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    Tuesday, June 5, 2018

    Understanding the Differences Between Debit and Credit Cards

    The best way to ensure the balance between the energy supplied and what an electricity customer consumes is to install a meter. And such a metering device can be either pre-paid or post-paid.
    Estimated billing occurs when a customer does not have a meter. Generally, no electricity distribution company (DisCo) makes estimated billing its default billing system. However, a review of electricity utility billing practices, worldwide would indicate that estimated billing is a standard and conventional tool that is in much use, even in advanced economies.

    In the case of Nigeria, the current metering gap of four million customers (2.35 times the 1.7 million metering gap specified in the DisCos’ performance agreements) goes back several years, long before privatisation and we cannot blame the investors who only took over in November 2013 for the growing historical metering gap.  As a matter of fact, the National Pre-Paid Metering Programme initiated by the Federal Government, prior to the privatisation, sought to address this gap but failed, due to corruption, lack of coordination, inefficiency, etc.  The failure to complete metering of customers prior to the privatisation was worsened by the absence of data on the total number of registered customers, now estimated at 7.47 million (likely still an underestimation of the number of customers, with the associated outcome of an even larger metering gap).
    Consequently, the huge metering gap in Nigeria presents a Herculean challenge for the DisCos when it comes to measuring the consumption of their unmetered customers. Significantly, there is no more interested party in the comprehensive metering discussion than the DisCos.  And this is because it is estimated that metering alone reduces collection losses by 30 per cent. Additionally, it minimises the alienation of consumers who, often, underpay or do not pay their electricity bills, based on the disputed or crazy bills.

    In recognition of the impossibility of comprehensive metering within the near to mid-term period, the regulator, the Nigerian Electricity Regulatory Commission enacted a regulation on Estimated Billing Methodology to guide the DisCos in their billing. Nonetheless, application of the methodology remains a very contentious process, as we have seen cases of overbilling (otherwise known as crazy billing) and cases of underbilling which, we, the consumers never talk about. Understandably, estimated billing is a vexing issue to un-metered customers, due to the perception of overbilling situations.
    In all, I’m of the view that it is very unfair and difficult for both the consumers (in the case of crazy billing) and for the DisCos (in the case of underbilling). The estimated billing regulation provides for fair parameters and indices for the computation of electricity usage for unmetered customers.

    Most times estimated billing is calculated based on the level and quantity of supply in any area and not necessarily driven by collection targets as it is widely believed. For instance, supply in close neighbourhoods may vary due to the type of supply lines and sources, i.e. 11KV lines to 33KV lines, illegal connections, and inefficient use of energy. Hence, billing would be based on quantity supplied to those neighbourhoods, irrespective of proximity. Still, there is no doubt that the current methodology is convoluted, counterintuitive and not transparent.
    The question to be asked is; How did we get here in the first place? Alas, the power sector was neglected for an extensive period. The metering gap continued for several years unabated, yet we expect miracles within five years of privatisation.  A review of other jurisdictions that implemented electricity reforms with similar metering gaps would indicate that achieving the objective of comprehensive metering is a long-term endeavour, given financial and logistical constraints.

    Regrettably, neither the metering obligation of 1.7 million meters specified under the DisCos’ performance agreements nor the investment assumption under the electricity tariff will get us to the nirvana of comprehensive metering anytime soon. The reasons for this are, a) Meters cost money and someone or some entity must pay for them.  Paying for them means that the cost has to be recovered through a higher tariff that would run counter to the affordability constraint of consumers; b) There is a practical and logistical limitation to purchasing and installing the total number of required meters in the near term; and c) While NERC has recently rolled out the Meter Asset Provider regulation that is expected to address the metering gap, this regulation cannot be successfully implemented without consideration of a sustainable commercial framework.  In other words, any operator/provider’s access to debt financing for metering, will be challenged by the reality of a sector that is currently suffering from over N1 trillion of market shortfall and debt.

    I think that it is fair to conclude that the DisCos are not anywhere close to the level of efficiency that was envisioned under the National Electric Power Policy, 2001, the foundation for the subsequent legislation, Electric Power Sector Reform Act, 2005.  But is it reasonable to expect the DisCos to attain the desired level of efficiency, with an emphasis on metering, in an environment of regulatory and policy inconsistency, electricity theft; meter bypassing; overloading of transformers; obsolete infrastructure leading to technical losses; non-cost reflective tariff, etc.?

    Crazy billing is not and will not be acceptable now or any other day.  However, I would suggest that the challenges of estimated billing are best addressed through the prism of a transparent, hardnosed and unbiased assessment of the challenges and methodologies that either exist or that can be devised to address the emotionally charged issue of crazy billing.  For instance, the estimated billing methodology does provide a protocol for disputing a bill that is either excessive or not reflective of the consumer’s consumption pattern.

    The MAP regulation is expected to bring both third party meter vendors and associated capital to further ameliorate the metering situation, and expeditiously so. The regulator will need to consider updating the estimated billing methodology to make it more transparent and user friendly, both from the operator and consumer perspective, for ease of respective determination of energy supplied and consumed.  Concerns about manipulated meters are addressed by the Nigerian Electricity Management Service Agency, as part of its mandate to ensure efficient electricity billing and measurement.  NEMSA remains committed to ensuring that only high quality and properly calibrated meters are installed across Nigeria.  Every allegation of meter resetting or fraudulent calibration by DisCos operators is promptly investigated by NEMSA.

    An efficient electricity market is, and continues to be a defined outcome of the power sector reform effort. The elimination of estimated billing, largely, is one of the expected outcomes for an efficient market.  However, attainment of this efficiency is also predicated on other factors such as appropriate electricity pricing, increased generation, efficient regulation, forex availability, consistency of regulation and policy making and implementation, favourable lending terms, and other macro-economic dynamics that, unfortunately, have been absent to date.  Nigerians are anxious to witness a growth in the power sector. Such growth or progression, coming from a background with an order of magnitude of deficiency and inefficiency in the power sector caused by historical neglect, will require an associated order of magnitude of investment, commitment, focus and patience, for its turnaround.

    -Prof Oke is an energy law expert based in Lagos

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