Government, NERC, Regulation

NERC Reduces Tariff by Removing Collection Losses

Posted: March 19, 2015 at 10:05 am   /   by   /   comments (0)

By Chijioke Igolo and Abdullahi Akanbi

The calls by various electricity consumers for a reduction in tariff have yielded fruit as the Nigerian Electricity Regulatory Commission, NERC, has approved the reduction by removing collection losses, which has been a major element in electricity tariff making.

Announcing the tariff review in a press conference in Abuja, the NERC Chairman, Dr Sam Amadi, said the commission arrived at the decision following its interest in ensuring a conducive operating environment for both the service providers and service consumers.

Collection loss is defined as the ‘amount billed but not collected’ and it is subsumed in the Aggregate Technical, Commercial and Collection (ATC&C) losses, which are passed through to consumers. In some DISCOs, these ATC&C losses increased tariff by as much as 80-103%.

Therefore according to the commission, it was clear that removing the collection losses will lead to lower tariff for consumers by more than 50 percent in some places. Collection losses in Jos Disco which used to be 103% has been reduced 34.2%, Enugu Disco was at 80.5 would now be 24.8%. Abuja and Port Harcourt Discos at 58.7% and 77.6 % have been reduced to 34.9% and 30.6 % respectively.
Other Discos such as Eko and Ikeja were at 22.4% and 28.9% are now 13.8% and 13.2% respectively.

Chairman-Nigerian-Electricity-Regulatory-Commission-NERC-Dr.-Sam-Amadi“Removing the collection losses will lead to lower tariff for consumers by more than 50 percent in some places,” Amadi submitted.

Dr Amadi had said that “since January 1, 2015 when the Nigerian Electricity Regulatory Commission (NERC) approved the MYTO 2.1 Tariff Regime, we have received several complaints against the increase in tariff of different consumer classes. Industrial and commercial consumers under the auspices of the Manufacturers Association of Nigeria (MAN) petitioned the commission asking for a review of the MYTO 2.1 and requested drastic reduction of their tariff. They claimed that such astronomical increase in tariff would kill their business and lead to massive job losses”.

Amadi noted that the Commission had been listening to consumers and taking full account of the impact of high tariff on consumers and the Nigerian economy, has therefore reviewed the basis of the MYTO 2.1 assumptions and has determined that it was inappropriate to transfer to consumers collection losses that are controllable by DISCOs. It feels that it is the responsibility of the DISCOs to collect their revenue from their customers. Failure to do so should not be a penalty to customers who pay their bills.

Providing justification for its action, Amadi stated that the Electric Power Sector Reform Act and the Business Rules of the Commission mandate the Commission to review its decision at the petition of an interested party who complains within 60 days of the decision. Pursuant to these rules, the Commission organized public hearing and received evidence from consumer classes on the affordability of the new tariff. The Commission also invited the chief executive officers of the distribution companies to the hearing to respond to the case of the consumer groups. Furthermore, the Commission reviewed the technical and financial assumptions of MYTO 2.1.

Consequently, the DISCOs are to convince the commission of any exceptional circumstances for any collection loss to be passed on to the consumers.

The chairman however emphasized that the reduction does not affect the CBN intervention facility and its repayment.

This new direction, according to the commission, comes as part of the commencement of the Transitional Electricity Market (TEM). TEM is built on bilateral trading between parties and is geared towards ensuring an efficient market where cost reflectivity will lead to more affordable electric services for consumers. As part of preparing for TEM the Commission has issued a tariff review regulation that requires the utilities to consult with relevant consumer classes before presenting a tariff review application to the commission to approve. It is now the responsibility of the DISCOs to prepare and present to the Commission a tariff that will ensure that they recover their costs and ensure efficient operations.

The commission reiterates its commitment to the principle of cost-reflective pricing and to the development of an efficient and financial viable electricity market.

The announcement of tariff review by NERC was received with mixed feeling by the general public. Some members of the public interviewed expressed confusion having not heard of collection losses as part of tariff making before now and wondered how its removal would reduce the amount of money they are expected to pay every month for electricity. Some feel that NERC has to do more explanations to create more understanding among the populace. A few more said they will adopt a-wait-and-see approach until they see the reduction in the electricity bills.

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