Eligible electricity customers’ regulation to raise residential tariffs by N4 per kWh

The Association of Nigerian Electricity Distributors (ANED) has said the removal of Eligible Customers from the Electricity Distribution Companies (DisCos) network would lead to increase in the tariff for residential consumers by N4 per kilowatt per hour (kwh).

ANED warned in a statement that should the Federal Government go ahead with the implementation of the new policy, the huge revenue gap estimated at N892billionis will be passed on to residential customers through tariff increases under the Competition Transition Charge.

According to the Executive Director, ANED, Sunday Oduntan, an initial analysis of the impact of the Eligible Customer regulation indicates the need for a minimum tariff increase of N4 per kWh on residential customers.

“Why is the issue of Competition Transition Charge important? Eligible Customers (who consume above 2MWhr) are the premium customers that cross- subsidise the cost of providing electricity to the residential class of customers. Such cross-subsidisation, for some DisCos, is based on a ratio of N10/kWh of Eligible Customer consumption to N1/kWh of residential class consumption. The same class of Eligible Customers also contributes an average of 60 per cent to DisCos’ revenues.

“While we do not question the legitimacy of the Honourable Minister of Power, Works and Housing’s right to declare Eligible Customers, we believe that the declaration is premature, and is inconsistent with the pre-conditions established under the Electric Power Sector Reform Act (EPSRA), 2005. In particular, the level of competition envisaged for such declaration that should be in tandem with sufficiency of power supply, does not currently exist. Nor has there been an implementation of the Competition Transition Charge that is specified under the Act.”

Reiterating the need for clarification on the recent Notices of Force Majeure that were submitted to the Bureau of Public Enterprises (BPE) by the DisCo, based on the recent issuance of the Eligible Customer regulation by the Nigerian Electricity Regulatory Commission (NERC), Oduntan said the notice in itself is not a declaration of Force Majeure. “it is standard to any commercial agreement, and is predicated on the concern that the DisCos, already on the verge of bankruptcy, will be further constrained in meeting the obligations of their Performance Agreements with BPE – no difference from a previous situation in which the regulator, arbitrarily, removed Collection Losses from the DisCos’ tariff in April 2015, a contributor to the current market shortfall.”

A Partner with Olaniwun Ajayi, Wolemi Esan, noted that while regulations provide some clarity on the implementation of the Eligible Customer Declaration, there remained a number of issues related to the Declaration yet to be addressed.

He said given the potential effect of the Declaration on the revenues of Distribution Licensees, especially in view of the possibility of site aggregation by end-user customers intending to apply for registration as Eligible Customers.
He said it is expected that the issuance of the Regulations would be preceded by a specific directive from the Minister authorising the collection of Competition Transition Charges from Eligible Customers, once the parameters of the Eligible Customers registration process are delineated.

According to him, it is somewhat disappointing that the regulations add nothing more than the expectation created by Section 28 of the Act, and the Commission’s review of the impact of the implementation of the first phase of the Eligible Customers regime within six months of the initial switch date.

Besides, in the absence of a defined “initial switch date”, the Commission is yet to establish the Power Consumer Assurance Funds, as mandated by Section 83 of the Act. “It remains unclear when the fund will be set up, and the rate of contributions Eligible Customers will be required to make to the Power Consumer Assistance Fund and the Rural Electrification Fund.”