The Nigerian Electricity Regulatory Commission has released rules on the process for tariff reviews in the wake of the controversy surrounding the Federal Government’s alleged increase in electricity rates.
In accordance with the Electricity Act 2023, the commission must review and approve a fair tariff to enable licensees to recover prudent costs and a reasonable return on capital invested in the business for the provision of electricity services, according to the most recent order, which was signed by Sanusi Garba, the chairman of the NERC.
According to the statement, Section 116(1) of the Act stipulates that tariff regulation will apply to activities related to electricity generation, transmission, distribution, trading, supply, system operation, and franchising. Section 116(2) further stipulates that the commission will be able to create a tariff methodology that will enable licensees who operate efficiently to recoup all of their business expenses, as well as a reasonable return on shareholder investments.
“The Multi-Year Tariff Order Methodology is an incentive-based price regulation framework for the determination and projection of tariffs payable in the Nigerian Electricity Supply Industry, which was developed and adopted by the commission in exercise of the powers granted in Section 116 of the Act.”
In order to guarantee the industry’s sustainability and effectiveness, NERC emphasised that the Multi-Year Tariff Order process calls for a significant review of electricity rates every five years, during which time all tariff assumptions are examined.
The commission stated that a year before to the significant tariff increase, it would notify all licensees of its intention and ask them to submit applications for the review of tariffs accompanied by the required paperwork within 120 days of the notice.
“The commission will notify all licensees of its intention to begin the process for a major review of the current tariff one year prior to the expiration of the major tariff review order in effect, or as may be deemed necessary.” The warning will appear on the commission’s website and in three national publications.
According to the regulation, “The Notice shall request the submission of applications for the review of tariffs supported by documentation that includes but is not limited to audited financial statements, budgets, investment plans (in accordance with prevailing guidelines on Performance Improvement Plans), along with proof of extensive consultation with customers in the licensees’ service area regarding the proposed filing of the application for tariff review and any other information as deemed necessary by the commission,”
According to the regulation, a consultation paper and a first evaluation of the applications must be finished no later than ninety days following the application submission date.
The commission’s consultation paper will describe the foundation for the licensees’ applications for tariff reviews, including their suggestions for capital expenditures, service enhancements, new connections, loss reductions, resetting any tariff assumptions, and potential effects on rates that the impacted customers must pay.
The consultation paper will be posted on the commission’s website, and notices will be sent out to the public asking for feedback. Stakeholders have 21 days to submit their responses. The regulation said, “With consideration for the stakeholders’ responses to the consultation paper, the commission shall review all comments within ninety days of the consultation paper’s publication and schedule and conclude a Rate Case Hearing.”
It was declared that all public feedback on the consultation paper and the Rate Case Hearing will be examined and taken into account when creating a draft tariff order for the commission to review.
The commission stated that it will examine and approve a Major Tariff Review Order within 30 days of the date of the Rate Case Hearing, after giving careful thought to the results of the presentation by the general stakeholders and the Rate Case Hearing.
It stated that any licensee whose tariffs have been evaluated must notify its clients of the tariff review’s findings via its website and other channels of communication.
The commission stated that for monthly or minor reviews, it will examine the current operating end-user tariffs and make any necessary adjustments to account for variations in the cost of generation fuel, inflation rates in Nigeria and the US, the US dollar’s exchange rate against the naira, and the average generation availability in comparison to the previous month.
According to Verheijen, only the richest 25% of people benefit from the existing N200 billion monthly electricity subsidy, leaving the underprivileged masses in the dark.
The Federal Government currently spends more than N200 billion a month on energy subsidies, but far more of this money goes to the richest 25% of Nigerians than to those who actually need it. To solve this, the federal government is aiming to implement a tailored subsidy system that will give low-income households the greatest assistance. Millions of hard-working households will have easier access to and affordability of power thanks to this strategy,” she said.
The government would implement a system of subsidies that benefits the general public, she said.
