Market constraints, estimated billing, debts top DisCos’ concerns about new electricity tariff


Implementing a cap on estimated billing when about 60 percent of customers have no meters and ordering a tariff increase when their books are filled with debts are some of the major concerns underlying DisCos request to postpone the tariffs to next year.

In a letter to the Nigerian Electricity Regulatory Commission (NERC) in late june, DisCos urged the Commission to postpone the planned implementation of service-reflective tariffs to January 2021 when they believe the effects of COVID-19 would have abated.

The DisCos said the objectives of the Cap on Estimated Billing Order, to provide accountability and balance between consumption and billing, have not been realised but now serve as discouragement for settling bills.

“DisCos collect over 75 percent of bills issued to metered customers and 25 percent from unmetered customers. This is an indication that DisCos suffer more losses from estimated billing. Therefore, metering is the only means of revenue assurance. The financial impact of the Capping Order is an average loss of N13.9bn monthly, which will materially reduce the 25 percent collection efficiency for unmetered customers,” the DisCos said.

“The impact of the continued implementation of the Capping Order may constitute a bottleneck to the inflow of about N41 billion monthly of legitimate industry revenue, thereby compounding market liquidity challenges,” they said.

The DisCos also said that their financial books remain encumbered with N1.7 trillion of tariff shortfalls (subsidies to customers), as well as the liabilities associated with the Nigerian Electricity Market Stabilisation Facility (NEMSF) advanced in 2015 to liquidate legacy gas debts and tariff shortfalls resulting from adjusting Aggregate Technical, Commercial and Collection (ATC&C) baseline losses.

If left unaddressed, these financial encumbrances would continue to inhibit the DisCos’ ability to access the financing that is critical to supporting the remittance and the contract-based market, they said.

“We prayed the Commission for the implementation and completion of the balance sheet cleanup exercise prior to the increase of tariffs to enable positive signalling that attracts new investors and lenders to the DisCos,” the DisCos wrote.

Another significant concern for the DisCos is the Minimum Remittance Order which they said used unrealistic parameters. These include lack of market rates for foreign exchange and selection of 2017 and 2018 as years of Mutual Non-Compliance as against 2015 and 2016 as requested by DisCos.

“The projected energy and capacity delivered being used by NERC for the calculation is always ambitious and allocates upstream transmission, generation and gas risks to the DisCos, in view of the service-based structure of the new tariff,” the DisCos said.

“The losses used in the computation following the removal of the MDA debt loss component is contrary to the ATC&C loss regime envisaged by the Performance Agreement (PA). The basis of the investors bid and ultimately the loss levels considered in the PA are inclusive of all Technical, Commercial and Collection Losses,” they said.

The DisCos also decried the use of an untested service-reflective tariff, a system that didn’t include them in the planning.

“The Commission should engage with the DisCos to analyse and recompute the Minimum Remittance levels to be reflected in the Service Reflective Tariff Order, taking into account comments and objections raised by the DisCos,” they said.

DisCos further said that the Commission should engage with them to analyse and recompute the historical shortfalls that are to be carried on the books of DisCos, given the disparity in the ATC&C losses used.

“The Commission should engage with all industry participants and the Federal Government for the agreement of the allocation of sectoral risks to the rightful parties,” they said.

To improve collections, DisCos called on NERC to engage them, CBN and other agencies of FGN on the need for an Emergency Meter Rollout Scheme to move the metering level in NESI to above 90 percent within 18 months.

“A balance should be in place to penalise a DisCo for not supplying a meter within a reasonable period after a customer has applied and paid for a meter,” they said.

Another important issue for the DisCos is how to structure intervention funding from the Federal Government which has risen to over N1.7 trillion.

“All new Federal Government interventions in the sector should be structured in a manner that ensures that no further liabilities accrue on the DisCos’ books. We believe all disbursement should be passed through DisCos books by market liabilities.

“Going forward, NBET should be mandated to ensure that its invoices reflect the bifurcation between remittance obligations due to DisCos and FGN distinctly. This measure will clearly dissociate market liabilities covered by the intervention, and ensure these liabilities are not negatively reported on DisCos balance sheet,” the DisCos said.

They called for fixed charges to be re-introduced if the economic merit order system set up by the Commission is to be successful. They also asked for DisCos not to be made to pay for capacity charge that they are not allowed to pass through in the retail tariffs.

“No new generation capacity should be procured without the DisCos being privy to the discussions, negotiations and agreement of the commercial terms in the NBET Power Purchase Agreements (PPAs). There is need to align wholesale prices in active PPAs with those in MYTO model,” they said.

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