The Nigerian Electricity Regulatory Commission (NERC) on Thursday intervened in the ongoing disagreement over tariffs by power Distribution Companies (Discos) and Generation Companies (Gencos) on the one hand, and the Enugu Electricity Regulatory Commission (EERC) on the other.
Specifically, NERC in an advertorial seen by THISDAY on Thursday night, maintained that states do not have regulatory power to fix electricity prices when the power is generated and transmitted from the national grid.
Although it admitted that the 2023 Electricity Act (EA) gave states the power to regulate electricity in their domains, NERC insisted that states’ regulatory power does not supersede that made by the National Assembly to regulate electricity in the country.
In the last few days, the reduction of tariff for Band ‘A’ customers in Enugu by the state’s electricity regulatory commission had created confusion, eliciting public debate by experts as to whether states have the authority to set tariffs based on subsidy to be paid by the federal government.
“As states do not have jurisdiction over the national grid and over electric power stations established under federal laws/operating under licences issued by the commission; they must holistically incorporate the wholesale costs of grid supply to their states without any qualification or deviation in their design of tariffs for end-use customers in order not to distort the dynamics of the market or be prepared to make a policy intervention by way (of) a subsidy for any deviation in the tariff structure that distorts the wholesale generation, transmission and legacy financing costs in NESI,” part of the advertorial stated.
NERC acknowledged that the N160.4 per kWh was arrived at by Enugu largely by reducing the current average generation tariff of 112.60 per kWh to NGN45.75, with an assumption of subsidy component, a difference of N66.85 per kWh.
However, it stressed that although Section 34(1) of the EA places a statutory obligation on the commission as well as state electricity commissions to “create, promote and preserve efficient electricity industry and market structures,” neither NERC nor EERC as responsible regulatory institutions would take decisions that expose the national grid and wholesale electricity market to a financial crisis in contravention of express powers granted to them by the constitution.
In addition, NERC stated that the commission is currently talking to the EERC on their tariff order as it relates to any perceived area of misinterpretation or misunderstanding on wholesale generation and transmission costs on their import of power from the national grid.
Also, on Thursday, distribution companies have again kicked against the recent tariff reduction by the EERC to N160/kWh for Band ‘A’ customers, saying it was done without adequate coordination with NERC and or other market participants.
In a statement by the umbrella body of the Discos, the Association of Nigerian Electricity Distributors (ANED), the power distributors said that the recent move by EERC raises significant concerns for the stability and liquidity of the Nigerian Electricity Supply Industry (NESI).
Signed by the Chief Executive of ANED, Sunday Oduntan, the Discos said that since the release of the tariff order by EERC for Enugu state residents, Discos in other states have come under intense pressure and scrutiny to also reduce tariffs.
Besides, the Discos stated that some customers have taken a position that they will no longer pay their electricity bills until tariffs are reduced.
Stressing that it is not their intention to make life difficult for their customers, the Discos said that they had been aligning with the federal government to ensure provision of stable power supply, but said the cost-reflective tariff is as a result of the economic realities of the nation.
“We note that one of the principles adopted by EERC is to place reliance on the policy of the federal government on electricity subsidies to enable them to crash Band A tariffs. While Discos are not opposed to subsidies in principle, we strongly emphasise that subsidies must be transparently structured and promptly funded.
“Delayed or unfunded subsidies create cashflow disruptions, undermine market confidence, and deepen the existing liquidity crisis across the electricity value chain. In a clear position, the federal government through the Minister of Power, Chief Bayo Adelabu has stated that states slashing power tariff must be ready to pay subsidy, and be accountable for the financial implication.
“It is already a fact today that the delay in the prompt payment of electricity subsidies has put the generation companies and gas suppliers under severe operational burden due to the almost N5 trillion outstanding to these market participants,” the Discos added.
They stressed that the Nigerian power market, in the short term, remains largely centrally coordinated, especially for bulk energy purchases, transmission, and market settlements involving Generation Companies (Gencos) and the Nigerian Bulk Electricity Trading Company (NBET).
While recognising changes in law and regulation that now permits states to set up their electricity markets, the Discos noted that any state-level policy action such as uncoordinated tariff reductions that does not align with market-wide cost-recovery mechanisms will inevitably result in shortfalls in Disco remittances.
This, the power distributors said, will result in the market falling below their current distribution remittance obligations, thereby putting Gencos and other upstream service providers at further financial risk.
“We understand further that the federal government does not have an elastic subsidy budget. Any tariff reduction following the approach adopted by EERC may further bloat the subsidy obligations of the federal government.
“We believe that the Federal Ministry of Power and the NERC would be watching closely to provide guidance and align state and federal objectives to ensure electricity access is accelerated in a sustainable and affordable manner.
“The above budgetary constraints apply to the states too. Most cannot afford to make direct budgetary provisions for subsidies especially in the face of rising governance costs and the harsh operating environment. This underscores the importance of collaboration and a well coordinated market driven approach on tariff related matters,” the electricity distribution companies said.
To sustain investments and improve service delivery, Discos therefore reiterated the need for stronger coordination between the ministry of power, state regulators and NERC to ensure consistency in policy and rate design to avoid market distortion.
They suggested a clear subsidy framework that is transparent, targeted, and fully funded as well as timely disbursement of subsidy payments to enable prompt settlement of market invoices and improve market liquidity.
“While the goal of making electricity more affordable is shared by all, it must be pursued in a manner that preserves the financial health of the market, encourages long-term investment, and avoids policies that could erode progress toward stable, reliable electricity for Nigerians.
“The association remains committed to advocating for a financially sustainable and customer-responsive electricity sector in Nigeria,” the Discos added.
Meanwhile, ANED has threatened to plunge Band A electricity customers in Enugu State into blackout if they pay the N160 per kilowatt-hour tariff as electricity bill as ordered by EERC.
The Executive Director, Research and Advocacy, ANED, Oduntan, gave the warning on Thursday during an interview on national television.
The Discos’ threat followed the controversial downward adjustment to the tariff charged by MainPower, a subsidiary of Enugu Electricity Distribution Company (EEDC) by the EERC, slashing MainPower’s Band A customers’ tariff to N160/kwh from N209/kWh.
Reacting to the development, Oduntan urged Band A electricity customers in Enugu not to be carried away by the announcement.
He warned that Band A electricity customers will begin to experience epileptic power supply if they pay the N160 kwh tariff announced by EERC.
“If you are in band A and in Enugu, and they are now asking you to pay N160 per kilowatt-hour, they are deceiving you. At the end of the day, your light will begin to go off. We are talking about cost recovery.
“We are talking about not setting us back to those dark old days. Things are better today because of the issue of liquidity; it was bad in those days due to illiquidity,” Oduntan said.
Emmanuel Addeh and Peter Uzoho
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