Govt issues guidelines for electricity tariff hike to DisCos
The Federal Government, through the Nigerian Electricity Regulatory Commission (NERC), has issued new regulations outlining the procedure for tariff reviews in the electricity sector.
In its latest order, signed by NERC Chairman Sanusi Garba, the commission explained that under the provisions of the Electricity Act 2023, it is mandated to review and approve a fair tariff. This will enable licensees to recover reasonable costs and earn a fair return on the capital invested in providing electricity services.
The commission highlighted that Section 116(1) of the Electricity Act stipulates that activities in the generation, transmission, distribution, trading, supply, system operation, and electricity distribution franchising are subject to tariff regulation. Section 116(2) further requires NERC to develop a tariff methodology that ensures licensees operating efficiently can recover their full, efficient costs, as well as a reasonable return on shareholders’ investments.
“In line with the powers conferred by Section 116 of the Act, the commission has developed and adopted the Multi-Year Tariff Order Methodology as an incentive-based price regulation framework for determining and projecting tariffs within the Nigerian Electricity Supply Industry,” the order stated.
NERC emphasised that the Multi-Year Tariff Order methodology mandates a major review of electricity tariffs every five years. During this review, all tariff assumptions are reassessed to ensure the industry remains viable and efficient.
One year before a major tariff increase, the commission will issue a notice to all licensees about its intent, requesting them to submit tariff review applications supported by the necessary documentation within 120 days of the notice.
“The commission shall, one year before the expiration of the major tariff review order in force, or when considered necessary, issue a notice to all licensees indicating its intention to begin the process for a major tariff review. The notice will be published in three national newspapers and on the commission’s website,” the regulation noted.
The notice will call for applications for tariff reviews, which must be supported by documentation such as audited financial statements, budgets, investment plans (aligned with the guidelines on Performance Improvement Plans), proof of customer consultation in the service areas, and any other relevant information as determined by the commission.
NERC explained that an initial review of these applications will be completed, and a consultation paper will be published no later than 90 days after the submission deadline.
“The consultation paper will outline the basis for the tariff review applications submitted by the licensees, including proposals for capital investments, service improvements, new connections, loss reductions, tariff assumption resets (if applicable), and the potential impact on customer rates. This paper will be published on the commission’s website, with public notices inviting stakeholder comments within 21 days,” the order stated.
The commission will then consider the responses to the consultation paper, review the comments, and schedule a Rate Case Hearing within 90 days. Following the hearing, NERC will approve a Major Tariff Review Order within 30 days.
“Any licensee whose tariffs have been reviewed will communicate the outcome of the tariff review to its customers via its website and other communication channels,” the regulation added.
For monthly or minor tariff reviews, NERC will review the prevailing operating end-user tariffs and may adjust them to reflect changes in generation fuel costs, inflation rates in Nigeria and the United States, the exchange rate between the United States dollar and the naira, and changes in generation availability compared to the previous month.
The commission may also, at its discretion, conduct minor tariff reviews at shorter intervals, but no more frequently than every six months.
