Shortly after the commencement of stakeholders’ consultation by Distribution Companies, there emerged growing apprehensions on a likely hike in electricity tariff. Most of the discourse among and between members of the political, economic, business and academic community as well as some drivers of the industry has not done much to help matters. In this piece, MUSA ADAMU writes on what transpired between Kaduna Electric and its customers
As part of a nationwide ongoing consultation between respective DISCOs and their customers to brainstorm on tariff plan, Kaduna Electric (KE) held its own on September 29, 2015 and presented its proposed 10-year tariff.
In the about four and half hours the highly tensed discussion lasted, none of the participants denied the imperativeness of “appropriate tariff regime” for the Nigerian Electricity Supply Industry (NESI). The contention or differences however, were basically on the methodology at arriving at the appropriate tariff for the electricity market
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Although, other actors in the value chain, notably the Generation Companies (GENCOs) and the Transmission Company (TCN), were absent at the forum, the managing director of KE, Eng. Garba Haruna, held brief for them and stressed the need for an industry wide self-sustaining tariff regime.
Driving home his point, Engr. Garba explained that the entire proposed tariff regime was developed and articulated on the basis of the Nigerian Electricity Regulatory Commission (NERC) approved Multi Year Tariff Order (MYTO).
He said as a private sector driven regulated industry, stakeholders and industry experts alike unanimously adopted MYTO methodology to set both “wholesale and retail prices” in the NESI. The idea is to have a tariff regime that enables recovery of costs and allows reasonable profits. In other words, MYTO tries to provide a tariff structure that meets the revenue requirement of the industry in order to be self-sustaining.
According to him, some of the micro and macro- economic variables used to construct the MYTO and set the average tariff inputs to the tariff includes forecasts of load, generation, transmission and distribution capacity, fuel and other consumables costs, investment, levels of losses, customer numbers, O & M costs, inflation rates, cost of lending among others.
To further buttress his point, he took the liberty of explaining what tariff in electricity means.
He said: “Electricity Tariff is the cost of service of a unit of electricity produced, transported, retailed and serviced to a consumer.
This cost of unit of electricity has been as contentious as it is interesting to both consumers of electricity and the service providers. What is crystal clear is that the present tariff regime is unsustainable and does not support the industry.
This resulted in the long years of gross under investment in the power sector, poor and under capacitation and declining interest by both local and foreign investors.”
He reasoned that for all businesses to remain in business and grow, they must cover their costs and provide a reasonable return, and that without a cost-reflective tariff, no utility provider would enter any market, however large the market.
“The absence of a cost-reflective tariff is a key reason for the failure of the power sector to serve Nigerians for the past three decades.”
Presenting the 2016 to 2026 proposed tariff regime, he enumerated three major challenges which the proposed tariff seeks to address.
These are:“the need to provide added incentives to attract private sector, the need to reduce unnecessary consumptions and wastages, and the need to have more pre-payment meters to discourage estimated billing.”
According to him, KE has tariffs reflecting its uniqueness in terms of cost, location and customer profile.
“The lifeline tariff at N4.00/kWh to all those consuming below 50kWh/month (R1), Cross subsidies from large R, C and D customers to smaller residential and commercial customers are implicit in tariff design because the FG subsidy has been withdrawn.”
He further disclosed that the “tariff design took cognizance of the distortion in classes from 19 to 14, and thus changed to 15.”
Assuring customers that that company was exploring all windows of opportunity to deliver power to them at the most cost effective manner, he disclosed that KEwas sourcing for various bulk generation supply including the Sokoto IPP, Kaduna PP, Gurara PP, Kafanchan REPP, etc.
“The Company has also embarked on aggressive customers drive by capturing all Electricity Consumers who might be transferring costs to other users, especially unmetered customers. We are also procuring meters (100,000) for our unmetered customer.
This is being pursued concurrently with the NERC approved CAPMI scheme. Employing more hands to ensure prompt response to faults, take actual readings of meters and ensure fast resolution of customer complaints.”Also contributing, an industry expert, Engr. Aliyu Tanimu Ibrahim, decried the dwindling revenue base of the industry, saying it makes the sector unattractive.
He said: “The tariff as it is today does not cover cost, let alone providing returns on investment.”
According him these are challenges to the actors in the value chain to improve on their efficiency and capacity utilization.”
He said the service providers from generation to distribution must be made to plug revenue leakages and cut wasteful and unviable expenditures, saying this would make the electricity industry more efficient and responsive to the customers’ needs.
He said close review of the proposed tariff reveals that it was not entirely about hike in the cost electricity.
“As a matter of fact, the proposed 10 years tariff regime submitted by KE showed decline in the tariff for some category of customers by the 4thyear of its implementation.”
Some of the highlights in the proposed plan include improving on service delivery and company’s revenue base, via Customer Class Reclassification (CCR) and Average Tariff Consumption (ATC).
Under the CCR, the KE proposed 15 customer tariff classes instead of the about 19 existing now.
It further reclassified R2 category into R2-SP and R2-TP 78% of total population in this category.
According to the plan: “Customer tariff reclassification based on allocated load of each category i.e. single phase, three-phase, LV, HV maximum demand classes with the exception of R1 customers who are classified on a maximum consumption of 50 KWH. However, for R1 consumers to move to the next tariff class (R2), average monthly electricity consumption for the preceding three (3) months must be taken into consideration.
“The average consumption for three months shall be calculated and if the consumption exceeds 50 KWH, the consumer shall be moved to the next tariff class.
However, if the average is below 50 KWH, even if it exceeds 50 KWH in one or two particular months, the consumer shall remain on R1.”
KE also unveiled what termed as new innovations in the proposed tariff regime, to include Payment Incentive for Customers, Delayed Payment Surcharge and the Power Factor Surcharge and Incentive for Industrial Customer, Government Customers, Assessment of Electricity Charges in Cases of Theft of Electricity, Assessment of Electricity Charges In The Case Of Unauthorized Use of Electricity and Contract Demand Penalty.
Other features of the new tariff are the introduction of Electricity Charges in Cases of Theft of Electricity and Electricity Charges In the Case Of Unauthorized Use of Electricity.
Bearing their minds on the proposed plan however, cross section of the participants argued that although they believe in the doctrine of gainful business, they would rather want to see any form of tariff hike after improvement in the power supply.
Some of them argue that as it were they were already paying for services not rendered considering the number hours they get electricity supply. They urged the company not priorities tariff hike over service delivery.