NERC Justifies Joint Design Electricity Tariff

Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, has said the agency's decision to initiate and sanction a joint tariff design process by electricity consumers and distribution companies was based on three key reasons.

Amadi said  in addition to applying the standard practice of allowing distribution companies come up with data that form its final design and roll out electricity rates to be paid by consumers, it has decided to further deepen the service relationship between electricity consumers and distribution companies by the joint tariff review process.

According to the NERC Chairman, the new policy was informed by the need to expand the knowledge of consumers on the operations of the distribution companies to enable them make informed criticism of their actions, get the distribution companies to empathise with consumers in making demands for higher tariffs as well as push the distribution companies to come up with and defend credible data for the tariff review.

NERC recently disclosed that it was ceding parts of its regulatory responsibilities of transparently determining an appropriate tariff to be paid by consumers in Nigeria’s electricity industry to both consumers and distribution companies in the sector.

It noted that the decision on joint consultation and determination of electricity rates by consumers and distribution companies was based on the need to foster transparency and inclusiveness in the way electricity rates are decided and paid in the sector.

Amadi stated that both consumers and distribution companies will now have to sit down together to discuss and determine a mutually acceptable cost reflective tariff to be paid by consumers.

He explained that NERC, which will take up an independent umpire role in the process, will also review the propositions and indices presented by the distribution companies during and after the consultation with consumers before signing off the mutually agreed tariff to be used by the distribution companies.

He also said that the new process will eliminate extant bickering on any tariff rolled out in the sector, adding that consumers now have the opportunity to critically examine propositions made by distribution companies for tariff review.

“Let us understand one thing, the new initiative or approach to tariff design in this sector is not totally new. In most jurisdiction in the world, it is the Discos that prepare their bill and even in the NERC here but then they don’t always do a robust wok on the process but based on that we try to help design a tariff that is fair and affordable to all parties involved.

What is happening here is that we are saying to the Discos, take charge of your network, look at your system and then come to us and tell us what they think is the cost at which they need to provide efficient electricity service to their consumers,” Amadi said.

He explained further: “We now said that instead of reporting to us, they should first go to the consumers and explain to them about the tariff because when they do their cost profile, they also have to prepare how they will recover it as there are different classes of consumers; they now design their tariff and show us how they will recover according to these classes of the consumers.

They now have to consult with the consumers on this but the consultation process is not a consensus process and does not mean that at the end of the day, both parties will agree but it is that it gives the consumers an opportunity to deny, reject or contradict what they are proposing.”

On the benefits of the process, Amadi said: “It benefits us because we are pushing the Discos to understand that actually these tariffs that they are designing is not for NERC but consumers who will pay for it and they should be establishing greater relationship with them, they have to show good faith and legitimacy so that consumers will know that they are always there for them.

It will also help drive consumer power as I have always emphasised that a comprehensive regulatory framework must have strong consumer power just like in advanced countries where there is always strong consumer advocacy groups which strengthen consumer engagements and advocacy.

In today’s economy, market power goes with political power and operators who have access to market power can buy voice because they have access to consultant who can prepare special reports to justify their requests, we also think that consumers should be able to develop that capacity and share information.”