the last review in 2014 rose to US$2.80 in April this year. Energy sent out from transmission stations that were 28,038Giga Watts/Hour (GW/h last year, increased to 32,921GWh in April 2014. The revenue requirement which was ₦572 billion during the last review surged to ₦619 billion April this year. Average retail tariff that was ₦26.2 in the last review dipped to ₦23.8 this April.

Consequent upon the following parameters, NERC proposed that customers of the Abuja Electricity Distribution Company will pay ₦18.41 as against the ₦14.70 they paying prior to the review. Had the commission implemented the tariff last year, they would have paid N19.96.

Enugu Electricity Distribution Company that froze R2 ₦16.44 will pay ₦19.61 in the new tariff but it ought to have paid N20.89 had NERC implemented the last tariff.

Benin Electricity Distribution Company that its R2 customers were paying ₦14.82 when the tariff was frozen will now pay ₦17.94 instead of ₦18.46.

Ibadan Electricity Distribution Company that its R2 customers were paying ₦16.44 before it was frozen will now pay ₦16.73 instead of ₦18.00.

The presentation was, however, silent on what other distribution companies such as Jos, Yola, Port Harcourt, Eko, Ikeja and others were paying before their tariffs were frozen to allow a comparative analysis. NERC is now taking advantage of the differences between what customers would have paid last year had it implemented the last tariff and the proposed tariff which is relatively low to announce that it has reduced tariff. The same NERC seems to be reticent on the fact that the customers will now not only pay higher, but also pay the arrears of the increase with effect from July.

The NERC’s position

Rising from the meeting, reporters asked Amadi to justify the increase and the chairman said:  “You made a good point, it was frozen. What that means is that we did the analysis the other time, but going by the low level of metering, going by the power supply, the DISCOS could forebear. We told them that they are entitled to this tariff, but we are asking you not to collect it at this stage until you improve.”

Many DISCOS, according to him, did not take the intervention in good fate even as it was clear that it was the global practice that regulators could freeze the market in view of some socio-economic factors.

Amadi stressed that it would have been completely irresponsible of the commission to approve a tariff hike when a new administration was just assuming office in June this year. But now, the stage is set for increase because the electricity market is stable and needs to move on.

He said: “Now, the order said six months. It will be unfrozen in June. June came and I told you why it wasn’t done: because a new government just took over on the 1st of June and that will be totally irresponsible to unlock tariff at that stage.  Now that we have some stability we need to move to the next stage. And so, we have now shown what that should be. This is a formula. It has not yet translated to anybody’s tariff. What the DISCOS will now do is to take this short-fall. I will show you the new tariff, to see the short-fall. They will put it into their modem and control it for 10 years.”

Unlike the combative usual representatives of the distribution and generation companies at previous NERC public hearings for tariff review, the meeting penultimate Tuesday was very cordial.  It was like an adoption of minutes of a previously held meeting because the review serves the interest of the operators.

Speaking, the Executive Director, Regulation, Abuja Electricity Distribution Company (AEDC), Abimbola Odubiyi, drew attention to the fact that “NBET has already activated the PPA for Olurunsogo and Omotosho, which they are giving us currently. And that is not reflected in the tariff.”

He overlooked the hike as it has favoured his company.

Representative of the Geregu Power Plc., Adebiyi Adenuga, urged the commission to consider the fact that all their commitments are in naira which the exchange rate has affected adversely. He asked the NERC to allow the tariff to address the firm’s loses in the past for the period of arrears the retroactivity of the tariff will cover.

However, some of the consumers at the meeting complained that the distribution companies take advantage of the metering deficit in the market to charge them even when there is little or no power supply.

Speaking, the Mr. Oboma Ekoh of Nigeria Electricity Consumer Advocacy Network (NECAN), noted: “Abuja Electricity Distribution Company is shortchanging consumers particularly in the rural areas.  For instance, your tariff before this time was ₦14.70. And you go to the rural areas in place of R2 you give them C1, you give them A1. I am so sorry I will present you with bills because we have been conducting a research on this. I have collected samples of bills and there is a particular location in Abuja for which I have about 12 bills. In the R2 you collected ₦248 kilowatts per hour per month. And you billed at ₦14.70. You go back to people who have not had electricity for an upward of eight months since January and you billed them ₦4, 000 and you gave them 415kilo watts per hour. The next month you billed them 475 kilo watts per hour. The next month 466, the next month 415. And these billings, within this period there was no light. There was no distribution transformer in those areas. Now, listen to what you people do in the field. They give you a bill of ₦30,000 and ask you how much you are going to pay. You tell them instead of ₦30,000 you have to pay N10,000. What are the parameters?