State governments have received a stern caution from the Nigerian Electricity Regulatory Commission (NERC), stressing that they lack the legal authority to autonomously cut electricity prices on power obtained from the national grid.
This caution follows the Enugu State Electricity Regulatory Commission (EERC) lowering rates for premium Band A consumers from N209 per kilowatthour to N160 per kilowatthour, noting affordability problems.
Expressing worry that such moves—if left unchecked—might destabilize Nigeria’s already weak electricity market, NERC made its position clear in a recent public notice. Unless state legislators are ready to subsidize the difference with state finance, the Commission says that they must not set tariffs below the real cost of power generation and transmission.
How electricity is priced across the national grid is at the center of the problem. National tariff rules sanctioned by NERC direct Generation Companies (GenCos) and Transmission Companies (TCN), whose operations are organized around the grid. Changing these prices at the state level without considering underlying expenses threatens to compromise the financial viability of the whole energy industry.
NERC specifically cited the EERC’s decision to reduce the mean generation cost from N112.60 per kWh to just N45.75 per kWh, hence generating a funding deficit of more than N66 per unit. N ERC says the belief the Federal Government will fill this void with subsidies has no legal or financial support.
The regulatory body demands that state commissions include the real wholesale price of electricity into their rate designs. Any variation without a defined subsidy mechanism can greatly damage the power market and compromise the sustainability of the national grid.
Responding, the Nigerian Forum of Commissioners of Power and Energy (FOCPEN) backed Enugu’s action, arguing that every state has particular market circumstances and should be able to adjust accordingly. They stressed that the choice made by Enugu was not intended to be a one-size-fits-all standard for other states. Additionally assuring investors was FOCPEN that subnational authorities are not out to arbitrarily lower tariffs or depend on unachievable government subsidies.
GenCos, however, have voiced sharp criticism of the move. Led by CEO Joy Ogaji, the Association of Power Generation Companies contended that the lower tariffs are based on improbable expectations. Slashing rates without corresponding subsidies, they caution, might start a ripple effect throughout states that may cause financial stress throughout the whole power value chain.
N ERC is aggressively interacting with EERC to clear the misconception as conversations proceed. The Commission reaffirmed its responsibility to maintain the economic viability of the power market and guarantee full cost recovery in accordance with national laws. At present, NERC asks all parties to abide by the legal system governing Nigeria’s power industry and refrain from unilateral actions that could upset the equilibrium.
