The Nigeria Electricity Regulatory Commission (NERC) has announced a reduction in tariff for Band A electricity customers, following a review which will happen monthly and takes into consideration the movement in exchange rates and other factors.
The new electricity tariff review by NERC could push the market closer to cost-reflective tariffs that guarantee commercial returns, analysts say.
Reduces Band A tariff to N206.80/kWh effective May 6
On Monday, NERC ordered the downward review of the electricity tariff for Band A customers to N206.80 per kilowatt-hour from the N225/kWh.
This decision comes as the average exchange rate of the naira to the US dollar has fallen to N1400 for April, a 14 percent decrease from the average of N1600 in March.
“The Commission has considered changes in the macroeconomic parameters over the preceding month of April 2024 and especially the appreciation of exchange rates – consequently the Commission has approved a downward review of end-user tariffs for Band “A” customers from NGN225/kWh to NGN206.8/kWh,” NERC said in a memo on Monday.
BusinessDay’s findings showed the electricity regulator will calculate electricity tariffs monthly, taking into account fluctuations in the foreign exchange rate.
“NERC will compute the tariff on a monthly basis going forward on the basis of the exchange rate and communicate limits on tariff that DisCos can set,” a senior source told BusinessDay on Monday.
This review will consider changes in inflation, foreign exchange, gas prices, available generation capacity, and CAPEX required to evacuate and distribute the said available generation capacity in accordance with other extant industry rules.
“The tariff adjustment is reflective of the regulator’s steadfastness towards the provision of regulations that conform with prevailing realities, for sustainable growth of the power sector,” Abubakar Yusuf, managing director and CEO at Kano DisCo said.
He also pledged commitment to continuous improvement in service delivery per agreement under service-based tariff (SBT) proposals that seek to align end-user tariffs in proportion to the service level enjoyed by customer categories, as measured in average hours of supply.
According to the new May 2024 supplementary order, electricity tariffs should be reviewed monthly to reflect changes in the economy.
“It will enable DisCos to recover their full efficient cost almost immediately without pushing it to a future date,” Olaniwun Ajayi LP, Nigeria’s leading and largest law firm said in a note to clients.
“It may reduce the incidence of rate shock and guarantee a lower cost of electricity services to consumers over the long term due to the low impact of finance costs. It could provide incentives for DisCos on the continued improvement of service delivery to end-users,” it added.
The May 2024 Supplementary Order is after an April 2024 Supplementary Order which saw an increase in the Band A tariffs from N68 per kilowatt-hour to N255/KWh.
Findings showed some distribution companies (DisCos) have effected implementation for a downward review of the electricity tariff for Band A customers, which was increased by over 200 per cent in April.
For instance, Ikeja Electricity Distribution Company has reduced the electricity tariff payable by its Band A customers to N206.80 per kilowatt-hour from the N225/kWh earlier approved by NERC.
According to the notice sent by Olufadeke Omo-Omorodion, the spokesperson for Ikeja DisCo, the downward tariff review of the Band A customers would take effect from Monday, May 6, 2024.
“Please be informed of the downward tariff review of our Band A feeders from N225/kWh to N206.80/kwh effective 6th May 2024 with guaranteed availability of 20-24hrs supply daily,” the statement read.
Similarly, Kaduna Electric’s management has announced, to the customers under its franchise areas, a downward review of the tariff for its Band A feeders from N225/kWh to N206.80/kWh.
The review was contained in a statement signed by the company’s head of corporate communications, Abdulzeez Abdullahi. It is effective from 6 May 2024 and affects both prepaid and postpaid customers.
Kaduna Electric assured customers in its Band A feeders of the continued availability of 20-24hrs supply daily as stipulated in the Service Based Tariff regime.
With power distribution hovering below 4,500MW within the past few months, electricity consumers categorised as Band A complained the distribution companies struggle to supply the required service level of 20 hours per day,
The regulator is yet to develop a system to measure if customers are truly getting the contracted hours under the service-based tariff system – where customers are billed on hours of power they are supplied daily.
Joke Fashanu, a customer of the Ikeja Electricity Distribution Company complained that she purchased a token worth N29,900 on April 14, but got less than she deserved as a Band A customer.
“I was expecting 132.9 units since the tariff rate for band A is N225/unit. However, I got 123.6 units; which means I was charged N241.9/unit,” she said, calling on the IKEDC to provide explanations.
Morris Monye, a social media commentator recounted that he used to get 812kWh with N65,000, which he consumed biweekly, but he got just 288kWh for the same N65,000 after the subsidy removal.
“I didn’t even notice the change in kilowatt-hours till the light went off, and I’ve just realised it. So, I will spend almost N400,000 on electricity in a month,” he stated.
BusinessDay’s findings showed that due to the gas shortage that has hindered generation since January, many electricity distribution companies have been struggling to provide 20 hours of electricity to Band A customers.
While DisCos strive to meet the required supply hours for Band A customers, their counterparts in Bands B, C, D, and E have been left without power.
In their efforts to meet up with the service level, sources gathered that some of the DisCos were gradually resorting to diverting the little allocation they get from the national grid to the Band A customers.
NERC said that where a DisCo failed to deliver on the committed level of service on a Band A feeder for two consecutive days, the DisCo should, by 10 am the next day, publish on its website an explanation of the reasons for the failure and update the affected customers on the timeline for restoration of service to the committed level.
It stated that if a customer’s service level improved to at least 20 hours, they should be upgraded from lower service bands to Band A, adding that if the DisCo failed to meet the committed service level to a Band A feeder for seven consecutive days, the feeder would be downgraded to the recorded level of supply by the applicable framework.
