NERC Projects N244bn Revenue for TCN in 2020

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The Nigerian Electricity Regulatory Commission (NERC) yesterday announced a N244,844,000,000 revenue requirement in 2020 for the Transmission Company of Nigeria (TCN) Plc.
It also forecast a N109,389,000,000 allowed recovery for the period while it estimated a tariff shortfall of N135,455,000.
The commission, however, noted that in 2019, the revenue requirement was N209,740,000,000; allowed recovery was N107,551,000,000, while the tariff shortfall was N102,000,000.

The review indicated a 16.74 per cent increase in revenue requirement, 17.09 per cent increase in allowed revenue requirement, and 32 per cent tariff shortfall.
According to the NERC, the federal government will in the interim subsidise the excess of the cost-reflective tariff and the actual payment from the end-users.

It was contained in the order No. NERC/GL/195/2019, that was titled “Before the NERC in the matter of the 2019 minor review of Multi-Year Tariff Order 2015 and minimum remittance on Market Operator’s invoice for the year 2020 for the Transmission Company of Nigeria Plc.”
The NERC noted that: “The federal government’s updated Power Sector Recovery Programme (PSRP) does not envisage an immediate increase in end-user tariffs until April 1, 2020 and a transition to full cost reflectivity by the end of 2021.

“In the interim, the federal government has committed to fund the revenue gap arising from the difference between cost reflective tariffs determined by the commission and the actual end-user tariffs payable by customers in line with the following.”
“a. All DisCos are obligated to settle their market invoices in full as adjusted and netted off by applicable tariff shortfall.
“b. The commission shall hold the TCN financially responsible for deviations from the economic dispatch order that adversely impact on the base weighted average cost of wholesale of energy as invoiced by NBET.”

The order insisted that the order supersedes other orders issued on the subject matter and shall take effect from 1 January 2020 and shall cease to have effect on the issuance of a new Minor Review Order or an Extraordinary Tariff Review Order by the commission.
The NERC based its estimate in the review on the relevant minor review variables that were obtained from the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS), System Operator Division of TCN and NBET for the update of the MYTO – 2015 Financial Model:
It also predicated the inflation forecast on the actual average monthly inflation rate of 11.3% for the period January to October 2019 was used for this review in line with the MYTO.

It noted that the exchange rate was in line with the provisions of the Regulations on Rate Review for Nigerian Electricity Supply Industry (NESI), CBN official exchange rates were used in this review.
NERC said that “The MYTO – 2015 provides for a premium of 1% above the CBN rate as transaction cost and this was applied in the current review. The applicable NGN/USD exchange rate for 2020 is computed as NGN306.90 +1 % premium = NGN309.97.

“US rate of inflation: The data on the US rate of inflation was obtained from the website of the US Bureau of Labor Statistics (http://www.bls.gov) for the year under review.
“The actual average monthly inflation rate of 1.8 per cent for the period January to October 201 9 was applied for the review and the projection for 2020 was based on October 2019 inflation rate.

“Gas Price: The price of natural gas for the power sector has been regulated since the inception of MYTO in 2008. The Commission has maintained the gas price of $2.50/MMBTU and gas transportation cost of $0.80/MMBTU for this review. “However, some generation companies had contracted different gas prices outside the regulated rates as provided in their respective Gas Sale Agreements (IGSAs).

“Capital Expenditure Allowance for TCN: The commission has revised the capital expenditure (CAPEX) allowance for TCN to MYTO-2 level.
“The MYTO Methodology provides for the revision available generation capacity and associated CAPEX required to evacuate and distribute the revised available capacity during Minor Reviews.

“Whereas the CAPEX provided to TCN in MYTO-2015 Order was to support the evacuation of the average projected generation of 5,465MW in 2016 to 10,493MW in 2019, actual average generation remained between 3,500MW to 4,OOOMW during the same period.
“The commission shall make appropriate adjustments to the rate base of TCN on completion of valuation of the assets of the company taking into consideration actual addition to fixed assets by both TCN and the Niger Delta Power Holding Company Ltd.

“The projected generation cost for 2019 was N19/kWh. The actual weighted average cost of wholesale energy (and capacity) as invoiced by NBET was N23/kWh arising from a deviation from the simulated dispatched order in the 2019 Order.”
This Order, said the NERC, is issued to establish the minimum payment threshold of Market Operator’s (MO) invoice payable by the 11 electricity distribution companies (DisCos) for the year 2020 and prescribe compliance with economic dispatch order by the System Operator (50), within the technical limitations of the national grid with a view to achieving optimal weighted average cost of wholesale energy and grid stability.

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