TARIFF REGULATION IN THE NIGERIAN ELECTRICITY SUPPLY INDUSTRY. PRESENTATION AT THE NERC/NARUC WORKSHOP BY MARKET COMPETITION AND RATES DIVISION JULY, 2008. Competitive Electricity market and Tariff Regulation.
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PRESENTATION AT THE NERC/NARUC WORKSHOP
MARKET COMPETITION AND RATES DIVISION
To promote competition in the Nigerian Electricity Supply Industry (NESI), NERC was established in 2005 with the following objectives:
2. In the transition and medium term stages of the market, the Multi Year Tariff Order (MYTO) will derive a tariff for:
3. Generation price in the long term will be determined by market forces and also retail tariff.
1 The pricing of electricity in Nigeria was based on a set of pricing principles and cost assumptions and designed to provide tariffs for each of the generation, transmission, distribution (including retail) sectors.
2 The underlying pricing principles that guided the development of the tariff model were:
2. NERC had adopted three basic principles in the determination of an appropriate methodology. These principles require that a regulatory methodology:
There are three standard building blocks used in this approach:
Return on capital, payments to both debt and equity providers, estimated by WACC
Return of capital, depreciation allowance to pay for run down of capital and replacement
Operating costs, includes fuel, variable and fixed O & M, overheads, administration
The Electricity Supply Industry is being restructured into a number of companies, some of which may be privatised – each with different financing, rates of return & cost structures
Need a uniform regulatory framework that can apply to all fairly. It does not matter whether individual companies have different costs, capital structures, and use different accounting methods
Within the framework we can apply government policy, such as the development of a market, and provide incentives for new investment and efficiency improvements.
Inputs to the tariff; forecasts of load, capacity, fuel costs, investment,
levels of losses, customer numbers, O & M costs
Distribution & retail
life cycle cost
Final retail tariff
The price for generation as contained in vesting contracts will be based on the most economically efficient new entrant, determined as an open cycle gas turbine (OCGT)
All generators (existing and new), regardless of their age or conversion technology, will be paid this vesting contract price.
Those generating under PPAs will continue to operate and be paid according to their PPAs
Vesting contracts will be securitized under the market securitization process and should take on the form of astandard bilateral contract which is now being developed
In order to calculate a projected annual value for each of the building blocks an estimate was required for: