The Federal Government on Tuesday announced a reduction in electricity tariffs by 50 per cent.
It explained that the reduction which came barely two months after it cut the pump price of petrol by N10, followed a series of complaints by electricity consumers.
The government through the Nigerian Electricity Regulatory Commission added that it took the decision after it removed the collection loss component of the Multi Year Tariff Order 2.1 of the affected Discos.
NERC Chairman, Sam Amadi, said the addition of the Aggregate Technical, Commercial and Collection losses to the reviewed tariff that was implemented on January 1, 2015 was responsible for the skyrocketed tariff.
The addition, according to him, was done after the regulatory commission conducted a fact-finding tour of the Discos and noted that it was aimed at ensuring a cost reflective tariff by passing the bulk to ‘‘paying’’ consumers for losses incurred from ‘‘non-paying’’ consumers.
He said although the increment in residential tariff was pending till June 2015, the total removal of the collection loss applied to all consumer categories, including industrial and commercial consumers.
Energy charges vary from one Disco to another. In Abuja for instance, residential consumers, based on the MYTO 2.1, pay N4 per kilowatt hour, while the amount charged commercial customers, depending on their respective category, range from N23.32 to N37.68 per KWH.
Fixed charges for most residential consumers is between N650 and N750 while energy charge has an average of about N4 for every KWH.
With the new directive, it therefore means that the energy charge, which forms the larger part of the tariff paid by customers when computed by Discos, will be reduced by half.
Nigeria has 11 Discos that distribute power to consumers.
Amadi said the commission listened to consumers and took full account of the impact of high tariff paid by consumers and the economy and therefore reviewed the basis of the MYTO 2.1 assumptions.
He explained that after the review, it was agreed that it was inappropriate to transfer the collection losses that were controllable by Discos to consumers.
The NERC chief said, “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. It is clear that removing the collection losses will lead to lower tariffs for consumers.
“The removal of collection losses from customer tariff has reduced tariff by more than 50 per cent in some places. Please note that the reduction does not affect the Central Bank of Nigeria facility and its repayment.”
Since January 1, 2015 when NERC approved the MYTO 2.1, there had been several complaints against the increase in tariff of different consumer classes.
Industrial and commercial consumers under the auspices of the Manufacturers Association of Nigeria petitioned the commission asking for a review of the MYTO 2.1 and requested drastic reduction of their tariff.
MAN had stated that such astronomical increase in tariff was capable of killing their business and leading to massive job losses.
The association also threatened to shut down its factories if NERC failed to revert to the rate that was obtainable before the announcement of the “astronomical increase” which took effect on January 1, 2015.
Amadi explained that the Electric Power Sector Reform Act and the Business Rules of the commission mandated NERC to review its decision if a complaint by an interested party has a merit.
He added that pursuant to these rules, the commission organised public hearing and received evidence from consumer classes on the affordability of the new tariff.
He said, “The commission also invited the chief executive officers of the Discos to the hearing to respond to the case of the consumer groups. Furthermore, the commission reviewed the technical and financial assumption of MYTO 2.1.
“The review shows that the major underlying cause of the skyrocketing increase in the tariff is the huge ATC&C losses, which are passed through to consumers. In some Discos, ATC&C losses increased tariff by as much as 80 to 103 per cent.
“Therefore, on Monday, March 9, 2015 the commission issued a new order to the effect that henceforth collection loss, which is defined as the ‘amount billed but not collected’, will not be automatically passed on to consumers of electricity.
“Consequently, the collection loss for all Discos is set at zero. It is now the responsibility of Discos to convince the regulator of any exceptional circumstances for such loss to be passed to the consumers.”
The NERC boss added that the new direction came as part of the commencement of the Transitional Electricity Market.
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.
Amadi further explained that as part of preparations for TEM, NERC had issued a tariff review regulation that required the utilities to consult with relevant consumer classes before presenting a tariff review application to the commission for approval.