States Move to Cut Electricity Tariffs, Sparking Backlash from Gencos and Discos

More states are moving to lower electricity tariffs following a recent decision by the Enugu Electricity Regulatory Commission (EERC), which approved a new tariff order for MainPower Electricity Distribution Ltd. The revised tariff lowers the cost of electricity for Band A customers from N209 per kilowatt-hour to N160/kWh, effective August 1, 2025.

This move has been met with strong resistance from electricity generation and distribution companies. Power producers argue that the decision could seriously harm the sector, noting that the industry already faces over N5 trillion in unpaid debts.

Despite the backlash, the Enugu government has stood its ground, insisting the tariff cut followed proper regulatory procedures and reflects the state’s efforts to balance affordability with economic realities.

Power firms have warned that the tariff cut is based on faulty assumptions about federal subsidies and could destabilize the already fragile electricity sector. They argue that the tariff does not cover the actual cost of generating power and might discourage future investments.

Nevertheless, other states with newly established regulatory bodies have expressed interest in adopting similar measures. Enugu is among seven states alongside Ondo, Ekiti, Imo, Oyo, Edo, and Kogi that now control their electricity markets under the Electricity Act of 2023. States like Lagos, Ogun, Niger, and Plateau are also in the process of completing their own transitions.

Several of these states, including Ondo, Plateau, and Lagos, have revealed plans to review and potentially reduce their electricity tariffs to ease the financial burden on residents. Ekiti, however, has opted to maintain the existing national tariff structure for now, citing ongoing subsidy benefits.

Officials from distribution companies operating in the affected states have cautioned that any reduction in tariffs must be accompanied by immediate state-funded subsidies to cover the cost gap. They argue that it is no longer feasible for the federal government to absorb these losses, especially after the removal of subsidies for Band A consumers.

According to EERC’s official order, the new N160/kWh rate for Band A customers is based on a cost-reflective model that factors in federal subsidies on power generation. The commission emphasized that the reduction followed a comprehensive review of MainPower’s operations and pricing proposals.

EERC Chairman, Chijioke Okonkwo, explained that the revised tariff was determined after months of detailed assessments and public consultations. He noted that the commission developed a transparent pricing methodology that includes operating costs, inflation, energy losses, and capital investment plans.

He added that the federal government’s subsidy on generation costs played a key role in enabling the lower tariff. Without the subsidy, the average cost of electricity would exceed N112/kWh, pushing the final tariff above the current N160/kWh.

However, power producers remain skeptical. A spokesperson for the generation companies argued that there is no official policy backing federal subsidies and warned that the assumption of subsidy coverage is misleading. She pointed out that current funding provisions in the national budget fall short of what is required to settle the industry’s debts, which amount to N4 trillion.

She further criticized the EERC’s tariff model, noting that it captures only N45/kWh for generation costs far below the N112/kWh actual cost leaving a significant shortfall.

According to her, such decisions raise broader concerns about the decentralization of the power sector, especially around how states plan to handle legacy debts and financial obligations now that they have regulatory independence.

Meanwhile, Plateau State’s electricity commission confirmed plans to introduce its own tariff cut, stating that the priority is to improve the quality of life for residents. Officials in Lagos also said the state is reviewing Enugu’s approach and will announce its own plans soon. The Lagos energy commissioner emphasized the need to balance affordability with the city’s unique energy demands and economic importance.

In Ondo, officials claimed they had already taken steps to implement lower tariffs and are currently working with investors to finalize power purchase agreements that would allow them to independently determine rates.

Ekiti State, however, has opted to remain under the national Multi-Year Tariff Order (MYTO) for now. Officials there say that while reducing tariffs is desirable, it must not compromise the financial sustainability of electricity supply. They noted that Ekiti would consider exiting the national framework once it can support its own subsidy structure.

On the other hand, officials from distribution companies have warned that cutting tariffs without a solid plan to cover the resulting shortfall is unsustainable. One official noted that Enugu’s action could undermine investor confidence, stressing that electricity production costs remain well above N200/kWh.

He questioned the feasibility of the subsidy, noting that Enugu’s reduced rate would only work if the state is prepared to bear the difference. He also emphasized that state laws cannot override constitutional provisions, adding that any state decision creating financial imbalances would be subject to legal review.

The official reiterated that subsidies should be targeted at vulnerable populations and not blanket across all customers. He warned that placing the burden of Band A shortfalls on the federal government is no longer possible since subsidies for that category have been withdrawn.

In response, EERC Chairman Okonkwo reiterated that the commission’s decision was backed by solid data and a rigorous regulatory process. He said that MainPower submitted detailed operating information including customer profiles, losses, capital needs, and service projections which was used to calculate a fair tariff under the commission’s approved methodology.

He explained that the commission’s tariff model includes all operational and capital costs and aligns with global best practices. He added that the current rate was made possible by leveraging the federal subsidy at the generation level, which brought the average delivery cost to just over N94/kWh.

Okonkwo acknowledged, however, that the current affordability of electricity in Enugu may be temporary if the federal subsidy is withdrawn in the future. Without it, the generation cost would spike, pushing tariffs even higher than the present Band A rate.

Power sector experts have also weighed in. Some questioned whether Enugu’s calculations fully account for the actual cost of supply and whether assumptions about ongoing federal subsidies are realistic. They emphasized that states seeking regulatory autonomy must also be ready to manage associated liabilities.

Others pointed to international models, like in South Africa, where municipalities buy electricity at cost and set their own retail prices. They suggested that Enugu’s approach could be viable if it can demonstrate the ability to pay for the power it consumes.

While opinions remain divided, most stakeholders agree that the situation is still evolving and that broader implications for national electricity policy will become clearer in the coming months.