Amended Order on the Capping of Estimated Bills in the Nigerian Electricity Supply Industry – A Delicate Regulatory Balancing Act – Olalere Olaoye

Energy & Natural Resources

14th December 2020

Peter Olaoye Olalere, Esq

 

AMENDED ORDER ON THE CAPPING OF ESTIMATED BILLS IN THE NIGERIAN ELECTRICITY SUPPLY INDUSTRY – A DELICATE REGULATORY BALANCING ACT.[1]

  1. Introduction

Effective from 20th February 2020, the Nigerian Electricity Regulatory Authority (“NERC”) issued Order No/NERC/197/2020 effectively capping the amount that certain categories of unmetered electricity consumers in Nigeria should pay for their monthly electricity consumption. This was done at the time as a further measure to push the Electricity Distribution Companies (“Discos”) to fulfil their obligations to meter their customers rather than to punish the Discos. In an earlier commentary[2] on that Order, the author had hailed the NERC for coming to the aid of the long-cheated consumers of electricity in Nigeria. Very clearly, at least up to that time, the unmetered electricity consumers in Nigeria were indeed at the mercy of the Discos. As argued then, the method hitherto adopted to estimate the electricity consumption of the customers and the attendant estimated bills had no scientific basis at all.

  1. Events Leading to the Amended Order on the Capping of Estimated Bills for the Discos.

The Order on capping of estimated bills itself was meant to last a temporary period spanning 20th February to 30th April 2020 when the affected categories of customers were expected to have been provided with electricity meters. To reiterate, the focus of NERC was to ensure that majority of the electricity consumers in Nigeria were metered. Subsequent to that order, the long-awaited but continuously postponed Multiyear Tariff Order (MYTO) review was scheduled to take effect around April or May 2020. However, the MYTO review had to be further postponed as the end of April 2020 fell within the period when the COVID-19 pandemic impacted everyone negatively in the country. The Federal Government and the National Assembly then caused the MYTO upward review of the electricity tariff to be postponed again.

The increase in tariff, finally took effect on 1st September 2020 when MYTO 2020 (in the case of EKEDC Disco by Order/NERC/200/2020) was introduced. The MYTO is projected for the period of September 2020 through June 2025.[3] This increase in tariff did not immediately impact the unmetered customers whose electricity usages had been limited by the Order on capping of electricity estimated bills as it did other categories of electricity customers like the customers already provided with electricity meters.

Thus, for the months of February through October 2020, given that the amendment order on estimated bills took effect on 1st November 2020,[4] the average kilowatt hour per month consumption of electricity of unmetered customers of EKEDC, for instance, which was capped at 78KWhr x NGN24/KWhr for unmetered R1 customers under Ijora Business Unit of EKEDC and 50KWhr x NGN200/KWhr for unmetered R2 and C1 customers meant that the unmetered customers were getting a good deal at the expense of the Discos. When that is placed side by side, the average electricity consumption vis-à-vis the increased tariff for a metered customer within the same area where there has been relative increase in supply, one can make an anecdotal submission that the unmetered customers whose estimated bill had been capped would not pay up to one third of what the metered customer would be paying for the same level of electricity supply.

Other factors that had significantly impacted the full revenue recovery of the Discos include inflation, scarce forex, infrastructure collapse, national grid collapse etc., and if revenue recovery is not assured in the NESI, it is only a question of time before something will give. It is thus, in line with the expectations and understandable that the different Discos made appropriate representation to the NERC to review the cap placed on the bills of the unmetered customers.

  1. Salient Provisions of the Amended Order on the Capping of Estimated Bills (EKEDC Example – Order No/NERC/212/2020)

Pursuant to the representations made to the NERC individually by the Discos as per their different realities in terms of revenue recovery particularly with respect to the unmetered customers whose bills had been capped, NERC then subsequently reviewed their respective situations and issued the Amended Orders to suit their respective realities. The Amended Order on Capping of Estimated Bills were issued to Yola Disco, Port Harcourt Disco, Kano Disco, Kaduna Disco, Ikeja, Disco, Ibadan Disco, and Eko Electricity Distribution Company (EKEDC). For the purpose of this commentary, we examine the relevant provisions of the Amended Order on the Capping of Estimated Bills for EKEDC as example of similar issues affecting other Discos as dealt with by their own separate amended orders on the capping of estimated bills.

Essentially, the focus of the new amendment order is to bring the unmetered customers at par with other customers that are metered whose tariff had been significantly increased via the MYTO review and to also move the Discos further towards full revenue recovery. The content of the representation made to NERC by EKEDC as stated in section 18 of the Order relate to:

a. the effect of energy cap on methodology on actual consumption of electricity end-use customers;

b. the consequential impact of covid-19 pandemic on meter deployment by MAPs; and

c. the non-commensurate payment for electricity consumed by end-use customers.

On the basis of those submissions, EKEDC also recommended the methodology in section 19 of the new Amendment Order thus:

a. adoption of weighted averages of metered prepaid and postpaid end-use customers on the basis of actual consumption data of these customers from feeders and distribution transformers;

b. adoption of incremental factor on energy caps of unmetered end-use customers on the basis of actual consumption data from feeders and distribution transformers from business units in the EKEDC’s network; and

c. adoption of consumption data of metered end-use customers whose meters had been verified in the business units in the EKEDC’s network.

By section 21 of the Amended Order, NERC states that it adopted the EKEDC’s recommendation in section 19 (a) as the basis of its review of the energy caps of the unmetered customers in the NESI. Basically, therefore by section 21 (A), the energy caps of unmetered end-use Non-Maximum demand (“Non-MD”) customers of EKEDC shall be computed on the adoption of weighted averages of prepaid and postpaid metered end-use customers on the basis of actual consumption data of these customers from feeders and distribution transformers.  It is worthy of mention too that section 21 (F) provides that any customer that rejects the installation of prepaid meters on their premises by EKEDC shall not be entitled to supply and MUST BE DISCONNECTED by EKEDC. Such person shall only be reconnected to the network after the meter has been installed. In section 21 (I), NERC states that it shall periodically review the meter deployment target achieved by EKEDC and shall on a quarterly basis review the base data on vending records and supply availability for the purpose of reviewing the energy caps prescribed in the Amended Order.

  1. Commentary/Conclusion

It is noted, as aptly captured by sections 8 and 9 of the Amended Order, there has not been significant improvement in the metering of the customers and the end-user apathy towards paying for electricity not consumed has not reduced, thus negatively impacting the Discos’ capacity to recover market revenues. It is also noted that the essence of the Amendment Order may seem to be a kind of reward for the Discos who have been unable (or unwilling) to meter their customers. Utilising weighted averages of prepaid and postpaid metered end-use customers on the basis of actual consumption data of these customers from feeders and distribution transformers to estimate the bills another customer should pay, cannot be a scientific methodology for measuring usage and billing. Section 21 (F) of the Amended Order also overtly assumes that only customers are capable of rejecting the installation of meters on their premises without taking into consideration the possible or actual subtle discouragement by the Discos of the unmetered customers from actively requesting for and obtaining meters for their premises.

Nevertheless, the NERC has attempted to navigate the delicate and onerous task of balancing the interests of the investors and the customers particularly as it affects the tariff paid by the final unmetered end-use consumers of electricity with this amendment to the capping of estimated bills. Our hope is that the amendment will not give the Discos a ‘safe haven’ to stop or delay the metering of their customers. We also hope that the Discos will continue to educate the customers too that the best method of assessing electricity and collecting fair tariff in the Nigerian Electricity Supply Industry (“NESI”) is by prepaid electricity metering. No other method comes close in every respect. Besides, it cannot be over emphasized that metering is the only scientifically reliable method for the journey to full revenue recovery which is critical to the growth of the downstream sector of the NESI.

 

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For further information on this article and area of law,

please contact Peter Olaoye Olalere at: S. P. A. Ajibade & Co., Lagos

by telephone (+234 1 472 9890), fax (+234 1 4605092)

mobile (+234 815 979 4216)

email (oolalere@spaajibade.com or olaoye.olalere@nigerianbar.org)

www.spaajibade.com

[1]       Notary Public for Nigeria and Senior Associate with the Dispute Resolution Department of S. P. A. Ajibade & Co., Lagos Office, Nigeria.

[2]       Accessible at http://www.spaajibade.com/resources/recent-order-on-the-capping-of-estimated-bills-in-the-nigerian-electricity-supply-industry-a-timely-regulatory-scale-balancing-order-peter-olalere/.

[3]       See section 7 of the Order /NERC/200/2020 – Multi Year Tarrif Order (MYTO 2020) for EKEDC Electricity Distribution Plc.

[4]       See section 2 of the Order No/NERC/212/2020.

 

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