Why DisCos are demanding tariff increments for electricity consumers –NERC

*The Nigerian Electricity Regulatory Commission, in its third quarter report, reveals the Federal Government’s subsidy to the electricity sector reduced from initial N49.50billion monthly 2019 to N10.17billion as of fourth quarter (Q4) 2022

Isola Moses | ConsumerConnect

The Nigerian Electricity Regulatory Commission (NERC) latest report indicates the Federal Government’s subsidy to the electricity sector of the economy has dropped by about 80 percent between 2019 and 2022.

ConsumerConnect reports the regulator’s third quarter (Q3) report on the significant sector underlines the fundamental reason why the electricity Distribution Companies are demanding increases in power tariffs for consumers.

NERC, in the report, said the government support for the Nigerian Electricity Supply Industry (NESI) dropped from N49.50billion monthly in 2019 to N10.17billion as of the fourth quarter (Q4) 2022.

The power sector regulator noted: “The ₦10.17 billion per month support represents a major reduction in the size of government subsidy support to the NESI which peaked at around ₦49.50 billion per month in 2019.”

According to the document, as the implementation of government reforms continues, the goal is to eliminate subsidies completely, thereby allowing the market to operate purely on commercial terms without government’s intervention.

It is also noted the Federal Government’s support to the electricity sector largely goes to the Nigerian Bulk Electricity Trader (NBET), the operator in the electricity value chain that pays all others.

Essence of Service-Based Tariff framework to DisCos

NERC further stated the introduction of the Service-Based Tariff offered opportunities for DisCos to improve customer service through sustained quality energy supply, providing a clear path to increased revenue without broad-based tariff increases by DisCos.

The Commission said ongoing DisCos investments in infrastructure and metering initiatives will result in a greater volume of reliable energy supplied to consumers, improved revenue assurance and, in so doing, increased collections and market remittances.

Power operators are pushing for increases in tariffs

The current moves by the DisCos for increases in the electricity tariffs as result from the drop in  government’s subsidies, according to NERC.

It was also gathered the power regulator, in a published advertorial, said the 11 successor electricity Distribution Companies had filed an application for a rate review with the Commission.

NERC stated the DisCos’ request for a rate review is premised on the need to incorporate changes in macroeconomic parameters and other factors affecting the quality of service (QoS), operations, and sustainability of their companies.

In regard to the DisCos, factors including the increase in exchange rate, which is about N785/$1, and inflation rate at 22.41 percent as of May 2023, among others, should be reflected in the tariff as the last tariff increase was benchmarked on N400/$1 being the official exchange.

NERC said: “Pursuant to Section 116 (1) and 2(a&b) of the Electricity Act 2023 and other extant rules, the eleven (11) successor electricity distribution companies (“DisCos”) have filed an application for rate review with the Nigerian Electricity Regulatory Commission.

“The request for rate review is premised on the need to incorporate changes in macroeconomic parameters and other factors affecting the quality of service, operations and sustainability of the companies.”

Recent industry revenue profiles

The NERC fourth quarter report stated that revenue into the NESI is rising.

The total revenue collected by all DisCos was ₦243.65 billion out of ₦332.28 billion billed to electricity consumers, translating into a collection efficiency of 73 percent.

Also, the total collections increased by 15.65 percent (compared to ₦210.67 billion in third quarter of 2022), according to NERC report.

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