ELECTRICITY TARIFF HIKE: HOW NERC, LICENSEES AND CONSUMERS CAN ORCHESTRATE BETTER OUTCOMES
In this article, Energy Lawyer HASSAN OLALEKAN SHERIF argues that the Nigerian Electricity Regulatory Commission (NERC) has recently been caught napping in the discharge of its regulatory roles, saying the commission seems to protect DISCOs more than consumers
The front page of The Punch Newspaper of Thursday, January 5, 2023, says it all. It screams with the banner headline “DisCos hike electricity tariff secretly, consumers kick”. As though this was not enough, the deck to this headline was not any nicer, it reads “Consumer accuse Discos of fleecing Nigerians, Operators, NERC Silent”. The 2nd Deck to the banner headline was even more revealing as it states that “Discos began new tariffs Jan 1, there are other arbitrary increments -ECAN”
To offer further perspective, the Business Day newspaper of January 05,2023 explains on Page 30 that the Mr. Emeka Ezeh, Head of Corporate Communications at the Enugu Electricity Distribution Company (EEDC) said on December 19, 2022, that the EEDC effected “minor tariff review which worked out to a jump of 13%” and that the “minor increase in “the rate of tariff approved by the NERC is for electricity distribution companies to meet up with the current economic realities in the power/electricity sector.”
While the dust from this revelation is still yet to settle, the NERC has remained mum, neither confirming the hike nor refuting the claims of a hike. The Minister of State for Power, Goddy Jedy-Agba, has also denied knowledge of the indiscriminate electricity tariff imposed by the NERC on consumers. One of the Discos, the Abuja Electricity Distribution Company (AEDC) in response to an enquiry on Twitter, has arrogated its increase in Tariff to be a result of a directive from the NERC.
Increasingly, the silence and dearth of information are deafening especially in such an important sector of the economy as this. All aspects of the Nigerian economy are tied, one way or the other, to the use of electricity/power and a hike in the price of tariffs would have a ripple effect in the hike of the prices of other commodities and services. And so, while the hide and seek continues between the regulator of the sector – the NERC, and the other industry players such as the DisCos and GenCos, It is certain from the litany of confirmations from consumers, that what used to obtain in terms of electricity tariff, no longer obtains at the moment. There has been a spike and consumers are at the receiving end of it all.
Quite sadly, with the worst inflation in the history of the country, the worst unemployment rate and the high rate of insecurity, there is no end in sight for these cries and woes in light of the harsh economic realities in the Country. If it was hard for Nigerians before the silent hike in electricity tariffs, it is now even harder for Nigerians. The only semblance of an affirmation in recognition of a duty to inform consumers before this seemingly unlawful hike in electricity tariff now appears to be a lone tweet from the AEDC in answer to a request from a consumer for confirmation of a hike in the price of electricity tariff. From the explanation the AEDC has offered on its official Twitter handle, the tariff hike was in compliance to the order of the NERC. The NERC on its part has however not announced the latest hike in tariff.
While this back-and-forth endures, it has become expedient to appraise our extant laws, to highlight the regulatory compliances, roles and functions of these relevant stakeholders in the Nigerian Electricity Supply Industry (NESI) with a view to awakening the consciousness of these stakeholders to their statutory and moral obligations, so that they can better appreciate the gargantuan obligation they have cut out for them, and whose interests really they serve and must protect.
The Electric Power Sector Reform Act, 2005 (“EPSRA”) is the enabling law establishing the Nigerian Electricity Regulatory Commission (“NERC” or the “Commission”). (see Section 31(1) of the EPSRA). The NERC is the regulator of the Nigerian Electricity Supply Industry (NESI). According to Section 32(1)(d) of the EPSRA, one of the Commission’s primary functions is to ensure that the prices charged by licensees are fair to customers and sufficient to allow the licensees to finance their activities and obtain reasonable earnings for efficient operations.
In accordance with the authority granted under Section 76 of the EPSRA, the Commission has established a methodology for determining electricity tariffs in the Nigerian Electricity Supply Industry (NESI) and subsequently issued a Tariff Order called the Multi-Year Tariff Order (MYTO) that sets out tariffs for the generation, transmission, and distribution of electricity in Nigeria,
Amongst a litany of other roles, Section 32 (1)(e) of the EPSRA specifically provides that it is the function of the NERC to ensure the safety, security, reliability, and quality of service in the production and delivery of electricity to consumers. In furtherance of its objects, the NERC shall also establish appropriate consumer rights and obligations regarding the provision and use of electric services; license and regulate persons engaged in the generation, transmission, system operation, distribution, and trading of electricity. See Section 32(2)(c)&(d) of EPSRA.
It is also interesting to note that the NERC shall also consult, from time to time, and to the extent the Commission considers appropriate, such persons or groups of persons who major are likely to be affected by the decisions or orders of the Commission including, but not limited to licensees, consumers, potential investors, and other interested parties (See Section 32(3) of EPSRA. The begging question remains, to what extent has the NERC lived up to its roles and functions? As the Nigerian consumer would confirm, much is to be desired.
THE MUTI YEAR TARIFF ORDER:
The Multi-Year Tariff Order (MYTO) is an incentive-based tariff model that is used in the NESI to set wholesale and retail electricity prices by using a unified method to determine total industry revenue requirements that are tied to measurable performance improvements and standards. The MYTO’s goal is to establish cost-reflective tariffs that will allow the power sector to be properly funded and functional. It establishes a 15-year tariff path for the NESI, with minor reviews occurring each year in response to changes in a limited number of variables (such as inflation, interest rates, exchange rates, and generation capacity) and major reviews occurring every five years, when all inputs are reviewed with stakeholders.
THE NERC AND ITS MANY FAILURES OF DUE PROCESS
Section 76(1)(a) & (b) of the EPSRA has listed generation, trading, transmission, distribution and system operation as activities that are subject to tariff regulation in order to prevent abuse of market powers.
Prior to approving a tariff methodology, the NERC has an obligation to give notice in the official Gazette, and in one or more newspapers with wide circulation, of the proposed establishment of a tariff methodology, indicating the period within which objections or representations in connection with the same may be made to the Commission (See Section 76(6) of the EPSRA). The NERC must also fix the date on which the tariff methodology shall come into operation and it shall cause notice to be given in the official Gazette of that date. (See Section 76(😎 of the EPSRA).
If it appears to the NERC that a tariff methodology should be changed, the Commission must give notice in the official Gazette, and in one or more newspapers with wide circulation, of the proposal to change the methodology, indicating the period within which representations in connection with the proposal may be made. (See Section 76(9) of the EPSRA). After taking into account any objections or representations received in response to a notice issued, the NERC may confirm the proposed changes to the tariff methodology (See Section 76(10) of the EPSRA).
For the present review of tariffs, the NERC has neither given Notice of a proposed change in the official Gazette nor in any national newspaper or its website of a change in tariff methodology. The NERC has also not received comments from the public nor reviewed the same or even convened a stakeholder consultation with the public.
REGULATION ON THE PROCEDURE FOR ELECTRICITY TARIFF REVIEWS IN THE NIGERIAN ELECTRICITY SUPPLY INDUSTRY: A MEANS TO AN END OR AN END IN ITSELF?
In the exercise of the Powers to make Regulations conferred by Section 76 and 96 of the EPSRA, the NERC has also enacted a regulation governing the review of electricity tariff called: Regulation on the Procedure for electricity Tariff Reviews in the Nigerian Electricity Supply Industry (The Regulation). The Regulation substantially provides the procedures for major and minor reviews of tariffs and applications for extraordinary tariff review.
For major review, Clause 4 of the Regulation has mandated that a one-year notice of intention to commence a major review of the existing tariff shall be issued by the NERC to Licensees. The Notice shall request for submission of applications for the review of the tariff. The NERC shall thereafter, according to Clause 5 of the Regulation, review applications for the development of a Consultation Paper. The Consultation Paper shall be published on the official Website of the Commission, and request for comments from the public within twenty-one (21) days.
For Minor reviews, Clause 7 of the Regulation provides that existing tariffs shall be reviewed bi-annually subject to some of the following factors: the inflation rate, exchange rate, and average daily peak generation capacity for the previous six months period. The Commission is also supposed to issue a Notice three months prior to the end of the 6 months Minor Review period, in two national newspapers and on its official website, of its intention to commence the process for minor review of existing tariff. Comments from the public should be reviewed and a stakeholder consultation shall be convened with the public.
While the underlying objective of these clauses is for accountability from the Licensees and the Regulator to the Consumers who will bear the brunt of any major, minor or extraordinary review and whose input should therefore only fairly be sought and considered, the NERC has enforced its Regulation and the EPSRA more in breach than in compliance. A careful perusal of its website will show that the last time a public notice was uploaded on the NERC website was on the 25th of February 2020, when the “Public Notice of Applications for Tariff Review and Request for Intervenors to participate in Tariff Hearings” was uploaded in respect of the review of the MYTO-2015.
The MYTO-2015 Tariff Order for the NESI was also reviewed vide an Extra Ordinary Tariff Review procedure in the year 2020. The Consultation Paper on this review was uploaded on the NERC website on the 25th of February 2020. This can only be interpreted to be in breach of the NERC regulation which provides that a major review shall be every 5 years and in accordance with laid down procedures. The NERC, has however reviewed the MYTO-2015 in 2020 under the Extraordinary Review procedure which is reserved for extreme urgency where the parameters in the NESI have changed from those used in the operating tariffs such that a review is necessary to maintain industry viability (See Clause 9 of the Regulation). The Extra Ordinary review mechanism is more flexible as its usage is limited to cases of extreme urgency and cannot be an escape route for a review that ought to have been a major or minor one. Moreso, applications for extraordinary review must be preceded by a formal request from the Licensees. In the present hike, the licensees are yet to confirm that there was any formal request to the NERC and thus from the facts available, there appears to be no compliance in this regard, assuming the right review procedure were extraordinary in nature.
IS THE NERC’S RESPONSIBILITY LIMITED ONLY TO LICENSEES?
It now appears that the NERC has, under the cloak of a minor review, unilaterally hiked the prices of electricity tariffs so much so that since 2015 when all inputs are reviewed with stakeholders, there has not been an input from the most important industry stakeholders -the consumers.
Section 32 of the EPSRA has highlighted that the principal responsibility of the NERC is to protect the interest of Consumers. The NERC has a duty to maximize access to electricity services, by promoting and facilitating consumer connections to distribution systems in both rural and urban areas. It is also the duty of the NERC to ensure that an adequate supply of electricity is available to consumers; and also, to ensure that the prices charged by licensees are fair to consumers. In the same vein, the NERC is saddled with the duty of ensuring the safety, security, reliability, and quality of service in the production and delivery of electricity to consumers; and ensuring that its regulation is fair and balanced for licensees, consumers, investors, and other stakeholders.
Against these principal responsibilities of the NERC to consumers, there have been serial blackouts, the perennial collapse of the national grid and poor feedback from consumers on the services from the Industry Operators. The general consensus seems to be that morally, the instant unjust hike by the NERC is a malapropism for injustice.
Legally, reviews of electricity tariffs are not automatic. This is usually preceded by the licensees applying for a review of their tariff rates. The request for rate review is ideally to be premised on the need to incorporate changes in economic parameters and other factors affecting the operational efficiency of the licensees. In line with section 47(1) of EPSRA and Regulation 8(b) of the “Regulations on Procedure for Electricity Tariff Reviews in the Nigerian Electricity Supply Industry”, the NERC then invites the general public to submit comments on the review of the proposed rate submitted to the Commission by the licensees.
In submitting comments, interested stakeholders are to review and take into consideration the Performance Improvement Plans (PIPs) submitted to the Commission by the respective licensees. The NERC shall thereafter take into consideration responses to this document and other submissions that may be provided at the wider Public Hearing prior to a final decision on the applications by the Commission
Suffice to say that in recent times, the NERC has been found short of carrying out its functions. The DisCos now arrogate price hikes, ipso facto, to the order of the NERC. The NERC seems to think its major statutory responsibility is to its licensees and not consumers, who are always at the receiving end. For what better way is there to explain that in all its reviews since 2015, the NERC has failed to comply with its own enabling law and Regulation? It has serially failed to issue public notice or publish same in the gazette, or in a national newspaper. It has also failed to conduct public hearings before the approvals of tariffs and more importantly the NERC has failed to factor in the cries and woes of the consumers in its reviews.
It cannot be overstated that what is worth doing at all, is worth doing well. The NERC, now more than ever, must wake up to its roles and functions. The consumers also have a moral obligation to hold the Industry Operators accountable. We all must play our roles diligently. It cannot be business as usual. A stitch in time, saves nine.
Sherif is an Abuja based Energy sector lawyer. He can be reached at +2348132548364 or via email at firstname.lastname@example.org. The views expressed in the article are those of the author.
To join our Telegram platform, please click here
COPYRIGHT 2022 CITY LAWYER. Please send emails to email@example.com. Join us on Facebook at https://web.facebook.com/City-Lawyer-Magazine-434937936684320 and on TWITTER at https://twitter.com/CityLawyerMag. To ADVERTISE in CITY LAWYER, please email firstname.lastname@example.org or call 08138380083.
All materials available on this Website are protected by copyright, trade mark and other proprietary and intellectual property laws. You may not use any of our intellectual property rights without our express written consent or attribution to www.citylawyermag.com. However, you are permitted to print or save to your individual PC, tablet or storage extracts from this Website for your own personal non-commercial use.