Why is NERC uneasy about pricing electricity right?

The speed at which the Nigerian Electricity Regulatory Commission (NERC) disowned media reports about a possible increase in electricity tariffs, speaks to more than just a regulator willing to be right on messaging but one scared of the message.

On August 22, the regulator published a report, Minor tariff Review of MYTO 2015 and Minimum Remittance Order, on its website. Media reports soon circulated alerting the public of a possible tariff review and the regulator went into overdrive to contain the message.

The next day, it scrubbed the reports from its websites and followed up with a press release to denounce it had approved a tariff increase.

Then it ended up confusing everyone, when it noted that it would “continue to undertake periodic reviews of electricity tariffs in accordance with the prevailing tariff methodology.”

While NERC has put back the minor review reports on its website, the organisation’s desperation to contain the message of a tariff review does not enhance its reputation. It has already held consultations with stakeholders over a tariff review and, in previous releases, taken great pains to explain that current electricity tariffs do not guarantee commercial return.

Investors in the distribution companies (DisCos) fed up with poor returns already have arrangements with selected customers willing to pay a higher tariff for a more constant supply. Customers and small businesses are relying on captive power and alternative power solutions, where they pay double the current tariff rates for more meaningful supply.

So why can’t the regulator allow a cost-reflective tariff? It is for the same reason, the price of petrol in Nigeria is N145 and over N300 in the rest of the sub-continent, yet only Nigerians suffer petrol scarcity and nerve-racking queues, and why public universities charge pittance and nurture ignorance as lecturers spend more time fighting over pay than teaching.

The motive behind the refusal of NERC to move the needle on cost-reflective tariff is that politics will always trump market realities with a government shorn of creative economic ideas and peopled in every stratum by those whose management ideas are suited for the last century.

While a legal ruling truncated the previous price review effort, the Commission is still not doing enough to prevent another legal obstruction. This is because the DisCos have argued that pricing power below the cost of production imperils their ability to improve performance. This argument takes the wind out of the sail of a regulator who should be enforcing sanctions for errant behaviour.

DisCos for example remit less than 40 percent of market invoice for power but this is not all due to a non-cost reflective tariff. The tariff modelling of NERC showed that even if cost-reflective tariffs were in place since 2015, DisCos would still be indebted to the tune of N196.9billion based on market shortfalls attributed to their poor collection ability, electricity theft and power lost through a poor grid network.

So the discussion on tariff review or lack thereof prevents a wider, more desperately needed discussion about fixing a broken electricity market. The electricity market in Nigeria cannot attract viable investments because government subsidies are crippling it. Yet, the government is sozzled on debt, spending more on interests than it spends on education and health and leaves the economy in a tailspin.

We call on NERC to grow a pair and fix the broken electricity market; it starts with pricing electricity right. This is what can give it the moral courage to compel operators to behave well and call itself a regulator.