As electricity customers, how enlightened are you regarding the process in which electricity tariffs are calculated? The 58th power dialogue session sought to enlighten electricity customers on the current tariff plan, the service-based tariff.
The Federal government set up service-based tariff (SBT) to ensure financial viability for the sector, and power supply to customers is improved. SBT is calculated based on three parameters, namely:
- Availability: this parameter is determined by the hour of electricity supply by distribution companies (DisCos). Essentially, tariffs would be determined by the duration of supply provided by DisCos to end users of the different customer bands.
- Reliability: tariffs are also determined based on reliability. Reliability is defined by the frequency and duration of interactions in the system. This factor is reliant on how well DisCos meet the expectation of regulators and the government.
- Lastly, tariffs are determined by the quality of service measured by the voltage and operation frequency of the network.
Present at the dialogue was Mr Abba Ibrahim Terab, a representative from NERC. He explained that the objective of the power sector recovery program is to ensure progressive growth of the sector. To this effect, DisCos were required to submit their performance improvement plans (PIP). PIP is an output-based approach in which DisCos will be examined in terms of improvement in service levels primarily by energy pull-through and the quality of service in terms of power supply availability and duration of interruptions.
After the initial submissions of PIP were made by DisCos, feedback was given to NERC by the market participants, who assured the DisCos that stakeholders and customers would pay the appropriate tariff for the right service.
Olajumoke Delamo, a representative of AEDC, also explained that SBT alone could not determine tariff charge. The minor review order issued every six months also affects the tariff charge. Minor review order considers several factors such as inflation, changes in gas prices, foreign exchange, and generation capacity.
Changes scaled at minus or plus five per cent (-/+ 5%) require NERC to adjust the tariff following the six-month time frame. She also added that invariably, once the changes such as reduced technical and collection losses of the system are achieved, tariffs should reduce.
In conclusion, there is quite a bit of progressive growth in the power sector. As electricity customers, we are expected to stay informed and updated with recent development in the power sector.