- The Nigerian Electricity Regulatory Commission has released a step-by-step guideline on electricity tariff review for distribution companies
- The guideline follows the recent statement by the Federal Government of an imminent hike in electricity tariff as it spends N200 billion monthly on electricity subsidy
- The step-by-step guideline includes timelines for notice of tariff review, development of consultation paper, approval for tariff review, among others
The Nigerian Electricity Regulatory Commission (NERC) has issued guidelines on the procedure for tariff reviews by electricity distribution companies (DisCos).
This comes on the heels of the recent statement by the Federal Government of an imminent hike in electricity tariff as it spends N200 billion monthly on electricity subsidy.
The NERC, in the latest order signed by its Chairman, Sanusi Garba, stated that pursuant to the provisions of the Electricity Act 2023, the commission is obligated to review and approve a fair tariff to allow licensees to recover prudent costs and a reasonable return on capital invested in the business for the provision of electricity services.
The commission said Section 116(1) of the Act provides that activities in the generation, transmission, distribution, trading, supply, system operation, and electricity distribution franchising shall be subject to tariff regulation.
It added that Section 116(2) further provides for the commission to develop a tariff methodology that allows licensees to operate efficiently to recover the full efficient costs of their business activities, plus a reasonable return on investments by shareholders.
5-year MYTO adopted as price regulation framework
The commission said it has adopted the Multi-Year Tariff Order (MYTO) methodology as the price regulation framework for the determination of tariffs.
The MYTO, it said, provides for a major review of electricity tariffs every five years, within which time all tariff assumptions are reviewed to ensure the industry’s viability and efficiency.
“In exercise of the powers conferred in Section 116 of the Act, the commission has developed and adopted the Multi-Year Tariff Order Methodology as an incentive-based price regulation framework for the determination and projection of tariffs payable in the Nigerian Electricity Supply Industry,” it said.
Step-by-step guidelines on review of electricity tariff
1. Notice of tariff reviews will be issued one year ahead
According to the new order, the NERC said it will issue notice to all licensees about its intention to review the existing tariff one year ahead
The licensees would be requested to submit applications for the review of tariffs supported with necessary documentation within 120 days of the notice.
It said, “The commission shall, one year before the expiration of the major tariff review order in force or as may be considered necessary, issue a notice to all licensees about its intention to commence the process for a major review of the existing tariff.
“The notice shall be published in three national dailies and on the website of the commission.
“The notice shall request for submission of applications for the review of tariffs supported with documentation that includes but not limited to audited financial statements, budgets, investment plans (in line with prevailing guidelines on Performance Improvement Plans), and proof of wide consultation with customers in the licencees’ service area concerning the proposed filing of the application for tariff review and any other information as deemed necessary by the commission.”
2. Consultation paper will be developed 90 days after
The NERC further stated that an initial review of the submitted applications shall be completed and a consultation paper developed no later than 90 days after the deadline for the submission of the applications.
It said the consultation paper shall outline the basis for the tariff review by the licensees, including proposals for critical aspects of the review.
3. Timeline for requesting stakeholders’ comments
Also, the commission will publish the consultation paper and request comments from stakeholders within 21 days.
It said, “The consultation paper developed by the commission shall outline the basis for the tariff review applications by the licensees including their proposals on capital investments, service improvements, new connections, loss reductions, reset of tariff assumptions if any, and possible impact on rates payable by the affected customers.
“The consultation paper shall be published on the commission’s website and public notices issued soliciting comments with a timeline of 21 days for submission by stakeholders.”
4. Rate case hearing to follow within 90 days
The commission also disclosed that it shall review all comments as well as schedule and conclude a rate case hearing on the proposed tariff review within 90 days with regard to the comments of stakeholders to the consultation paper.
It said, “The commission shall within 90 days from the publication of the consultation paper review all comments and schedule and conclude a Rate Case Hearing, having regard to the stakeholders’ responses to the consultation paper.”
5. Approval for tariff review follows 30 days after
In addition, the NERC stated that all comments and observations received from the public on the consultation paper and the Rate Case Hearing shall be examined and considered in the development of a draft tariff order for the consideration of the commission.
The commission said it shall consider and approve a Major Tariff Review Order within 30 days from the date of the Rate Case Hearing held at the commission, following due consideration of the outcomes of the general stakeholders’ presentation and the Rate Case Hearing.
“Any licensee whose tariffs have been reviewed shall communicate the outcome of the tariff review to its customers vide its website and other communication channels,” it said.
6. Guideline for monthly or minor reviews
With regards to monthly or minor reviews, the NERC said it shall review the prevailing operating end-user tariffs and make changes to account for changes in generation fuel costs, the Nigerian and United States inflation rates, the United States dollar exchange rate to the naira, and the average generation availability relative to the preceding month.
It added that the commission may conduct a minor review of end-user tariffs at other short periods but no longer than six months at its discretion.
DisCos’ remittances dropped by N156 billion in 2024 – NERC
Meanwhile, TheRadar earlier reported that the Nigerian Electricity Regulatory Commission (NERC) revealed a N156 billion decline in the mandatory remittance of electricity distribution companies (DisCos) to the Nigerian Bulk Electricity Trading (NBET) and the Market Operator (MO) for the first nine months of 2024.
In the first quarter of 2024, the DisCos were expected to remit N114.12 billion, but they managed to pay N110.62 billion, which is 96.93 per cent of the required amount.
