How Your Electricity Tariff Is Determined

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Consumers Reject Proposed Hike Of Electricity Tariff

Often times, a lot of questions are asked concerning the method in which electricity tariffs are being determined.

To better understand this concept we will be discussing the common terms associated with electricity tariff starting with the much maligned MYTO model.

As far as Nigeria’s electrcity tariffs go, all decisions are made in alignment with MYTO. However, sadly, most electricity consumers know very little about the MYTO scheme. Here we will discuss the motives as well as the challenges of the Multi-Year Tariff Order.

 

What is MYTO?
Multi-Year Tariff Order (MYTO) is a methodology used for determining tariffs across the electricity value chain. MYTO sets a 15-year tariff path with bi-annual minor reviews (taking cognizance macroeconomic indicators such as inflation rates, cost of gas and exchange rate) and a major review every five years.

 

When did MYTO take effect?

The first MYTO model was introduced in 2008. However, the model has been reviewed over time and several alterations have been made to the original model. Initially, the first MYTO (MYTO 1.0) and was in effect from 2008 to 2012.However, following a major review of the methodology in June 2012, the MYTO 2.0 Order was issued and was to be in effect from 2012 to 2017.

After a minor review in December 2014, NERC issued a new MYTO called the MYTO 2.1. This new order was to take effect from January 2015 to 2018. However, in April 2015, NERC, revised and amended the MYTO 2.1 by removing the collection loss component of the electricity tariffs. Following from NERC’s actions another review of the MYTO 2.1  (amended) was done. The review brought about the issuance of the MYTO 2015 that would take effect from 2015 to 2024.

The MYTO 2015 methodology provides for a 10-year tariff scheme that ensures all stakeholders make necessary investments and recover profit between 2016 – 2024.

Why is there a need for MYTO?

Prior to the 2008 Multi-Year Tariff Order (MYTO), a uniform pricing structure was used in which the electricity tariff remained fixed for years despite a continuous rise in the price of natural gas. Interestingly, over 80 per cent of Nigeria’s power is generated from gas. The Power Holding Company of Nigeria (PHCN) tariff was last set in February 2002 and averaged from N4.50/kwh to about N6/Kwh. Following that setting, the company still operated with monthly deficits of nearly N2 billion(figures in $). This lead to its inability to tackle the problems of inadequate and unreliable electricity service. In 2011, the government approved electricity prices of between N4/Kwh and N6/Kwh for single-phase consumers; between N6/Kwh and N8/Kwh for industrial users; and between N8/Kwh and N12/Kwh for the highest demand users, but the cost of electricity production was N10 per Kwh. This pricing regime discouraged the entry of profit-oriented private investors (the existing law or absence of enabling legislation was a greater deterrent to private investment than the tariffs). There is need for appropriate policy to institute transparency in tariff determination and provide stability and predictability in electricity pricing.

What is NERC’s Role in the MYTO scheme?

The Nigerian Electricity Regulatory Commission (NERC) has a mandate to ensure that electricity tariffs are fair and structured such that both the consumers and the industry players both come to a reasonable compromise as regards electricity pricing. Therefore it is NERC’s duty to regulate and monitor the effective execution of MYTO model.

What are the Challenges of the MYTO Model?

Very little consideration has been given to the issue of fuel availability, particularly natural gas, the considered fuel for the duration of MYTO-2 Paradoxically, gas, which as mentioned, provides 80% of the fuel for thermal generation is mostly concentrated in the Niger Delta region where the issue of insecurity, oil theft and pipeline vandalism is rampant. There is also a school of thought that argues that the tariff system does not consider the the financial status of an average Nigerian, as disposable income is at an all-time low.

 This means that the MYTO model might eventually render citizens incapable of adequately paying the electricity bills, hence being denied access to electricity. From the observation of the market operation, since the distribution companies would serve as the financial backbone of the industry, then the inadequate provision of pre-paid meters for the teeming consumers will affect the efficient realization of return on investment. This is because of the adverse effect of power theft and several illegal connections that cannot be accounted for by the MYTO regime. So also, lack of proper layout of the town planning of most of the cities in the country is also a very hard task for the effective implementation of the MYTO. This is because of several slums in several areas of the various cities in Nigeria. These are not well planned, so it is difficult to ascertain the estimate of the load demand of some of these communities.

Read: “Nigeria Power Sector Will Not Improve Till Tariff Increase

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About Tomide Adeyeye 418 Articles
Federal University Of Technology (FUTA) Alumnus. I am constantly overwhelmed by the power of the written word and how it can transcend genres, stereotypes, and even time itself. This fascination drives my passion for writing.

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