In our day to day activities, we often tend to wonder what our electricity distributors mean when they refer to customer class. Out of the box, it is assumed they are referring to where you reside or your pocket value. That is not the answer in any way.
The Electric Power Sector Reform Act requires that electricity tariffs be regulated, solely to establish fairness and compensation for all players in the sector, including the electricity customer (learn more).
The Multi-Year Tariff Order (MYTO) delivers a strong tariff structure, and it classifies the electricity consumers as follows:
- Residential: A consumer who uses his premises wholly as a residence, be it a bungalow, flat, or a multi-storied house.
- Commercial: A consumer who uses his premises for any purpose other than exclusively as a residence or as a factory for manufacturing goods.
- Industrial: A consumer who uses his premises for manufacturing goods including welding and ironmongery.
- Special: These are consumers such as agriculture and agro-allied industries, water boards, religious houses, government and teaching hospitals, government research institutes, and educational establishments.
- Street Lighting: These are raised sources of light on the edge of a road or path in urban and peri-urban areas.
These consumer classes are further sub-categorised based on the level of demand. Low demand consumers pay lower tariffs than high demand consumers. In Nigeria, commercial and industrial consumers pay the highest tariff because they demand a larger amount of electric power to produce goods and render services. Also, their engagement in industrial and commercial activities ensures that a considerable amount of income is earned from customers.
The reason behind the pricing is to establish fairness for both the distribution companies and the electricity consumers. Higher tariffs are usually approved by the regulator provided that prices are fair to consumers and sufficient to allow the distribution companies to finance their activities and earn revenue, as stipulated in the MYTO.