Misconceiving the fixed charge



SIR: I refer to the news item on page 74 of The Guardian of August 18, 2015, titled: “NERC Clarifies Controversy on Fixed Charge Paid By Electricity Consumers.”

Some of us, had to imagine what the ‘controversy’ might be. If it had to do with why customers of DISCOs have to pay ‘fixed charge’, the ‘clarifications’ you published created a controversy of its own.

In electric utilities worldwide, is the inclusion of a fixed charge element in tariffs of concern? May I make the following contributions? DISCOs are regulated industries because they are regarded as natural monopolies.

Earnings in such industries are regulated by regulatory bodies. As part of regulation, those bodies impose accounting and depreciation restrictions, thus undercutting earnings and the aggressive pursuit of profits by monopolies.

Bear in mind that entrepreneurs who venture into the electric power supply industry have to put their resources together to build plants with lead-in times often in excess of eight years from drawing board to commissioning.

At such times, they spend on taxation, planning, engineering, building and commissioning of vital plants which they need to serve consumers and to give society at large the lifeblood it needs for modernisation.

Only after the plants have been commissioned do entrepreneurs earn from what they sell. They borrow money from the same markets as other entrepreneurs of other industries and they pay the same interest rates.

Given the monopolist nature as well as the importance of electricity supply to life and modernisation, regulators thought that they should limit earnings from the resources.

They saw costs put together to work in the industry in two parts: one part fixed and the other variable. And both parts must earn to keep, to sustain the industry.

Bear in mind, too, that the plants, which attract the fixed charge exist from power stations through transmission lines, several substations and assorted equipment to distribution lines and consumers’ premises as well as to industrial and commercial outfits.

The entrepreneur still pays for and maintains them irrespective of frequent power failures. If they fail for whatever reason, it is inconvenient for the consumer and the entrepreneur who pay for those failures through loss of sales of the variable part of his resource.

This is always unfortunate. In Nigeria, NERC seems to prefer to tell DISCOs how to and how much to earn from individual franchises. In the circumstances, I would have thought that the regulator should accept responsibility for the tariff it masterminded.

However, DISCOs overall earning, not its components is important. It is understandable that customers want reduction in charges no matter how, given the challenges of poor service.

I must ask you to bear in mind as well that that is why the Federal Government created DISCOs. There are temporary difficulties, no doubt, but customers are intelligent.

If we tell them the right thing, they will understand. NERC’s role is normative in this business. What does it believe that DISCOs should do? Why create controversies where none had existed? • Solomon Uwaifo, so-uwaifo@yahoo.co.uk

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