- NERC’s directive is part of the Federal Government’s policy to gradually transition to cost-reflective tariffs while providing safeguards for vulnerable consumers
The Federal Government has pledged to cover the revenue shortfall faced by the Kano Electricity Distribution Company (KEDCO) due to the difference between cost-reflective tariffs and the actual tariffs paid by its customers.
This commitment was outlined in a September 2024 Supplementary Order issued by the Nigerian Electricity Regulatory Commission (NERC) under the Multi-Year Tariff Order framework, released on Thursday.
The supplementary order, which took effect on September 1, 2024, aims to address financial imbalances caused by factors such as inflation and exchange rate fluctuations.
NERC’s directive is part of the Federal Government’s policy to gradually transition to cost-reflective tariffs while providing safeguards for vulnerable consumers.
The order stated, “The Federal Government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs approved by the commission and the actual end-user tariffs during the transition to cost-effective tariffs where applicable.”
NERC reviewed several economic indicators, including the exchange rate, inflation, and US inflation rates, to adjust KEDCO’s revenue requirements and tariffs for the rest of 2024. For instance, the Naira to US Dollar exchange rate was set at N1,601.50/US$1, while the Nigerian inflation rate of 33.40% as of July 2024 was applied for projections.
The Federal Government’s intervention will ensure KEDCO can meet its financial obligations despite cost pressures, with funding for tariff shortfalls being applied by the Nigerian Bulk Electricity Trading Company (NBET) to guarantee the full settlement of invoices from power-generating companies (GenCos).
NERC also laid out service expectations for KEDCO, particularly under the Service-Based Tariff framework. The commission made it clear that KEDCO would be held accountable for delivering electricity in accordance with its service commitments, which promise specific minimum hours of supply for customers in various tariff bands.
In addition, the order mandated that KEDCO upgrade its infrastructure and acquire at least 27MW of embedded generation capacity, with 50% of this coming from renewable energy sources.
The Federal Government’s financial support during this transition period is intended to stabilise the electricity market, protecting consumers from the full impact of cost-reflective tariffs while ensuring KEDCO meets its obligations to the power sector. NERC has pledged to monitor KEDCO’s compliance with these service and infrastructure commitments.