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The 'Silent' Increases in Electricity Tariffs by DisCos in Nigeria - The Role of NERC, Impact on Consumers and the Way Out - Article

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Published (Updated) on Wednesday, April 19, 2023

Electricity is an essential commodity that powers many aspects of human life. From household appliances to industrial machines, electricity is the backbone of many of the world's modern amenities. However, in Nigeria, the cost of electricity has been a contentious issue for many years, with consumers constantly complaining about the high tariffs imposed by distribution companies.

Electricity tariffs are the charges imposed on consumers for using electricity supplied by the Distribution Companies (DisCos) in Nigeria. The tariffs are regulated by the Nigerian Electricity Regulatory Commission (NERC), a body established under the Electric Power Sector Reform (EPSR) Act of 2005. NERC's mandate is to ensure that the tariffs charged by DisCos are fair and reflective of the cost of generating and distributing electricity. However, in recent years, DisCos in Nigeria have been accused of "silently" increasing the electricity tariffs, which have gone unnoticed by consumers and the regulatory authorities.

The term "silent" increase refers to the practice of DisCos raising electricity tariffs without any official announcement or notification to consumers. This practice is often carried out by minimally increasing the charges on consumers' bills or tariffs per kilowatt-hour either monthly or quarterly, and even yearly.

DisCos have also been accused in past of inflating fixed charges as a way of increasing their revenue without actually improving the quality of electricity supply. These unjust increases and unfair billings have a significant impact on consumers and the overall electricity sector in Nigeria.

One of the reasons why the DisCos have been able to get away with these 'silent' increases is that most Nigerian consumers do not understand how electricity tariffs are calculated. Electricity tariffs in Nigeria are made up of two components: the energy charge, which is based on the amount of electricity consumed, and the fixed charge, which is a flat fee that is charged regardless of the amount of electricity consumed. While most consumers are aware of the energy charge, they are often unaware of the fixed charge and how it contributes to the overall cost of electricity.

Another reason why the DisCos have been able to get away with the recurrent tariff increases is the lack of transparency in the billing process especially for those unmetered electricity customers. Most Nigerian consumers do not receive accurate and timely bills from DisCos, which makes it difficult for them to detect any changes in their tariffs.

In addition, the DisCos are known to engage in estimated billing, which involves billing consumers based on a rough estimate of their electricity consumption rather than actual readings from their meters. This practice has been widely criticized by consumers, who argue that it leads to overbilling and makes it difficult for them to manage their electricity expenses.

The Role of NERC in Regulating Electricity Tariffs

NERC is an independent regulatory body established by the Electric Power Sector Reform Act (EPSRA) 2005. Its primary responsibility is to regulate the electricity industry in Nigeria, including the setting and approval of tariffs for the generation, transmission, and distribution of electricity in Nigeria. NERC is responsible for ensuring that electricity tariffs are cost-reflective, fair, and affordable for consumers while ensuring that investors in the electricity industry earn a reasonable return on their investments.

In 2015, NERC introduced the Multi-Year Tariff Order (MYTO) methodology, which is a framework for setting electricity tariffs in Nigeria. The MYTO methodology is designed to ensure that electricity tariffs are cost-reflective and that they reflect the true cost of generating, transmitting, and distributing electricity in Nigeria. The MYTO methodology also provides for periodic tariff reviews, which are carried out every five years to reflect changes in the cost of producing and distributing electricity.

The MYTO methodology takes into account several factors, including the cost of fuel, exchange rate fluctuations, inflation, and other economic factors. The methodology also considers the efficiency of the electricity distribution companies and their ability to recover their costs. The MYTO is intended to ensure that electricity tariffs are transparent, predictable, and consistent with the objective of providing affordable and reliable electricity to Nigerian consumers.

Moreso, in 2019, the government launched the Meter Asset Provider (MAP) scheme, which is aimed at providing consumers with prepaid meters to help eliminate estimated billing. The government through NERC also implemented a cost-reflective tariff system, which is designed to ensure that DisCos charge tariffs that are fair and reflective of the cost of generating and distributing electricity.

However, while these measures are a step in the right direction, more needs to be done. Some stakeholders in the electricity industry and many consumers have complained about the lack of transparency in the MYTO methodology, MAP scheme and the billing process by the DisCos.

The Impact of the "Silent" Increases in Electricity Tariffs by DisCos on Consumers

The impact of these tariff increases on Nigerian consumers has been significant. Many households and businesses are struggling to cope with the high cost of electricity, which has been exacerbated by the economic situations in the country. In addition, the erratic and unreliable electricity supply has made it difficult for businesses to operate efficiently, which has had a negative impact on the Nigerian economy.

• Increased Cost of Living: The recurrent increases in electricity tariffs by the DisCos have resulted in an increase in the cost of living for most consumers. Many households and businesses in Nigeria rely on electricity for their daily activities, and any increase in electricity tariffs will result in an increase in the cost of living.

• Reduced Disposable Income: The "silent" hikes in the tariffs have also resulted in a reduction in disposable income for many individuals and families. Many Nigerian households and businesses have had to spend more money on electricity bills, leaving them with less money to spend on other essential needs.

• Impact on Small Businesses: The 'unfair' increases in electricity tariffs by the DisCos have also had a significant impact on small businesses and startups in Nigeria. Many of these businesses rely on electricity to run their operations, and further hikes in electricity tariffs will result in increase in their operating costs, making it difficult for them to remain competitive.

The Way Out

To address the "silent" hikes or increases in electricity tariffs by DisCos in Nigeria, several actions can be taken, including:

NERC needs to take stronger regulatory measures by enforcing its mandate and sanctioning any Distribution Company (DisCo) found to have increased electricity tariffs without approval.

Consumers also need to be more aware of their rights and responsibilities when it comes to electricity tariffs. They should demand transparency in the billing process and report any suspected cases of overbilling or unfair charges.

NERC should review the MYTO methodology to ensure that it is effective in regulating electricity tariffs in Nigeria. The methodology should be updated to reflect changes in the cost of producing and distributing electricity in Nigeria.

The federal and state governments should invest in the electricity sector to improve the efficiency of the DisCos and reduce their operating costs. This will reduce the need for frequent increases in electricity tariffs.

The governments at various levels should explore alternative sources of energy, such as solar and wind energy, to reduce the dependence on the national grid and provide affordable electricity to consumers.

NERC and other authorities in governments should also explore the possibility of allowing wealthy consumers or individuals to generate their electricity through renewable energy sources and sell the excess to the national grid.

Consumers should be encouraged to embrace energy conservation practices, such as turning off appliances when not in use, to reduce their electricity bills. Many Nigerian households and businesses waste a lot of electricity due to poor energy management practices. By adopting the simple measures of putting off lights and home appliances when not in use, consumers can significantly reduce their energy bills and contribute to a more sustainable energy future and stable electricity for Nigeria.

Conclusion

Summarily, the unjust and recurrent increases in electricity tariffs by the DisCos in Nigeria have been a major issue for consumers, who are struggling to cope with the high cost of electricity and living conditions. The lack of transparency in the billing process and the practice of estimated billing have made it difficult for consumers to detect any changes in their tariffs. The Nigerian government has taken some steps to address this issue, but more needs to be done to ensure that the DisCos charge tariffs that are fair and reflective of the cost of generating and distributing electricity.

In addition, there is a need to invest in the electricity infrastructure to improve the quality of electricity supply in Nigeria. This would not only benefit consumers but also attract more foreign investors and help to grow the Nigerian economy. The government through NERC needs to work closely with the DisCos and other stakeholders to identify and address the challenges facing the electricity sector.

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