NERC’s new eligible customer regulation may hike retail tariffs

There are possibilities that retail tariffs may go up when the Nigerian Electricity Regulatory Commission (NERC’s) eligible customer regulation comes into force, says analysts at Detail Solicitors, Nigeria’s first commercial solicitor firm specialising exclusively in non-courtroom practice.

By the declaration, electricity customers who fall within any of four “eligibility” categories would now be permitted to buy power directly from generation licensees and trading licensees (also known as suppliers), thereby bypassing the Discos.

This according to them may lead to loss of revenue by the Discos who may push for higher tariffs to keep them in operation.

“There is a high likelihood of a hike in retail tariffs, as was the case in some other jurisdictions,” they noted, citing, for example, Spain where the introduction of eligible customers resulted in a 9 percent increase in end-user tariffs.

“In Nigeria, the tariff structure envisages different classes of customers, with revenue from high-paying customers helping to subsidize tariffs from low-paying customers. Where there is a reduction in the percentage of high-paying customers, the Discos may push for an increase in tariffs, a move that is already overdue,” they said.

They equally cited Section 28 of the EPSRA, which provides for Competition Transition Charge (CTC) to be determined by the Minister in consultation with the President as a case for such hike.

“The CTC is required where the impact of the eligible customer regime significantly affects the ability of a Disco (or a trading licensee) to satisfy its committed expenditures or earn permitted rates of return. It is expected that the CTC, when determined, would help to cushion the effect of the potential loss of customers by the Discos,” they noted.

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On the implementation of the eligible customer regulation, they noted that pursuant to the regulation, NERC was expected to release a set of compliance rules to govern the nature of third-party access to transmission and distribution networks and that it remains to be seen how this will fare with the Discos especially with respect to the determination of fees payable for access.

“Delays in the release of the rules may affect the implementation of the eligibility regime, as open access to networks will be crucial to efficient supply of electrical power to the eligible customers,” they pointed out.

Another issue raised is the creditworthiness of eligible customers, that while the regulation allows the eligible customers to contract directly with the Gencos, a possible issue that may arise is the ability of the eligible customers to commit to long-term PPAs (which is often required by Suppliers), and provide the requisite payment security to the suppliers.

The analysts also called for a simplified application procedure for the eligibility customers, noting that NERC should continue with the Mini-Grid Regulations released earlier this year, which provided for template contracts and a simplified application procedure.

“It is important for the Commission to continue this trend by providing standard documentation to ease the process and ensure the 30-day timeline for the Commission’s approval as provided in the Regulation is achieved.”

On the establishment and contributions to the Power Consumer Assistance Fund, which the Regulation makes provisions contributions for, they said the fund is yet to be established. They noted that the primary essence of the fund is to subsidise underprivileged power consumers, which according to them would be very crucial towards helping Discos manage the potential loss of revenue.

To tackle the challenge of electricity theft, they called for the speedy enactment of electricity theft legislation.

“As the power sector continues to strive towards attaining competitiveness, it is important that NERC and the Federal Government work together towards tackling the crippling effects of electricity theft in the power sector. It is recommended that the speedy enactment of an electricity theft legislation should be prioritized,” they stressed.