NERC to Review Discos’ Capital Expenses, Tariff

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By Chineme Okafor

The Nigerian Electricity Regulatory Commission (NERC) will this month review the capital expenditure of the 11 respective electricity distribution companies (Discos) in the country’s power sector.

The exercise is expected to also impact on the Discos’ tariffs.

The regulator stated this in a recent notice it sent to stakeholders, which it explained would be in line with its statutory bi-annual review of the Multi Year Tariff Order (MYTO), a framework that guides the pricing of electricity in the country.

NERC’s disclosure of the impending exercise also coincided with a publication by the Nigeria Bulk Electricity Trading Plc (NBET) which stated that within the first seven months in 2020, power generation companies (Gencos) in the country have largely been underpaid for power they produced and sent to the national grid.

According to the NERC, Section 76 of the Electric Power Sector Reform Act 2005 empowers it to review the MYTO from time to time for electricity pricing in Nigeria.

It explained that the MYTO sets out the basis, pricing principles and procedures for undertaking minor and major reviews of electricity tariffs in the country, adding that the planned December review would be minor.

“The MYTO provides a tariff path for the electricity industry, with biannual minor reviews to take into account the impact of changes in a limited number of parameters – specifically inflation, US dollar exchange rate to naira, natural gas price and available generation capacity – and major reviews every five years, when all other inputs are reviewed with stakeholders,” NERC stated.

It added that Section 9 of the, ‘‘Regulation on Procedures for Electricity Tariff Reviews in the Nigerian Electricity Supply Industry,’’ allows for extraordinary tariff review in instances where Discos and others can demonstrate that these parameters have changed from what exists in their current tariff.

Such reviews, it stated would be done in order to maintain industry viability, hence the December review.

It further stated that it received applications for such extraordinary tariff review from the Discos last year and started the process, but subsequently ruled to grant them service reflective tariffs which it noted took off from September 2020.

NERC explained that the issues presented by the Discos in their request were, however, not fully considered by it considering that no additional capital expenditure was approved for them to meet their obligations in the service reflective tariff it approved for them.

“The MYTO 2020 Order explicitly provided that [the] Commission will consider the requested review of Capex in the December 2020 review.

“The Commission therefore intends to continue with the ongoing extra-ordinary tariff review for the Discos in addition to the mandatory periodic minor review,” it stated, while urging the public to send their thoughts about the review to it within 21 days.
Meanwhile, a document obtained from the NBET on the payments made to Gencos so far in 2020 has shown that for the seven months covered, Genco got paid far below their monthly invoices; sometime a mere 11 per cent of their invoices.

According to the NBET’s document, excluding May which figures were not provided for, Gencos were in January paid N15.6 billion from the N51.8 billion invoice they sent to the bulk trader. In February it was N13 billion against N51.4 billion, N5.8 billion against N52.8 billion sent in March, and N10.1 billion against the N70.02 billion in April.

The underpayment situation continued for the 25 Gencos in June with N13.3 billion paid against the N57.07 billion invoice they sent to the NBET and N12.2 billion paid from the N64.1 billion invoice in July.

Cumulatively, the Gencos presented a N347.19 billion worth of invoices to the NBET for the period, from which they were paid N70 billion, leaving an uncleared balance of N277.19 billion. Additionally, the highest percentage of payment made to the Gencos within the period was 30 and the lowest 11.05 achieved in January and March respectively.