The Nigerian Electricity Regulatory Commission (NERC) has introduced new regulations for DisCos detailing the procedure for tariff reviews. Nigerians are concerned over the potential electricity price hikes, fearing increased costs might burden household budgets and affect small businesses. There’s a palpable worry that these changes could lead to reduced access to affordable electricity
Legal Framework for Tariff Reviews
The NERC, led by Chairman Sanusi Garba, has outlined that under the Electricity Act 2023, the commission is legally bound to review and set a justifiable tariff. This tariff must allow licensees to recuperate all prudent costs and ensure a reasonable return on their capital investments in the electricity sector. Specifically, Section 116(1) of the Act mandates that electricity generation, transmission, distribution, trading, supply, system operation, and franchising activities are all subject to tariff regulation. Furthermore, Section 116(2) empowers NERC to design a tariff methodology which enables licensees to recover their efficient business costs plus an acceptable return on shareholder investments.
Adoption of Multi-Year Tariff Order Methodology
To implement these legal provisions, NERC has adopted the “Multi-Year Tariff Order Methodology.” This framework serves as an incentive-based pricing regulation for determining and forecasting tariffs in the Nigerian Electricity Supply Industry (NESI). The methodology stipulates a major review of tariffs every five years to reassess all tariff assumptions to maintain industry viability and efficiency.
Procedure for Major Tariff Reviews
One year prior to the expiration of the current tariff review order, NERC will notify all licensees of its intent to conduct a major review. This notice will be published in three national newspapers and on NERC’s official website, requesting licensees to submit their tariff review applications within 120 days. These applications must be supported by documentation like audited financial statements, budgets, investment plans aligned with performance improvement plans, and evidence of customer consultations regarding tariff adjustments.
Review and Consultation Process
NERC commits to reviewing these applications and issuing a consultation paper within 90 days after the application deadline. This paper will detail the basis for tariff adjustments, including proposals for capital investments, service enhancements, new connections, and loss reductions. The paper will be made public, and stakeholders will have 21 days to submit their comments. Within another 90 days, NERC will organize and conclude a Rate Case Hearing, considering all feedback and observations to draft a new tariff order.
Finalization of Tariff Review
After the hearing, NERC will deliberate on all inputs and approve the Major Tariff Review Order within 30 days. Licensees are then required to inform their customers about the new tariffs through their websites and other communication channels.
Monthly and Minor Reviews
Apart from major reviews, NERC has outlined provisions for monthly or minor tariff adjustments to reflect changes in factors like fuel costs, inflation rates in Nigeria and the US, exchange rate fluctuations, and generation availability.
Government’s View on Subsidy and Tariff Review
Olu Verheijen, Special Adviser to President Bola Tinubu on Energy, has announced an impending electricity tariff review. She highlighted the current electricity subsidy’s inefficiency, noting that the N200 billion monthly subsidy predominantly benefits the wealthiest 25% of Nigerians. The government aims to reform this into a targeted subsidy system to better support low-income households, making electricity more accessible and affordable for the masses.
This structured approach by NERC and the government’s policy direction aim to balance industry needs with consumer affordability, ensuring a more equitable distribution of electricity benefits across Nigeria.
