Discos’ Unholy Affinity with Estimated Billing

The economic history of the Nigerian electricity sector has been largely one of failure to properly document through the process of metering the amount of electricity consumed by Nigerians. Over the years, and numb to public outcries, distribution companies have spurned institutional and public demands by Nigerians to put an end to estimated billing. This unholy kinship between the distribution companies and estimated billing has had a negative effect on growth in the electricity supply industry. Nosa James-Igbinadolor reports

The economic and contemporary history of the Nigerian Electricity Supply Industry (NESI) has been one characterised by the incapacity and a de-emphasis on the supply of meters to consumers. The deregulation of the industry and the subsequent control of the commanding heights of the sector, including generation and especially distribution by private investors has not in any way fundamentally addressed this seeming obdurate challenge.

Access to electricity per population in Nigeria was reported at 56.5 per cent in 2018 by the World Bank, leaving some 88 million Nigerians without access to electricity. Others believe the figure is higher. Country Director of Power for All, Ifeoma Malu, had in 2018, warned, “Nigeria’s energy access challenge continues to be a source of frustration for the majority of the population, limiting the country’s prospects for economic growth and improving the well-being of its population, particularly undeserved rural communities.

“Over 60 per cent of Nigerians are without access to electricity, while the grid-connected population faces extensive power outages. Bedevilled by various technical, financial, operational and regulatory challenges and a widening generation gap of approximately 175,000MW, the conventional power grid supply is inadequate to meet the needs of Nigeria’s growing population.”

Figures from the Nigerian Electricity Regulatory Commission (NERC) show that out of a total of 8,310,408 registered active electricity customers, only 3,704,302 (44.6 per cent) have been metered. This indicates that 55.4 per cent of end-user customers are still on estimated billing.

Power users have over the years repeatedly condemned the inability of the regulatory commission and power distributors to provide prepaid meters since the sector was privatised in November 2013.

Since the 2013 deregulation of the sector, the business environment of the Nigerian Electricity Supply Industry has been one driven by the economic reality of the ‘bottom-line’. This reality according to an Attorney with S.P.A. Ajibade & Co, Olaoye Olalere, means that “electricity cost or tariff paid by the final consumer should reflect the cost of production to ensure that the supplier earns a decent profit; otherwise the supplier will not be in business. To generate revenue, the Distribution companies (Discos) must quantify the electricity usage of the consumer and metering the consumer is the only fair way to measure electricity usage.”

In the Performance Agreement signed with the Bureau of Public Enterprises (BPE), the DisCos assured of metering electricity consumers and significantly reducing the collection and technical losses in the sector within five years. Seven years later, the DisCos have simply refused to effectively and efficiently meet these obligations and NERC and the federal government have also simply refused to sanction them for this blatant breach.

In February 2020, NERC, the electricity sector’s independent regulator, announced that it had repealed the estimated billing methodology regulation widely and indiscriminately applied by DisCos. Following the repeal, the estimated billing methodology ceased to be used as the basis for computing the fees of unmetered electricity consumers in the country. The repeal according to NERC, was its response to the lack of clarity and equity with regard to how DisCos engaged in billing their customers and to to ensure that there is parity in how unmetered R2 and C1 electricity consumers are billed, in comparison to how their metered counterparts in electricity industry are billed.

The decision of NERC also sought to, “completely eradicate arbitrary billing, which basically entails charging electricity customers exorbitant fees that are higher their actual consumption; fast-tract the metering of unmetered R2 and C1 customers; encourage DisCos to expedite action on meter deployment under the Meter Asset Provider (MAP) Regulation of 2018; and aimed at reducing incidents of high collection losses in NESI.”

NERC also ordered that all electricity consumers on tariff class A1 be duly identified and metered latest by April 30th, 2020.

Investigations by THISDAY revealed that two onths after the DisCos were expected to have ended the capricious and erratic estimated billing system, none of the distribution companies have complied with NERC’s directive.

An energy lawyer and industry watcher, Shakede Dimowo, told THISDAY that it would be very difficult for the DisCos to comply fully with NERC’s directive in the short to medium term. According to him, they do not possess the financial capacity to invest heavily in the massive acquisition of meters period.

Dimowo further added, “the industry is beset my significant systemic challenges including internal corruption around the metering process as well as electricity theft and meter circumventing aided by staff of the DisCos and their external collaborators. The companies will therefore have to weigh whether it is economically worth their while to invest in complete and total metering. At this stage, I am aware that all the companies are perfectly contented with ensuring the metering of industrial and special end-users as well as commercial consumers and gaming their chances with residential end-users through estimated billing.”

In response to the barrage of public criticisms of the erratic nature of estimated billing by the DisCos, the then majority leader of the House of Representatives and now Speaker, Femi Gbajabiamila, had proposed as part of the Electricity Power Reform Act (Amendment) Bill 2018 the criminalisation of estimated billing by electricity distribution companies. The bill sought to compel all electricity distribution companies to give prepaid meters to applicants within 30 days, and bar a DisCo from disconnecting a consumer after the 30-day period within which a meter should be installed. Mr. Gbajabiamila argued then that “any regulation that allows estimation of bills when the actual consumption can be ascertained is against natural justice and equity and should not stand.”

Sources at the Jos Electricity Distribution Company (JEDC) as well as the Abuja Electricity Distribution Company (AEDC) confirmed that it would be nearly impossible for the DisCos to undertake total metering across the board. According to a senior official of the AEDC who demanded anonymity, “requiring the distribution companies to undertake total metering across the entirety of the end-user landscape is virtually impossible in the short term unless you want the companies to go out of business.”

He admitted that the NERC as a regulator had, over the years, not been “very forceful on the DisCos to ensure that they emphasised and undertook effective metering coverage right from the very beginning when investors took these companies over.”

According to the source, “NERC has always treated the DisCos as wayward children that should be spanked lightly and then bear-hugged. It was a lot easier for the DisCos to raise funds in 2013, 2014 and 2015 than it is for them to do so now from commercial financial institutions. The reality is that the regulator dropped the ball in this regard in the early years of the privatised entities and it has effectively made it a lot difficult to undertake total metering. Being lenient on the DisCos by NERC hasn’t yielded good dividends.”

On the challenges militating against metering by the DisCos, Olalere noted that, “The first and most dangerous challenge is the mindset of most of the Discos that the consumers will always be ready to pay estimated billing, and thus the lethargy in the implementation of the metering measures put in place to bridge the metering gap.”

He further argued that “the general impression in the NESI remains that the Discos are ‘gaming’ the system. Other challenges that the Discos themselves have voiced out for their seeming reluctance to meter their customers include the massive unpaid bill at the time of takeover; the lack of proper data on the NESI; the significant electricity theft and meter bypass mostly orchestrated by ad hoc or regular staff of the Discos or with their collaboration; lack of the required change in orientation of the consumers – a significant number of whom still think the Discos and former ‘NEPA’ are the same and one does not have to pay or pay accurately for electricity”.

In addition, Olalere noted, “The Discos have indicated also that the current tariff structure is not cost reflective; the level of the aggregate, technical, commercial and connection loss of each of the distribution companies is still high; the exchange rate is unstable; the inflation rate is high; the generation and transmission capacities are low; and gas price remains high.”

In recognition of some of these challenges, NERC earlier this month hiked the cost of pre-paid meters to reflect the increase in foreign exchange rate by the Central Bank of Nigeria

NERC Chairman, Prof. James Momoh, posited that pegging the new price was pursuant to section 19 (d) of the Meter Asset Providers regulation. “In arriving at the approved unit costs, the commission has considered the recent changes in foreign exchange approved by the CBN and the applicable rate available to importers of meter components or fully assembled meters through investors and exporters’ forex window,” he said.

The increase in the cost of pre-paid meters to be borne by consumers will no doubt serve as a barrier to electricity access in a country where the poverty rate has seen an exponential increase since 2015. It is instructive that rather than focusing on how to better address efficiency challenges in the DisCos, NERC .is more interested in scaling up the economic gains of an ineffective provider

Olalere contended that, “The Discos particularly, as the retailer of electricity, need to come to terms with the fact that an average consumer across most of the social strata is willing and able to pay for accurately-measured electricity consumed. The regulator has a statutory responsibility to ensure that the consumer only pays for electricity consumed.

“Installing smart meters for the accurate measurement of usage of electricity will have a salutary effect on the NESI. Estimated billing, no matter how much the Discos try, cannot be a 21st century system of billing. The model that works is the prepaid tariff collection method where the consumer pays for electricity before usage, as is obtainable in the telecommunication sector.”

There is a need to adopt and introduce external shocks into the electricity supply industry to ensure that DisCos wake up to their responsibilities. In this regard, the National Assembly has a major role to play to not only protect the proverbial ‘common man’, but also to induce market efficiency in a clearly unproductive industry.

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