NERC To Consider Changes In Inflation, Exchange Rate & Gas Prices In Review
In the just concluded week, the Nigerian Electricity Regulatory Commission (NERC) indicated its readiness to conclude the Extraordinary Tariff Review process for the 11 Distribution companies (DisCos) and commence the processes for the July 2021 Minor Review of Multi-Year Tariff Order (MYTO) – 2020, in its recently released notice tagged “Notice of Minor and Extraordinary Review of Tariffs for Electricity Transmission and Distribution Companies.
According to the electricity regulatory body, actors to be considered in the review process include changes in inflation, foreign exchange, gas prices, available generation capacity, and capital expenditure (CAPEX) required to evacuate and distribute the available generation capacity.
The proposed electricity tariff review is in consonance with the MYTO methodology in setting out the basis and procedures for reviewing electricity tariff in the country which was adopted by NERC and backed by the provisions of the Electric Power Sector Reform Act (“EPSRA”).
Accordingly, the MYTO of 2015 provides for Minor Reviews every 6 months, Major Reviews every 5 years – which was due in 2020, and Extraordinary Tariff Reviews in instances where industry parameters have changed from those used in operating tariffs to such an extent that a review is urgently required to maintain the viability of the industry.
Meanwhile, NERC in its second-quarter 2020 industry report, noted that the capacity utilization rate of generated power has been consistently challenged by issues relating to gas supply shortages, as well as transmission and distribution network bottlenecks despite the increase in total electric energy generated.
According to the report, electric energy generated rose by 1.40% quarter on quarter (q-o-q) to 8,734,927MWh in Q2 2020, printing a peak daily generation of 5,316MW as the number of plants generation units increased to 73 from the daily average of 66 units in Q1 2020.
Also, the Commission noted that the financial viability and commercial performance of the industry have also been challenging as the total billing to and collection from electricity customers by all the eleven (11) DisCos stood at N164.07 billion and N121.61 billion respectively in Q2 2020.
Hence, DisCos’ billing efficiency declined to 68.38% in Q2 2020 from 78.38% in Q1 2020; however, their collection efficiency increased to 74.12% in Q2 2020 from 61.18% in Q1 2020.
During the quarter under review, a total invoice of N222.51 billion was issued to the 11 DisCos for energy received from the Nigerian Bulk Electricity Trading Plc (NBET), out of which N62.41 billion was settled, representing a remittance performance of 28.05%.
The Commission noted that the liquidity challenge was partly due to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft as well as consumers’ apathy to payment under the widely prevailing practice of estimated billing.
This is in addition to the non-settlement of energy bills by the Ministries, Departments and Agencies of the three tiers of government (Federal, State and Local Governments). Hence, in order to partly resolve the issue of liquidity, NERC secured a-year deferral of new import levy to allow for speedy rollout of meters under the framework of the Meter Access Provider (MAP) regulations.
Barring any opposition from labour, we expect electric energy tariffs to be reviewed upward as a result of increases in the aforementioned parameters. This is more so as the industry has been struggling with operators’ inability
to recover their costs amid unfavorable selling prices, and relatively low collection efficiency rate due to estimated billing. Nevertheless, we feel that the massive roll-out plan of prepaid meters and further capital investment in transmission infrastructure would kick-start the much-desired recovery in the sector.