A tariff supporting model typically refers to a framework or system that ensures the establishment, implementation, and management of tariffs in a manner that achieves specific goals. In industries like electricity supply, such models are designed to balance various objectives, such as affordability, cost recovery, investment attraction, and equitable service delivery.
Key Features of a Tariff Supporting Model
- Cost Reflectivity: The model ensures tariffs reflect the actual costs of generating, transmitting, and distributing electricity, including operational expenses, capital investments, and regulatory charges. Band A tariffs are supposed to be cost-reflective tariffs that are not subsidized by the government.
- Affordability and Accessibility: It incorporates mechanisms to make services affordable for consumers, particularly vulnerable groups, through subsidies, cross-subsidization, or lifeline tariffs.
- Fairness and Equity: Aims to ensure that tariffs are fair across consumer categories, preventing undue burdens on specific groups while promoting equity.
- Transparency: The model is built on clear, predictable, and understandable tariff-setting processes to build trust among stakeholders.
- Incentive-Based Regulation: Encourages efficiency by rewarding utilities that reduce costs and improve service quality.
- Compliance with Regulatory Standards: Aligns with the legal and regulatory framework governing the sector, such as Nigeria’s Electricity Act 2023.
- Sustainability: Ensures long-term viability by creating a structure that supports continuous investments and maintenance in the industry.
In the NESI context, a tariff supporting model might:
- Include the Multi-Year Tariff Order (MYTO), which establishes tariffs based on projected costs and returns for industry participants.
- Address the challenges of consumer protection, ensuring that consumers are not overcharged or underserved.
- Provide guidelines for periodic reviews to adapt to inflation, foreign exchange fluctuations, and other economic factors.
