Electricity distribution companies are now at liberty set their own tariffs based on the cost of operating in their various locations.
The Nigerian Electricity Regulatory Commission which unleashed the power firms said however The exercise of such liberty will be subject to approval by the commission.
The commission said that the Discos would have to interface with their customers before presenting the tariffs to the regulator.
The Chairman, NERC, Dr. Sam Amadi, said this in Abuja on Wednesday at the end of the regular monthly meeting that the commission often holds with the power generation and distribution companies and the Transmission Company of Nigeria.
Amadi stated that 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.
NERC said at the end of the April edition of the monthly meeting of heads of operators in the country’s electricity industry in Abuja that its decision on the option of joint consultation and determination of electricity rates by consumers and distribution companies was based on the need to foster transparency and inclusiveness in the way electricity rates are decided and paid in the sector.
Amadi explained that from the recent disagreements on its review of the Multi Year Tariff Order (MYTO 2.1), consumers and distribution companies would now have to sit down together to discuss and determine a mutually acceptable cost-reflective tariff to be paid in the sector.
Amadi noted that NERC which would take up an independent umpire role in the process, would also review the propositions and indices presented by the distribution companies during and after the consultation with consumers before signing off the mutually agreed tariff to be used by the distribution companies.
“The responsibility for tariff setting; generating the data will squarely be that of the Discos for three benefits: They are the ones who know the actual cost of serving their customers, they know better their customer profile and how those costs will be applied and we want them to interface more with their consumers because these are the people who will pay the tariff and they should be able to participate in deciding their rates,” Amadi said in his explanation of the new development.
According to him, “The methodology is such that the Discos will prepare a revenue requirement with consultation with consumers and stakeholder groups and propose to them that this is the situation.
“We don’t expect the consumers for instance to clap for them that they want to increase rates but the idea is that if there are consumer complaints, they should create legitimacy within that period and be sorted out and then NERC who will attend the forum will observe the process.”
Speaking more on the rationale for such option, the chairman said, “This puts a restraint on undue and unreasonable tariff reviews because you will know that you will confront consumers with that.
“This also puts consumers in good knowledge of the operations of the Discos and we will have enlightened consumers so that they will know if they are truly been served well by the Discos.
“This system also gives NERC a first check on what is coming to us and so when they send us their proposal, we will still conduct a public consultation to determine the authenticity of their proposal.
“The idea is also that it will first start with the consumers and Discos and if they had done this first level thoroughly, the second level will become easier because some of the outrageous elements of that cost would have been thoroughly discussed and maybe revised.
“It will also afford them the opportunity to build strong evidence by telling us how far the consumers have been involved so that nobody will accuse NERC of taking a decision that is unilateral,” Amadi added.
Responding to the development, the Managing Director of Ikeja Electricity Distribution Company (IKEDC), Abiodun Ajifowobaje, noted that it was an opportunity for distribution companies to transparently convince consumers of the need for cost-reflective electricity tariff.
Ajifowobaje explained that passing the tariff through consumers would eliminate instances of disputes as was recently witnessed in the review of MYTO 2.1 by NERC.
“The good thing about the tariff regime now is that NERC has given us the power to go and prepare our own tariff and submit and they will review it and approve where necessary.
“One of the key issues is that even before we submit the tariff, we must pass it through the customers and convince them that this tariff is a cost reflective one that will keep us in business and immediately we are able to do that, NERC will take up the process and if they approve it, we will now implement the appropriate tariff,” Ajifowobaje said.
Notwithstanding, Amadi also disclosed that three electricity distribution companies — Ikeja, Eko and Ibadan — have initiated concrete steps to procure additional power from embedded sources to cover up for the shortfall in the amount of electricity supplied to them from the national grid.
It is understood that owing to significant drop in electricity generation, most of the distribution companies currently get about one third of their electricity needs from the national grid.
Amadi however explained that the distribution companies have opted to explore such off-grid sources to augment the shortfalls in the country’s overall electricity generation profile.
He added that such embedded sources would remain as stop-gap measures pending growth in on-grid generation and perhaps serve as stabilising source in the future when the country’s power generation profile grows to huge levels.
