As new electricity tariffs take off

Proshare

Monday, February 8, 2016 06.54 PM/FirstBank

As new electricity tariffs take off Monday, this week, a new multi-year tariff order (MYTO) came into effect in the country, eliminating the fixed charges, which domestic electricity users previously paid to the electricity distribution companies (“discos”).

In place of this charge, the industry regulator (the Nigerian Electricity Regulatory Commission ― NERC) raised the energy charge per kilowatt hour across the five categories of electric power consumers.

The NERC defended the new tariff system "in response to electricity consumers' complaints and a measure to ensure electricity distribution companies improve on service delivery as their income is dependent on the quantity of electricity used by their customers"




NERC estimates that about 60% of electric power customers fall within the R2 band. But R2 is just one of four categories of residential electric power consumers.



Comments  

The revised MYTO distribution tariffs system is a 10-year scheme that stipulates the cost of electric power supply to consumers. This should help in the planning and strategy formulation activities of stakeholders in the power sector;

The removal of the fixed electricity charge from the electric power billing system should relieve electric power consumers across all tariff classes. For instance, before this phase out, the fixed charges by Ikeja disco under the abolished billing system were to increase from: N750 in 2015 to N1,296 in 2018 (for R2); N164,174 in 2015 to N283,692 in 2018 (for R4); N148,835 in 2015 to N257,188 in 2018 (for C3); N198,447 in 2015 to N342,917 in 2018 (for D3); N65,625 in 2015 to N113,400 in 2018 (for A3), etc.;

However, the current increase in non-fixed tariffs (kilowatt per hour ― kwh) is steep ― rising by 50%–65% in ten out of the 11 discos;

The increase in kwh electricity consumption is in spite of the drop in natural gas prices (despite the fact that a significant proportion of independent power plants are fired by gas);

In contrast to the current sharp hike in tariffs (kwh), further increases in the tariff per-kwh in 2017 will not be as dramatic. In fact, rate rises between 2018 and 2024 are not significantly different from that of 2017 ― and in some cases, the tariffs are lower;

The increased tariffs may push the inflation rate (which has been on the upward trend since January 2015) into the double digit space;

The new tariff regime may drive fairer returns on, and yield shorter payback periods on investment for distribution and generation companies, and other firms in the electric power value chain that provide service to electric power consumers. This should drive both investment in the power sector and relative stability in power supply across the country;

Elimination of fixed charges and increases in the price per-kwh of electricity consumed should see discos provide meters for current and potential electric power consumers, and in the process, reduce to the barest minimum the incidence of “crazy” billing. The NERC describes such bills as non-reflective of customers’ consumption, and they “usually come in the form of estimated bills where the electricity distribution company gives the customer an estimate that far exceeds what that customer could possibly have consumed within the billing period”

Tellingly, the new tariff regime is another positive move towards stable electric power supply in Nigeria. It will strengthen the competitive landscape for electric power generation and distribution in the country, even as electricity consumers take stronger interests in electric power supply and billing system. So, in 2016, we expect a remarkable improvement in electricity generation, transmission, and distribution, all things being equal.

 

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