Tariff Reduction: EERC Acted Within its Constitutional Powers – Odion Omofoman

CEO New Hampshire Capital Limited, OdionOmofoman, a financial advisory and energy investment firm. He was also an expert adviser to the Nigerian Electricity Regulatory Commission, towards the development of the Meter Asset Provider regulations. In this interview monitored on Arise News, he speaks with Rotus Oddiri on the controversy surrounding the power tariff reduction by the Enugu State Electricity Regulatory Commission.

Everybody knows what is going on with the Enugu State Electricity Regulatory Commission (EERC), making that decision to slash Band A electricity tariff from N209/kWh to N160/kWh. Every other band is frozen. The Forum of Commissioners for Power and Energy in Nigeria said it is in line with the Constitution and the Electricity Act. But there is a pushback by the GenCos. So, first of all, what is your take?

The Enugu decision on tariff is in line with what was envisaged under the Constitution. It was also what was envisaged under the Electricity Act of 2023 signed by President Bola Tinubu. I think people now need to realise that with the decentralisation of electricity regulation, we are now in that regime. So, states that have created electricity market can now decide and implement electricity tariff within their jurisdiction. 

 People also need to realise that Nigeria runs two broad electricity markets: one, the wholesale market, which includes the generation and transmission tariffs or markets and then the subnational market, which has the whole gamut of transmission and distribution, but generation within the states. So, when it comes to distribution, the tariff decision of the state stands,regardless. States regulatory commissions have that power to do it and EERC has done that.

Now let us come to the pushback by the GenCos, who are now saying, we generate the electricity, we are owed money. They say Enugu State is not supposed to be reducing this tariff because it will impact them.

Obviously they have a right to be concerned. But I think it is, respesctfully speaking, a misplaced concernbecause as I have just said, there is a wholesale market regulated by Nigerian Electricity Regulatory Commission, NERC, and then there is the distribution side of it regulated by the state. The tariff order by EERC only deals with the distribution value chain. The wholesale tariff as given by NERC to the Distribution Company, DISCO, still remains. 

But let us state this very clearly, MainPower is a subsidiary of the Enugu Electricity Distribution Company, EEDC, the DISCO that serves the five South Eastern states. So, NERC, looking at Enugu, has situated that Enugu DISCO will pay certain amount for power generation. In that subset, EERC will ask, what isthe share of Enugu State in that? It has, therefore, left that intact and has looked at other metrics and said, letus look at your customer base, let us look at yourregulatory assets base; the same data that was provided to them. They have done a lot of regulatory rigours to come to that decision. That is what we don’t see when we have a central regulation. 

I will shock you, all the 11 DISCOs that we have across Nigeria charge N209.50 for Band A. How is that possible? We can’t have a unified tariff system when you have different cost structures for different entities. Now, somebody has said look, let us do the regulatory scrutiny of these numbers. Let us see how you arrived at this N209.50. But, guess what, nobody has touched the wholesale tariff. So, the GENCOs, I need to assure them, you will get your revenues. What has happened is that based on the regulatory scrutiny done by Enugu State Electricity Regulatory Commission, they have ascertained that tariff on Band A should be N160 and anybody can go look at what they have done. You can’t fault it. 

I must say, in Enugu State, you have one of the most experienced electricity regulators in the country and we trust what they have done. They know what they are doing.

Ok. The statement that was put out by the Forum of States Commissioners of Power and Energy is pretty much in line with what you have said. They are saying that what Enugu has done is in line with the Constitution and Electricity Act, 2023. 

What the Forum tried to communiucate is that they saidthat look, the fact that Enugu State has looked at the cost structure of electricity market in the state and has dropped down Band A is not reflective of what other states would do. For instance, Enugu is not the first place to issue regulatory tariff orders. Ekiti and Ondohave done similar. Enugu only reduced theirs tariff. People should not be scared that other states will now start to slash tariff. It is not like that. I have heard a lot of commentators and stakeholders speaking. Everyone is just scared that this is a new trend. What will now happen is that people will now do the regulatory diligence that should have been done to say look, how did you arrive at this tariff?  How Enugu arrived at tariff.

Another point EERC is making is that the subsidy is within Enugu DISCO. MainPower is just one state. Why would the people of Enugu state pay more than the people in Abia, Anambra and co, who now enjoy the federal subsidy? One more thing to know is that if Enugu State had kept Band A tariff at that level, the over recovery wouldn’t have gone to the Nigerian Bulk Electricity Trading PLC, NBET, because NBET has a cap that Enugu must pay, which is like 45/42 per cent. 

People must understand that every DISCO has what we call a minimum distribution remittance obligation that they must pay, which is like half of the GenCo tariff. So, even if they over recover, NERC does not see it. These guys just sit down and  they collect the money and thatis what EERC is trying to avoid by saying ‘I wont give you more than you are required to pay to the market.’Based on what is given you, you can recover your cost and even have excess. Simple. 

Fantastic. Is this good that this decision was made by Enugu and finally we are now having a decentralisation conversation? Has Enugu sparked something here?

I think this conversation has been a long time coming. The reality is that it is being avoided at the federal level. I am very excited about this conversation because it will now bring us to two issues, the fact that states can now start to implement their tariff and then execute it. The second is the conversation on subsidy. Subsidy is a big conversation that nobody wants to touch or talk aboutbecause it is the big elephant in the room. So, let us now have a proper conversation around electricity subsidy and around the ability of the states to run their markets. The conversation has now been opened and I hope that people approach it with facts and not emotions and with the mindset that we must make the power sector work. This fear mongering on one side will not help anybody.

Now, having that conversation alongside the subsidy matter, how do we clear the debts to GENCOs? Is it not by raising tariffs?

I do not know how the federal government will pay. Now, I’m being very careful. I have situated it with the federal government because I don’t think they went to states collectively with how to implement subsidy. So, the federal government needs to come out and say this is how we want to clear it.

But here is another thing we need to kickstart conversations around it: there should be clear rules for states that want to run a cost reflective market so that in a case where states want to do a cost reflective tariff, that money should go upstream and not to the DISCO within the system. We need to say, okay, state entities, enter into power purchase agreement, PPA, with NBET so that what you have to pay is clear. Not that you have to pay NBET through the whole distribution companies, which already has a set threshold to pay. It is just a teething challenge that conversations will solve and I don’t know why everybody seems to be up in arms.

Now, let us talk about the DISCOs. We have a quarterly revenue of N533.63 billion, which is the highest and they are attributing it to a higher tariff on Band A. So, let us bring the metre conversation into it too.

On the aspect of metres, again I keep saying this, if somebody is connected to a utility network, the minimum you should have is a metre. It is either the customer is able to buy it, or the utility says I would buy it and bill you to pay it off. That is why a lot of states are about to address this issue of metering because a lot of states have said look, “It is 100 per cent metering.” All we need is a strong will to say, “we will make sure that before you are connected, go and get a metre.” It is either you buy or the DISCO is giving you. A DISCO like Aba is already connecting their customers for free. 

Lastly, we can only solve the power challenges at smaller units. There is no reason a customer in Maiduguri will be paying the same thing as a customer elsewhere when the circumstances of their electricity markets are not the same. So, you will find out that subnationals will hit 24/7 power supply faster than a whole federation. My concern is that federal government should not put impediments to the abilities of states to develop their electricity markets 

And we are seeing one very big impediment – the recent proposed amendments to the electricity Acts. That amendment is a backdoor review of the Constitution. That amendment seeks to make NERC have overriding power over states’ electricity markets. That amendment seeks to enforce one single unit and to enforce the implementation of electrical standards. That amendment seeks to make NERC the entity to set consumer tariff for states. It will take us back. 

The electricity Act is just two years old. So, why are you amending it now? Allow this to work. Thank God for EERC for sparking off a conversation. That is how you get things done and solve the problem because first and second reading happened behind the states back.

QUOTES

“The Enugu decision on tariff is in line with what was envisaged under the Constitution. It was also what was envisaged under the Electricity Act of 2023 signed by President Bola Tinubu. I will shock you, all the 11DISCOs that we have across Nigeria charge N209.50 for Band A. How is that possible? We can’t have a unified tariff system when you have different coststructures for different entities.”

“And we are seeing one very big impediment – the recent proposed amendments to the electricity Acts. That amendment is a backdoor review of the Constitution. That amendment seeks to make NERC have overriding power over states’ electricity markets. That amendment seeks to enforce one single unit and to enforce the implementation of electrical standards. That amendment seeks to make NERC the entity to set consumer tariff for states. It will take us back.”