THE Tariff Band Methodology deployed by Nigeria’s electricity distribution companies (DisCOs) to promise regular power supply is misleading and unrealistic, and the DISCOs have used it to rip off customers without supplying commensurate power to them.
Going by the band methodology in the Multi-Year Tariff Order (MYTO) 2020, the current pricing arrangement which was approved for the DisCOs by the National Electricity Regulatory Commission (NERC), consumers are expected to pay cost-reflective tariffs which are determined by the level of electricity supply they receive from the distribution companies.
Before the introduction of the band methodology, there had been five tariff classes for electricity consumers in Nigeria, namely:
• Residential (R1, R2, R3, R4)
• Commercial (C1, C2, C3)
• Industrial (D1, D2, D3)
• Special (A1, A2, A3)
. Public Street Lighting (S).
However, with the introduction of the band methodology following the issuance of Service Reflective Tariffs (SRT) in 2020, DisCOs classified electricity consumers in bands A, B, C, D and E, according to the levels of power supply to be received by consumers.
Consumers on Band A were promised a minimum of 20 hours of power supply per day.
Those on Band B were guaranteed to receive at least 16 hours of electricity supply each day.
Band C consumers were assured of a minimum of 12 hours of electricity supply per day.
Consumers on bands D and E – the lowest classes on the electricity supply chain – were promised eight and four hours of power each respectively per day.
Going by the band methodology, consumers on higher bands pay higher tariffs for kilowatts or units of energy than those on lower bands.
In the same vein, Band B consumers will also pay higher for electricity than those on lower bands. The higher the band, the more the consumer pays for electricity and this ‘cost-reflective’ payment arrangement is based on the promise that consumers are paying for services they received.
However, investigations conducted by The ICIR, as part of the Regulators Monitoring Programme (REMOP) of the Wole Soyinka Centre for Investigative Journalism (WSCIJ), has shown that consumers are being shortchanged and ripped-off because the DisCOs are not meeting up with the promised hours of electricity supply upon which the band methodology was based.
As a result of the development, consumers, particularly those in the higher bands, are paying higher tariffs for electricity which they are not receiving.
For instance, a customer on Band A in Abuja under the Abuja Electricity Distribution Company (AEDC) is promised 20 hours of power supply, according to the MYTO 2020 tariff that is currently being operated in the Nigerian power sector.
But records of daily power generation and consumption show that for five months or more, the DisCOs in, many instances, have not met the Band A promise of 20 hours daily power supply. Yet the customers continue to pay high costs for this band, without any clear mechanism to be either stepped down to a lower tariff band, or refunded the over-payment.
Records from the Distribution Load Profile dashboard published by the Independent System Operator (ISO), a section of the Transmission Company of Nigeria (TCN) that manages the national grid, shows that AEDC is not meeting its designated allocation on which basis the Service Reflective Tariff tagged MYTO was computed.
*Inadequate level of power generation contributes to DisCOS’ inability to meet obligations to consumers
Power generation in Nigeria is far below what it ought to be. As far back as 2016, Sunday Oduntan, Director of Research and Advocacy for the Association of Nigerian Electricity Distributors (ANED), the umbrella body of the country’s electricity distribution companies stated: “With a country that has a population of over 160 million, and going by the rule of thumb for electricity provision all over the world, we need to generate 1,000 megawatts (mw) per one million citizens. This means Nigeria needs about 160,000mw to have 24 hours uninterrupted power supply across every nook and cranny of the country.”
According to the tariff arrangement computed from September to December 2020, AEDC should get 11.5 per cent of the daily average generation of 4,650mw. The tariff arrangement also projected that average daily generation should have improved to 4,970mw by June 2021. The AEDC is also supposed to get 11.5 per cent of the projected 4,970mw.
But grid operation records obtained from daily monitoring of the System Operator’s distribution load profile dashboard shows that daily generation has not improved to 4,970mw – the projection upon which the Service Reflective Tariff was computed. Instead, average power generation profile has been hovering around 4000mw most days, a development which means that AEDC’s allocation has fallen short of the load supply computation required to meet the level of power supply promised consumers in line with the MYTO.
This volume reaches 450mw or even 500mw and at times, drops to 375mw.
Grid power operation records from the ISO, monitored over a period of one month, showed that average power generation had been lower than 4,000mw most of the day, about 600mw drop from the computed power generation factor and therefore insufficient for the DisCOs to meet promised obligations to consumers in line with the tariff band methodology.
Interactions with consumers in various areas under the AEDC – in parts of the FCT, Kogi, Niger and Nasarawa states – have shown that the distribution company is not meeting up with the level of power supply it promised with the band methodology.
According to AEDC’s Service Level Commitments, Band A consumers in areas such as Gwarimpa, Wuse, Wuse 2, Maitama, Garki, Asokoro and others are to get a minimum of 20 to 23 hours of power supply daily, with zero to three average frequency of interruptions per day, and one-to-four-minute average duration of interruptions per day.
However, several consumers have said that they do not receive the promised level of power supply.
A resident of Gwarimpa Estate in Abuja Stella Ukonu disclosed that she was not getting up to 12 hours of power supply in her household at First Avenue each day, despite the fact that the area was placed on a Band A tariff by the distribution company.
“We don’t have light most of the time here, despite that we spend quite a lot on alternative power sources. We only get few units when you purchase power [from DisCOs],” Ukonu said.
Initially, like many consumers, Ukonu did not know her tariff band. In fact, she was not even aware of the tariff band methodology being used in determining electricity tariff. After the methodology was explained to her, the woman felt cheated.
“That means I am paying for electricity that I never used,” she said, while asking if there were ways she could get redress.
Ukonu’s experience is not different from what other consumers are going through.
A facility manager at Wuse Shopping Plaza, in the Wuse area of Abuja, who identified himself as Sunday, disclosed that power generating sets were used most of the time to power the various businesses operating in the building.
“There’s no way we are getting up to 20 hours of power supply each day here,” Sunday said, when it was pointed out to him that Wuse falls under Band A, which should guarantee a minimum of 20 hours of power supply daily, according to the tariff band methodology.
Proprietor of Ifeanyi Chukwu Restaurant at Banex Plaza in the Wuse 2 area of Abuja, who gave his name as Ifeanyi, disclosed that poor power supply was affecting his business. The restaurant has an outdoor sit-out where customers who do not want to stay inside can relax and have their meals or drinks. But the sit-out is positioned just metres away from a spot where different shops keep their power generating sets. When there is no electricity supply from the AEDC, as is the case most of the time, all the generators are turned on at once and the combined deafening sound and air pollution drive customers away.
The plaza is usually open from 6:00 am to 8:00 pm but Ifeanyi observed that there was no power supply ‘more than half of the time.’
Residents of Maitama, one of the high brow districts in Abuja, the FCT, are largely on Band A and as such should expect at least 20 hours of electricity supply each day. But a resident of Osun Crescent, off Ibrahim Babangida Way, Francis Okhirai revealed that he was not getting up to 20 hours each day.
“For AEDC to claim that we are guaranteed a minimum of 20 hours of electricity each day is a fallacy. It is a pipe dream, which I don’t even know if it is realistic. But the truth is we don’t get up to 20 hours of electricity every day,” Okhirai said.
Okhirai disclosed that his power generator would always supplement the epileptic electricity supplied by the Abuja distribution company.
The popular UTC shopping complex at Area 10 in Garki, Abuja, is the hub of printing business in the FCT. Garki, one of the districts in Abuja metropolis, is a Band A tariff zone. But on most days, customers who come to patronise the printers at UTC, are forced to cope with deafening sounds of power generating sets that power the printing operations in the complex in the absence of regular electricity supply from the national grid.
A printer at UTC Emeka Enyidede said poor power supply was a major challenge for business, particularly on Mondays and weekends.
Enyidede observed that printers and other business owners in UTC would not do without power generating sets.
He jokingly noted that, for the printers at UTC, electricity supply from the AEDC was a ‘stand-by’ option. In the absence of regular power supply from the national grid, several business owners at the plaza have installed solar systems and inverters.
It is the same experience for many other businessmen and residents in ‘Band A’ areas under the AEDC, who are promised a minimum of 20 hours of electricity each day under the tariff band methodology.
For consumers on lower bands, especially those in satellite areas in the FCT, as well as those in parts of Suleja in Niger State, Keffi in Nasarawa State and Lokoja in Kogi State, which are all under the jurisdiction of the AEDC, power supply is nothing to write home about.
Investigations show that most residents in these areas are not aware of their tariff bands, but that is not surprising as power supply in their locations is quite negligible.
“We hardly get electricity in this area and when light comes, the voltage is usually low,” a provisions store owner at Keffi Mathias Akase disclosed.
Akase said he was not getting up to five hours of electricity each day. Akase further said he did not know which tariff band he was placed on. He had no electricity meter and paid for power consumption through estimated billing.
Akase said the bills brought by the AEDC had been increasing steadily without commensurate increase in power supply.
A businessman, who operates a boutique in the Felele area of Lokoja, Gabriel John said poor power supply was a major challenge for businesses in the Kogi State capital.
“We hardly have light here,” he said, as he fanned himself with an old newspaper inside the shop. The sun was blazing and the temperature was high but John did not put on the power generator, which was positioned at the back of the shop.
“I only put on the generator when a serious customer comes in, or later in the evening when it is getting dark,” he explained.
It was the same story at Suleja, where a receptionist at Kelvin Hotel explained that guests were used to staying without light during the day until the generator was put on at night.
“If you are lucky they (AEDC) will bring light during the day while you are here, otherwise I’m afraid you will stay without light until the hotel generator is put on later in the evening or night,” the receptionist said in response to enquiries.
* Why service reflective tariff was introduced
One of the primary functions of the NERC, as contained in Section 32 (d) of the Electric Power Sector Reform (EPSR) Act, 2005, is to ensure that the prices charged by licensees are fair to customers and sufficient to allow the licensees to finance their activities and to allow for reasonable earnings for efficient operation.
In pursuant to the authority given under Section 76 of the EPSR Act 2005, the NERC established a methodology for regulating electricity prices called the Multi-Year Tariff Order (MYTO). The MYTO provides a 15-year tariff path for the Nigerian electricity industry with limited minor reviews each year in the light of changes in a limited number of parameters such as inflation and gas prices, and major reviews every five years, when all of the inputs are reviewed with stakeholders.
The MYTO 1, introduced in 2008, was applied from 2008 to 2012.
Subsequently, following a major review of the methodology in June 2012, MTYO 2.0 was issued and it was to remain effective from 2012 to 2017.
Following a minor review in December 2015, NERC issued a new MYTO called the MYTO 2.1 that was to take effect from January 2015 to 2018. In 2015, NERC revised and amended the MYTO 2.1 by removing the collection loss component of the electricity, resulting in the amended version of MYTO 2.1.
However, following misgivings over the development, NERC reinstated the collection loss component by introducing the MYTO 2015, which was meant to cover the period from 2015-2024.
The MYTO spells out the methodology for determining and reviewing tariffs based on assumptions on certain variables outside the control of the DisCOs, including inflation rates in Nigeria and the United States of America, the naira-to-US-dollar exchange rate, gas prices and available generation capacity.
To facilitate the transition to and maintenance of cost-reflective tariffs, the MYTO was meant to undergo biannual (January-June; July-December) minor reviews and major reviews every five years and where necessary, tariffs were to be adjusted to reflect changes in the underlining assumptions.
But the first minor review of the 2015 MYTO was only carried out in 2019, four years after its issuance. Within the period where no review took place, there were significant changes to the macroeconomic variables upon which the existing tariffs were calculated and despite the DisCOS’ demands for tariff increment, the NERC failed to increase tariffs appropriately.
Hitherto, electricity consumers in Nigeria were classified into Residential (R1, R2, R3, R4); Commercial (C1, C2, C3); Industrial (D1, D2, D3); Special (A1, A2, A3) and Public Street Lighting (S).
Customers in D3, mostly facilities used for manufacturing purposes, had the highest tariff rates, while the customers in R1- residential facilities using household utilities with an energy demand of less than five Kilovolts-ampere (kVA)- had the lowest. Before September 1, 2020, these customer classes had varied due to the infrastructural and operational costs associated with the supply and distribution of power to the varied customers.
Subsequently the NERC, on March 31, 2020, issued a new order known as Service Reflective Tariffs (SRT) by which future tariffs for electricity consumers would be determined.
The introduction of the SRT was premised on public hearings conducted by the NERC to assess applications filed by the DisCOs for a review of their respective end-user tariffs.
From the public hearings, NERC determined that electricity consumers were only willing to pay tariffs commensurate with the quality of services provided by the DisCOs and their willingness to pay cost-reflective tariffs was conditioned upon receiving guaranteed hours of supply of good quality electricity and adequate metering.
In summary, going by presentations at the public hearings and consultations, customers would rather see a tangible improvement in quality and quantity of electricity supply before agreeing to pay increased tariffs.
The order also stipulates parameters for measuring the distribution companies’ services such as: hours of supply of electricity; reliability of supply which would be determined by the frequency and duration of interruptions; and quality to be determined by voltage and operating frequency prescribed in governing industry codes.
Future tariff reviews would be based on consultations between DisCOs and customer clusters, with DisCOs required to provide firm commitments on the quality of service. There are also provisions for compensation mechanisms to be instituted to compensate customers for DisCOS failure to meet performance targets.
* Discos getting away with failure to meet performance targets, electricity consumers not getting redress
Investigations carried out in this report show that consumers are not getting any redress for being shortchanged as a result of the distribution companies’ failure to meet up with the volume of power supply they promised to deliver in the tariff band methodology.
As a result, the DisCOs are getting away with ripping-off consumers, who are being made to part with hard-earned money for services they are not receiving.
Consumers who spoke during the investigations said they were not aware of any action taken by the NERC to remedy the situation.
Efforts to speak with relevant officials of NERC, including Commissioner for Market Competition and Rates and Commissioner for Consumer Affairs, were not successful during repeated visits to the commission’s headquarters in Abuja.
When contacted, an official listed as a NERC spokesman in the commission’s website Sam Ekeh said he was no longer in that position. But after listening to the questions posed to NERC following findings from the investigation, Ekeh referred The ICIR’s correspondent to the commission’s website, where he said the answers to the enquiries could be found.
But further checks on the website did not provide the answers alluded to by the NERC official.
* Band methodology is being perfected… AEDC spokesman
Responding to the issues, General Manager Corporate Communications of the AEDC Bode Fadipe said the tariff band methodology was being perfected, a statement which suggested that the regulatory authority and operators in the power sector knew that the arrangement was far from ideal.
But Fadipe in the same vein disputed findings showing that the methodology was misleading and unrealistic, and therefore being used to shortchange and rip off consumers.
“Nobody is being misled by the Service Based Tariff (SBT). Customers are fully conversant with the operations of the SBT. It is therefore wrong to say that the SBT is misleading. It is also not true that it is unrealistic. We are currently operating and perfecting the methodology by the day. Customers concerns are addressed as they come up. I therefore do not agree with you that it is unrealistic,” Fadipe said.
Although he insisted that the AEDC and other DisCOS were not failing to meet commitments to consumers, Fadipe noted that fluctuations in the grid affected power supply.
He said, “The fluctuations in the grid is an open secret. However, NERC has its rules on what to do about moving a customer from one band to another. The power sector is regulated but now and again, the DisCOs are made to look like to they do things unilaterally.”
Fadipe did not respond when asked whether AEDC had moved any consumer to another tariff band on the NERC’s directive.
He also failed to respond when asked to explain what he meant when he said the DisCOs were made to look like they did things unilaterally despite the regulation of the power sector by the NERC.
This report was facilitated by the Wole Soyinka Centre for Investigative Journalism (WSCIJ) under its Regulators Monitoring Programme.