States slashing power tariff must pay subsidy – NERC

The Nigerian Electricity Regulatory Commission has said that state governments do not have jurisdiction over the national grid and over electric power stations established under federal laws or operating under licenses it issued.

The commission stated this in its reaction to the controversies generated by the Enugu Electricity Regulatory Commission’s decision to slash the Band A tariff.

In a notice on Thursday, the national power regulator advised state governments to reflect the wholesale costs in tariffs or be ready to pay subsidies for any tariff shortfall.

The commission acknowledged that states that have assumed full regulatory oversight over their intrastate markets are now authorized to create and regulate transactions in their state electricity markets, saying this extends to the development of tariff methodologies that shall apply to end-use customers in their respective states.

This came as the power distribution and generation companies warned that states’ absolute power to determine tariffs begins when they start generating and transmitting electricity.

NERC said no institution would take decisions that expose the national grid and wholesale electricity market to a financial crisis in contravention of express powers granted to them by the constitution.

It informed all stakeholders that the commission is currently engaging EERC on their tariff order as it relates to any perceived area of misinterpretation/misunderstanding on wholesale generation and transmission costs on their import of power from the national grid and grants further assurances of its unwavering statutory commitment that the electricity market will be made whole in terms of cost recovery in compliance with the laws of the Federal Republic of Nigeria.

Meanwhile, the Association of Nigerian Electricity Distributors and the Association of Power Generation Companies said the Enugu Electricity Distribution Company and other states contemplating tariff reductions should wait till they start generating and transmitting their electricity before slashing tariffs.

The Chief Executive Officer of ANED, Sunday Oduntan, told Band A customers in Enugu State not to rejoice yet, saying there can’t be a 20-hour power supply at N160 per kilowatt-hour.

The decision has since sparked crises as generation and distribution companies accused the EERC of attempts to create more financial burden in the power sector, saying no state should impose more subsidy obligations on the Federal Government that is still owing N5.2tn of unpaid shortfalls.

While the ERRC said it did its calculations well before dropping the tariff to N160/kWh, Oduntan warned that no state has the power to determine the cost of electricity at the moment, stressing that the states can only align with the tariff order of the Nigerian Electricity Regulatory Commission, except if the value chain totally belongs to them.

Earlier in a statement, Oduntan raised the alarm over growing consumer resistance to electricity bill payments following the tariff cut by the Enugu State Electricity Regulatory Commission, warning that the move threatens to destabilize the country’s fragile power sector.

He disclosed that since EERC announced a reduction in Band A tariffs, customers in other states have begun to demand similar cuts, with some outrightly refusing to pay their electricity bills.

The Chief Executive Officer of the Association of Power Generation Companies, Joy Ogaji, also shared the same sentiment. According to her, states cannot unilaterally fix tariffs because they do not produce electricity.

Ogaji added that the EERC made reference to NERC’s tariff regulations, which assume a subsidy that she deemed imaginary because there is no written policy from the Federal Government stating that there is a subsidy, nor is there a financing plan to backstop the ever-growing and accumulating debts, which have impaired GenCos’ books.

Meanwhile, the EERC clarified that its recent tariff cut did not tamper with the prevailing cost of power generation in the country in any way. The commission maintained that, based on MainPower’s costs, there was no justification to keep the price of electricity for Band A at N209/kWh in the state.

In a statement by EERC’s Commissioner for Electricity Market Operations, Reuben Okoye, the agency maintained that although it inherited the current tariff regime, “the commission is focused on developing a sub-national electricity market that is transparent, accountable, reliable and sustainable and therefore will review utility costs of service to achieve its mandate to the people of Enugu.”