Stakeholders have been called upon by the Nigeria Electricity Regulatory Commission, NERC, to respond to a new policy on the flexible review of electricity tariff, within a 30 day period.
NERC made this call in a paper on the review of the Multi Year Tariff Order (MYTO) which it released in Abuja, stating that it was looking to introduce a new review time frame, one that would see tariffs reviewed either on a monthly or quarterly basis to reflect periodic changes in the country’s economy.
Prior to now, the tarriff order is often reviewed annually and bi-annually by the regulator, wherein changes in fundamental aspects of the industry’s business like foreign exchange; inflation rates; gas prices; and capacity generation amongst others are captured and inputted in the tariffs of the electricity distribution companies (DISCOs) to their customers.
Stating why the proposal is of importance, NERC said in the consultation paper: “Since the commencement of the Transitional Electricity Market (TEM) in February 2015 and corresponding application of contract terms in market settlement/invoicing in the NESI, these concerns have become more pronounced.”
“Particularly, DISCOs are concerned that the Power Purchase Agreements, PPAs, they executed provides for a monthly indexation formula where the monthly changes in the exchange rates are reflected in the energy invoices issued to them.
“This is quite different from the provisions of the MYTO methodology where indexation is applied semi-annually during the minor review process.
“This disparity has created undue stress in the sector given the contract provision that Discos are expected to settle 100 per cent of their energy invoices without consideration to the time lag in the adjustment of end user tariffs”.
Speaking Further, NERC stated that “It immediately provides a credible basis for the recognition of regulatory assets/liabilities where there is a lag before retail tariffs are adjusted; it provides incentives for continued improvement in services even where the results of the review are not immediately reflected in end-user tariffs; it provides a basis to secure finance to deliver on expected services given the formal recognition of the real trajectory of tariffs by the regulator; and may deliver stable prices to consumers where end-user tariffs are not expected to change immediately.”
NERC also acknowledged that there could be some disadvantages in reducing the time lag between the minor reviews, and identified these shortfalls to include: “Consumers may not be fully aware of the costs they impose on the licensee’s business where end-user tariffs are not adjusted immediately; may lessens utilities’ incentive to manage risks associated with macroeconomic changes in the economy; may deliver higher tariffs to consumers in the long run resulting from associated finance costs where retail tariffs are not adjusted immediately; and may demand additional resources on both the regulator and the utilities.”
Source: TM News