Implications of Enugu State’s Tariff Reduction Order: A Review of Legal and Regulatory Perspectives

Following the recent tariff reduction announced by the Enugu State Electricity Regulatory Commission (EERC) and the subsequent rejection by the Nigerian Electricity Regulatory Commission (NERC), alongside objections from the Federal Ministry of Power, the Association of Nigerian Electricity Distributors (ANED), and the Association of Power Generating Companies (APGC), it has become evident that significant confusion still exists regarding the legal framework guiding electricity regulation in Nigeria.

To provide context, in 2024, President Bola Ahmed Tinubu signed the Electricity Act 2023 into law, devolving powers for electricity generation, transmission, and distribution to the states. Consequently, ten (10) states including Enugu have formally taken over regulatory oversight from NERC, in line with the provisions of this law.

One critical requirement for such transfer is the enactment of a state electricity law consistent with the national Electricity Act. Where inconsistencies exist, the federal law prevails. Despite this, the current disagreement between EERC and NERC signals differing interpretations of jurisdictional authority.

A careful review of the Electricity Act 2023 reveals the following:

1. Section 116(2)(a) allows for tariff methodologies that enable efficient licensees to recover their full operating costs and earn a reasonable return on capital.

 “Prices for the activities referred to in subsection (1) shall be regulated according to one or more methodologies adopted by the Commission for regulating electricity prices and such tariff methodologies shall- (a) allow a licensee that operates efficiently to recover the full costs of its business activities, including a reasonable return on the capital invested in the business”

2. Section 34(1)(d) empowers regulatory commissions to ensure tariffs are fair and allow for sustainable business operations, yet is clearly framed under NERC’s mandate, unless transferred.

“Subject to the provisions of this Act, the Commission shall perform the following principal functions, that is: to ensure that the prices charged by licensees are fair to consumers and are sufficient to allow the licensees to finance their activities and to allow for reasonable profit for efficient operation;”

3. Section 230 outlines the transfer of regulatory powers to states and the resulting jurisdictional changes.
4. Section 230(1)(c) provides that pre-existing tariffs remain effective until states adopt new ones, indicating that states assume full control after regulatory transfer. The only consideration will be that pending when states start to generate and transmit their own power, they will continue to take into consideration the NERC’s tariff on Generation and Transmission when implementing state tariff.

” any tariff, price, levy or surcharge which was in effect and chargeable within any area in respect of the provision of electricity to consumers or to any particular consumer or undertaker (if any), before the commencement of this Act shall continue to be in effect and chargeable in respect of provision of electricity to those or similar consumers by a licensee who provides electricity within the area concerned until alternative provision is made in respect of such tariff, price, surcharge, under the provisions of this Act;”

5. Section 230(6) confirms that once the transfer process is complete, NERC relinquishes all regulatory responsibility for intra-state market activities.

“On the completion of the transfers under subsections (2) and (3), whichever occurs later in time, the Commission shall have no further regulatory responsibility whatsoever for electricity market activities carried on entirely within the State to which regulatory responsibility has been transferred and for which the additional successor company has been incorporated and conferred with assets, liabilities, employees, rights and obligations.”

6. Section 230(9) mandates continued collaboration between NERC and state commissions, emphasizing the need for intergovernmental coordination.

“The Commission and all State electricity regulatory authorities shall have a continuing obligation. to foster and maintain a beneficial inter-institutional relationship amongst themselves and accordingly they shall establish an intergovernmental body to promote harmonious relationships with each other individually and as a group and for coordinating the development of principles, standards and rules for the reduction of regulatory risk in the Federal and State electricity markets in the country.”

EERC’s Tariff Decision and Underlying Justifications

Effective from August 1, 2025, EERC has announced a reduction in the Band A electricity tariff from ₦209.50/kWh to ₦160.40/kWh for Enugu residents. While the decision has drawn resistance from some industry stakeholders, a closer examination reveals that EERC followed due process and applied standard economic and regulatory considerations.

The main area of contention is the inclusion of a subsidy component, yet this should not be viewed as a fault of EERC. Subsidy provisions are present in all official tariff documents issued by NERC, and EERC’s approach aligns with those existing national frameworks.

Key developments:

• The Enugu State Electricity Distribution Company (EEDC) established a subsidiary company MainPower Electricity Distribution Limited for the distribution of power within Enugu State; this is in line with the provision of the Electricity Act 2023 section 230(4).

• The Enugu State Electricity Law 2023 empowers EERC to ensure tariffs are fair, financially sustainable, and reflective of cost.
• In Q3 of 2024, EERC developed a Tariff Methodology Regulation, engaging relevant stakeholders including the distribution companies.
• During its preliminary operations, the EERC issued an interim order effective from October 23, 2024, with a duration of six months. During this period, MainPower which is the only licensed distribution company in the state was required to:
• Submit to the Commission an application for a tariff review, in accordance with the provisions of the Commission’s Tariff Methodology Regulations 2024, no later than one month from the date of issuance of the interim license by the Commission.
• Continue operating under the tariff order previously approved for EEDC by NERC and applicable in Enugu State as of October 22, 2024, until the Commission approved MainPower’s tariff review application.

• From the above, it is evident that MainPower submitted a tariff review application with all required supporting documents, which the EERC reviewed before determining the approved tariff.

Cost Elements Considered by EERC

EERC’s final tariff decision was based on several cost components:

1. Generation Cost: Since MainPower relies on power supply from the National Grid through the Enugu Electricity Distribution Company (EEDC), aligning this component with existing NERC requirements is essential. Based on documents submitted by MainPower, only 31% of the power allocated to EEDC from the National Grid is delivered to residents of Enugu State. Additionally, in accordance with NERC’s June 2025 Supplementary Order to the 2024 Multi-Year Tariff Order (MYTO) for EEDC and other MYTO documents, the federal government provides a monthly subsidy of ₦15.709 billion to customers within the EEDC franchise area, including those in Enugu State. This subsidy effectively reduces the generation cost component from ₦112.60/kWh to ₦45.75/kWh.

Consequently, EERC adopted ₦45.75/kWh as the generation cost in its new tariff calculation. Although NERC, GenCos, and some Discos may contest this approach, it is important to note that the subsidy is clearly documented in NERC’s publications, NBET on their official website acknowledges that it receives such subsidy for the generation related cost and this subsidy is included in the federal government’s annual budget. If, in reality, the GenCos are not receiving these funds, such concerns fall within the jurisdiction of the EFCC for investigation. Furthermore, EERC acknowledges that the generation cost component is subject to change once the federal government discontinues the electricity subsidy. At that point, the applicable rate may reflect the prevailing NERC Band A tariff.

2. Transmission Cost: EERC adopted a total of ₦10.80/kWh, including the ₦2.17/kWh Transmission Infrastructure Fund (TIF).
3. Regulatory Asset Base: MainPower declared an RAB of ₦29.06 billion which was used in the calculation of the tariff
4. CAPEX Plan: A 5-year investment plan totaling ₦48.63 billion was approved.
5. OPEX Plan: An Initially submitted ₦9.09 billion OPEX plan was reviewed down to ₦5.82 billion for 2025.
6. Distribution Losses: EERC gave a provision of a yearly distribution loss allowance of 25% for five years. This is quite magnanimous as NERC had previously provided funds to the various distribution companies to put infrastructures and technology in place to reduce loss to 21% by 2025.
7. Cost of Capital – the Weighted Average Cost of Capital (WACC) – The Debt-Equity ratio allowed by EERC is 70%:30% for the determination of cost of capital. The interest rate used is 27.5% which is the rate as published by the Central Bank of Nigeria (CBN)

Based on these metrics, EERC assumes the cost-reflective tariff to be ₦93.49/kWh for 2025. However, the estimated or actual MainPower’s cost-reflective tariff was ₦125.50/kWh. To prevent customer rate shock and provide financial flexibility, EERC set the Band A tariff at ₦160.40/kWh, yielding an over recovery of ₦13.16/kWh approximately ₦15 billion in 2025. EERC has stated that these funds will be ring fenced for future regulatory decisions. It should be noted that other tariff bands B, C, D, and E are frozen meaning they retain their previous tariff rate.

Key Observations

• The dispute between EERC and NERC centers on the generation cost subsidy, not on methodological diligence.
• The generation subsidy is clearly documented in NERC orders and the national budget. If mismanagement exists, oversight institutions like the EFCC should intervene.
• The broader problem is systemic, many Discos fail to remit revenues or invest in infrastructure, while GenCos remain heavily indebted over ₦4 trillion in arrears.
• EERC’s action demonstrates regulatory courage, and if replicated, could incentivize state-level investments in generation and direct Power Purchase Agreements (PPAs) with NBET.

Call to Action

• States yet to assume regulatory oversight should begin the process to localize and optimize their electricity markets.
• The National Assembly should refrain from amending the Electricity Act without inclusive consultations involving state actors.
• Stakeholders including NERC, the Federal Ministry of Power, ANED, APGC, and the Enugu State Regulator (EERC) should convene to harmonize their roles under the Act.

We envision a future where 24-hour electricity is achievable, and where regulatory autonomy fosters efficiency, accountability, and innovation.

Long Live the Federal Republic of Nigeria.Darlington Okoka
[email protected]
+234-803-9233-787