NERC Approves New Electricity Tariffs for Discos

FG to split TCN into two companies

Chineme Okafor in Abuja

The Nigerian Electricity Regulatory Commission (NERC) has approved new electricity tariffs for the distribution companies (Discos) operating in Nigeria.

This is coming as the Transmission Company of Nigeria (TCN) will soon cease to exist as a monolithic firm in Nigeria’s power sector.
The Managing Director of TCN, Mr. Usman Mohammed, disclosed that two independent companies were set to emerge from the company.
NERC said the new tariffs which is distinct to each Disco, became effective from July 1, 2019.

In a new order posted to its website yesterday, NERC described the new tariff as ‘2016-2018 minor review of the Multi Year Tariff Order (MYTO) 2015 and minimum remittance order for the year 2019.’

It explained that the Discos would have to remit a minimum of 45.4 per cent of their monthly invoices to the Nigerian Bulk Electricity Trading Plc (NBET).

It also noted that all Discos would meet up to 100 per cent of their monthly invoices from the Market Operator (MO) in addition to attracting severe penalties for failing to adhere to their remittance obligations to the NBET or MO in any of remittance cycles.
According to the NERC’s order, the Discos would also maintain unencumbered and adequate letters of credit covering a period of three months for electricity services to them.

Under the new tariffs, NERC disclosed that residential customers in the networks of Abuja Disco will have to pay between N24.30 and N47.09 per kilowatt hour (kwh) of electricity in 2019, and between N33.34kwh and N63.42kwh in 2021.

Commercial customers under the same network will pay between N37.39kwh and N47.09kwh in 2019 as well as N50.28kwh and N63.42kwh in 2021.
For industrial customers in Abuja, their tariff in 2019 would range from N36.07kwh to N47.09kwh, while that of 2021 would be between N48.49kwh and N63.42kwh.

Under Eko Disco, residential customers will in 2019 be charged between N24 and N29kwh. In 2021, they will be charged N32.42khw and N42.83kwh.

Commercial customers will pay in 2019 between N24 and N36kwh, while in 2021, they will be charged between N33.61kwh and N47.70kwh.
For industrial customers in Eko, they will be charged between N24 and N36kwh in 2019, but in 2021, they will have to pay between N36.23 and N48.52kwh.

Similarly, in the networks of Enugu Disco, residential consumers will be charged between N30.93 and N46.08kwh in 2019, as well as N36.45 and N53.42kwh in 2021.

Under the same network, commercial customers will pay between N34.28 and N45.85kwh in 2019, and then N40.40 and N54.03kwh in 2021.

For industries, the Disco’s network, they will be charged between N40.37 and N46.83kwh in 2019, and then between N47.57 and N55.18kwh in 2021.
NERC explained that: “This order has taken into consideration the actual changes in relevant macroeconomic variables and available generation capacity in updating the operating MYTO – 2015 Tariff Order for the period January 1, 2016 to December 31, 2018 in line with the provisions of the MYTO Methodology (Amended).

“Projections were made for macroeconomic variables for the year 2019 and beyond based on best available information. The commission shall make necessary adjustments to reflect actual values at the time of the next minor review that will take effect on January 1, 2020.”
It explained that it did the review to reflect the impact of changes in the minor review variables for the period 2016 to 2018 to determine the cost reflective tariffs for the relevant years, and equally ascertain revenue shortfalls in view of the differential between such tariffs and allowed tariffs in the market.

NERC added that it recognised the historical tariff deficits of the Discos which affected their financials, and developed a framework to manage future revenue shortfalls in the industry including minimum market remittance requirement to account for differences between cost reflective tariffs and allowed tariffs in the settlement of invoices issued by the NBET and MO.

The tariff review process, it stated would reaffirm the payment securitisation requirement and flow of funds from Discos to NBET and the MO, as well as steer the market to gradual activation of market contracts in line with the requirements of the Transitional Electricity Market (TEM).

With regards to the parameters for the review, it explained that the average naira to dollar exchange rates of N255.90; N308.80; and N309.14 were used for the years 2016, 2017 and 2018 respectively, while the exchange rate for 2019 was computed as N306.90 plus one per cent premium to a dollar.

The price of natural gas for the power sector it noted was $2.50/MMBTU and gas transportation cost of $0.80/MMBTU for the review.
The regulatory commission also indicated that it has computed and recognised the tariff shortfall for the Discos for the years 2015 to 2018.
“Under the Power Sector Recovery Plan (PSRP) approved by the federal government, all accrued liabilities in Disco’s financial records arising from tariff shortfalls shall be transferred off the balance sheet and fully settled under the financing plan of the PSRP initiative,” it said.

Two Successor Companies Set to Replace TCN

Meanwhile, two independent successors will soon emerge to replace TCN, the Managing Director of the company, Mohammed, has said.
Mohammed, at a stakeholders’ interactive forum held by the Market Operator (MO) – a department of the TCN, explained that the process of splitting the company into two has begun.

He also said that the TCN would spend $5 million to digitise its substations’ control rooms across the country.
He stated that the interactive forum came at a time the MO was enforcing the sector’s Market Rules and instilling discipline amongst market participants.

“Our intention is to midwife TCN in such a way that TCN will cease to exist. There will be a separate Transmission Service Provider (TSP) and the Independent System Operation (ISO) will be with the MO. I am doing everything possible for that,” said Mohammed, who did not disclose when the wind-down would be concluded.

He however stated that the planned split can only be successful when the Supervisory Control and Data Acquisition (SCADA) and the Electricity Management System (EMS) were in place.

According to him, TCN is procuring fibre optic for some critical lines towards attaining SCADA system for the electricity market.
He explained in this regard: “Fixing SCADA will take about two years, so we have segmented it to start with the Automated Meter Reading (AMR) where all energy will be accurately metered, and every market participant will have access to that.”
Mohammed disclosed that the TCN was earning from South Africa’s Eskom Power about their SCADA after it had failed repeatedly to procure one for Nigeria.

“Nigeria has failed three times and if this time fails, it will be the fourth time,” Mohammed noted.
To ensure the SCADA procurement would be successful, he said the TCN will be training 15 staff who will be bonded to TCN until after five years.

According to him, five each will be trained on the software, hardware and the communication aspects.

“We are going to train them anywhere in the world, even if it will cost us N$3 million, we will do it,” he said, while informing that TCN would spend $5 million in digitising its control rooms across the substations nationwide to enhance the SCADA operation.

In his remarks, the Market Operator, Mr. Edmund Eje, urged participants to get used to the Market Rules and all compliance codes because TCN was focused on enforcing them to give confidence to investors and equally promote market efficiency.