• Thursday, March 28, 2024
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TCN, Market Operator get best deal as NERC reviews tariff

electricity-tariff

Nigeria’s 11 electricity distribution companies may soon get their wish for a cost-reflective tariff but the biggest beneficiaries of any review appears to be the Transmission Company of Nigeria (TCN) and the Market Operator who will be getting 100 percent of their invoices settled.

On December 31, 2019, the Nigerian Electricity Regulatory Commission (NERC) published a minor review of the Multi Year Tariff Order 2015 and minimum remittance order for the year 2020 to reflect the impact of changes in the variables that constitute electricity pricing template including gas prices, inflation rate, exchange rate and generation capacity since 2015.

NERC has struggled to explain that this is not a tariff increase but this minor review will inevitably lead to an increase in end-user tariff estimated between 35 percent and 45 percent across various customer tariff classes.

However, the bulk of this money will benefit the government-affiliated agencies – the System Operator, an arm of TCN, as well as the Market Operator, responsible for the administration of the electricity, market whose invoices will be settled in full even though operators put some of the blame for inefficient electricity market on them.

According to the order published by NERC, the DisCos will be able to earn their revenue requirement only by repaying a loan from the Central Bank, settle 100 percent of tariff by the Market Operator and settle NBET obligations of between 38 and 45 percent depending on the DisCo.

Some analysts berate this policy because it priorities settling technical and administrative cost of providing power far above the actual generation of power without which no section of the value chain can function.

“It is not the right policy,” said Chuks Nwani, a Lagos-based energy lawyer. “The government through NERC is compelling all other operators to take a haircut; it should also be showing the same commitment.”

According to the Commission, the Federal Government’s updated Power Sector Recovery Programme does not envisage an immediate increase in end-user tariffs until April 1, 2020 and a transition to full cost-reflectivity by end of 2021.

In the interim, NERC said the Federal Government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs determined by the Commission and the actual end-user tariffs payable by customers, but all DisCos are obligated to settle their market invoices in full as adjusted to net of applicable tariff shortfall.

Currently, DisCos remit far less than they collect and it appears generation companies get the short end of the stick.

“The level of collection efficiency during the quarter under review indicates that as much as N3.09 out of every N10 worth of energy sold during the second quarter of 2019 still remained uncollected as and when due,” NERC said in its 2019 second quarter report released in December 2019.

Similarly, during the second quarter of 2019, out of the total invoice of N180.08 billion issued to the eleven (11) DisCos for energy received from NBET and for service charge by MO, the sum of N55.10 billion of the total invoice was settled, representing 30.60 percent remittance performance,” it said.

Generation companies (GenCos) get around 30 percent of their market invoice leading to over-dependence on government bailouts which specifically to the GenCos have reached N1.3 trillion.

The new order also attempts to tackle the problems of grid collapse and load rejection by DisCos. NBET will henceforth invoice each DisCo for capacity charge and energy based on its load allocation and metered energy.

Where it is established that TCN is unable to deliver a DisCo’s load allocation (e.g., through grid collapse), TCN shall be liable to pay for the associated capacity charge, and where a DisCo fails to take the entire load allocation due to constraints in its own network, the DisCo shall be liable to pay the capacity charge as allocated in its vesting contract.

ISAAC ANYAOGU