FG To Increase Electricity Tarrif From 1st June 2014

There is bad news for electricity consumers. Tariff is set to go up from June 1, followingthe review of the Multi Year Tariff Order (MYTO) for 2014.

Nigerian Electricity Regulatory Commission (NERC) Chairman Dr. Sam Amadi told reporters in Abuja that “the review has reduced fixed price charge component of the tariff”.

Explaining the implication of the review, he said Abuja Electricity Distribution Company’s R2 customers, for instance, who have been paying N13.75 per unit will pay N14.90. The fixed charge remains unchanged, he added.

This is an indication of N1.15k for customers in the R2 category. The NERC however, said that the full details of the review will be made public on the Commission’s website.

According to him, some positive variables culminated in the significant changes in the tariff review. He said: “Whilst MYTO in 2012 had projected a 13 per cent inflation rate, it was by March 30, at 7.8 per cent, less than 5.2per cent of the projection; exchange rate of $1 to N178 from CBN data was also less as at March 30 to N157.30 per $1, 11.6per cent less than projected.”

Amadi said the review result however, indicated a reduction of the wholesale tariff payable to generation companies (Gencos) from June 1 adding that with increased generation capacity and favourable economic indices, tariff cost will drastically reduce.

Amadi added: “Many customers by 1st June should be paying a fixed charge (FC) of about N1,500 but the adjustment has resulted in a decrease in that the fixed charge will not change but will remain at N750.”

On the energy charge for the 2014 MYTO, Amadi, said: “What we will see is that most of the consumers did not have any increase in their EC apart from Residential Two (R2) customers that have N1 increase in some places.

So instead of having a much more bigger Energy Charge (EC) increase that was published for 2014 MYTO since 2012, we now have the same fixed charge of N750 from the supposed N1500 which means a huge reduction and then a slight increase of about N1 or so for only R2 customers,” he said.

He noted that R2 customers in Ikeja Distribution Company (Disco) are more in a cluster so the cost is cheaper, “and when they calculated the average with the cost of price, their energy charge came down lower.”

Amadi stated that although wholesale generation cost reduced, transmission and distribution component of the tariff is high resulting in the slight increase in the Energy Cost for most R2 customers.

He maintained that NERC’s review principle follows a rule-based approach that gives confidence to the investors and also protect consumers against arbitrary charges.

The power investors and financial institutions that advanced credits to them before the privatization of the assets, have been calling for upward review of electricity tariff to match cost of output and also help them  (investors) recoup their investment on record time.

According them, revenue collections from the consumers are far much lower than they (investors) expected pre-asset handover. The poor collection, the investors added, is also worsened by the technical and commercial losses, which are greater than the assumptions given them by the Bureau of Public Enterprises (BPE) before the assets were handed over.

The MYTO (Multi-Year Tariff Order) provides a 15 year tariff path for the Nigerian Electricity Supply Industry. The MYTO methodology sets out the basis and pricing principles by which the tariff of different categories of consumers are fixed or determined. It also determines load allocation to different electricity distribution companies, the closest value chain to consumers. The MYTO usually have major review every five years but June of every year, a minor review is carried out by NERC. The review is determined market fundamentals.

The residential customers’ tariff especially R1 and R2 under MYTO are subsidized by about 50 per cent by the government because they are categorized as customers with very low incomes. Their consumption, however, is subsidized with charges from other classes of customers, according to MYTO provision.

The tariff review began as a result of agitation from market participants (licensees in generation, transmission and distribution) and prospective investors who felt that some of the technical and financial considerations in the tariff calculations needed to be re-examined.

The first set of tariffs under MYTO 1 was introduced in July 2008, while current MYTO2 begun on June1, 2012, and by 2016 MYTO 3 will begin. Depending on the state of the Nigerian Electricity Supply Industry (NESI), a major review will take place in 2016 to reflect on the market  and afterwards, minor reviews would continue year through the next five years.

The Tariff Review began as a result of agitation from Market Participants (licensees in generation, transmission and distribution) and prospective investors who felt that some of the technical and financial considerations in the tariff calculations needed to be re-examined.

“The MYTO II is developed on basis of predictable energy receipts and onward sales. In the current situation of low generation, power can be dispatched in an open and transparent manner.

Disco’s maximum loading (distribution) capacity is a militating factor, even when there is adequate supply, some Disco’s may not be able to distribute beyond certain threshold. This also necessitated abandoning uniform percentage value for initial allocation,” NERC said.