Facts on suspension of eligible customer regulation

My attention was recently drawn to an article published in a national daily titled “Investors battle electricity regulator over policy suspension”. Whilst the concerns of the author and the stakeholders behind the publication are misplaced and unfounded, it is compelling to set the records straight on the issues brought forward in the said publication.

Notably, it is true that the Eligible Customer Regulation 2017 (the “Regulation”), is derived from the Electric Power Sector Reform Act (EPSRA) 2005, which gives the Minister of Power (the “Minister”) the authority to declare the commencement of the Eligible Customers Regime.

The Regulation further empowers the Nigerian Electricity Regulatory Commission (“NERC”) to administer the regime to wit receiving applications for eligibility customer status, considering/reviewing such applications, and granting approval where the stipulated conditions have been met by such applicants.

The Regulation which was made in 2017 and became effective on 1st of November 2017, created a framework for certain categories of electricity consumers to contract for power purchase directly from the Generation Companies (GENCOs) rather than through the traditional electricity market route which involved the entire electricity value chain: Generation Companies (GenCos), Nigerian Bulk Trader (NBET), Transmission Company of Nigeria (TCN) and the Distribution Companies (DisCos).

By Section 7 of the Regulation, the category of electricity consumers who can apply for eligible customer status to participate in the regime is as follows 1. A customer or group of end-use customers registered with the Commission for the purpose, whose consumption is more than 2 MWh/h over the course of one month, that is connected to a metered 11kV or 33kV delivery point on the distribution network of a distribution licensee under a Distribution Use of System (DUoS) Agreement with such distribution licensee for the connection and for the delivery of electrical energy;

A customer or group of end-use customers registered with the Commission for the purpose, that is connected directly to a metered 132kV or 330kV delivery point on the transmission network under a Transmission Use of System (TUoS) Agreement for the connection and for the delivery of electrical energy;

A customer or group of end-use customers registered with the Commission for the purpose, whose consumption is more than 2 MWh/h over the course of one month, that is connected directly to a metered 33kV delivery point on the transmission network under a TUoS Agreement, and has entered into a bilateral agreement for the construction, installation, and operation of the distribution system used to connect the customer to the 33kV delivery point, with the distribution licensee, licensed to operate in the location where the customer and the 33kV delivery point are located; and

A customer or group of end-use customers registered with the Commission for the purpose, whose consumption is more than 2 MWh/h over the course of one month, that is directly connected through a metered delivery point, to the generation facility of a generation licensee it intends to purchase electrical energy from and has entered into a bilateral agreement for the construction, installation, and operation of the distribution system used to connect the customer to the generation facility with the distribution licensee, licensed to operate in the location where the generation facility and the customer are located.

Furthermore, Section 9 of the Regulation requires that applicants for eligibility status shall post a Letter of Credit or Bank Guarantee in favour of the Market Operator in accordance with the Market Rules to cover Market Administration Charges, TUoS charge and DUoS charge, and other charges as may be approved by the Commission.

Summarily, the conditions that must be satisfied by an applicant for eligible customer status are:
meeting the requisite energy demand/usage requirement; proof of excess capacity by the GENCOs to supply energy to the eligible customer; payment of requisite charges and fees to existing; procurement and submission of requisite documents; and need for eligibility declaration status by NERC on the Eligible Customer upon fulfillment of the requisite requirements.

Sadly, the author and the stakeholders behind the article in reference merely mentioned in passing that “According to sources, the template of the policy indicates that electricity consumers, who feel dissatisfied with the services of the DisCos in their area, can request and receive alternative electricity distribution services from any of the available Eligible Customer vendors in their area if their power requirement is over 2 Megawatts.”

As contrasted in the preceding paragraphs, this sweeping attempt by the author fails to reference the conditions which the stakeholders behind the article must fulfill before NERC would approve Eligible Customer status for them as required by the Regulation. This is particularly so as the author indicates the reason advanced by NERC according to NERC’s Dr. Usman Abba Arabi as follows “…What is happening is that there were a lot of illegal connections. A lot of connections were not approved by the Commission. This Eligible Customer thing was suspended pending when these issues are sorted out…”

Additionally, the article fails to state in clear terms that the stakeholders behind it (though named), had not met and fulfilled the requirements for NERC to grant them eligible customer status. Whilst the Minister did issue a directive to the Commission, declaring the commencement of the eligible customer regime and specifying the class or classes of end-use customers that would constitute eligible customers in compliance with Section 27 of the ESPRA, the fact is that to date, no company has met or fulfilled the conditions stipulated in the Regulation for the assumption of eligible customer status. Hence, available records indicate that NERC has not approved any application for eligible customer status.

Over the last four (4) years, some stakeholders blatantly and brazenly neglected to comply with several directives from NERC to follow the due process under the Regulation to obtain the requisite NERC Approval. These companies proceeded to arrogate the powers of NERC to themselves by vesting in themselves eligible customer status.

The operations of these companies and the GenCos involved have unleashed unintended consequences on other categories of electricity customers by exposing them to payment of higher electricity tariffs, as a result of the elimination of the embedded cross-subsidy mechanism in Multi-Year Tariff Order (MYTO). As of today, the Nigerian Electricity Supply Industry (NESI) is already bedeviled with huge losses with grave attendant consequences and liquidity issues. Rather the cash revenues generated go strictly to the pockets of the respective GenCos to the detriment of the entire value chain, thus a real and potent threat to the medium cum long term sustainability of the market.

In the circumstance NERC, having duly noticed the damaging impact of these illegal “eligible customers” on the electricity market and the entire value chain had to issue a directive with Ref. No: NERC/REG/OCFML/APPR/EC/2655/068, dated 7th July 2021, to the Transmission Company of Nigeria (TCN) to transfer back to the Distribution Companies all electricity customers that failed to obtain eligibility status under its Eligible Customer Regulations 2017-Regulation No. NERC 111.

The DisCos indeed recognize the relevant provisions of the ESPRA and the Regulation as well as their objectives. There is, however, no doubt that there have been improvements in DisCos’ performance whilst several initiatives in collaboration with the Federal Government through the Central Bank of Nigeria (CBN) and other intergovernmental stakeholders are being adopted to further increase efficiencies of the DisCos and indeed the entire value chain to achieve clean, safe and uninterrupted power supply to Nigerians. The Regulation is therefore a welcome initiative provided that the stakeholders comply with the laid down procedures and requirements.

In response to the insinuation that NERC and the DisCos are colluding to frustrate the implementation of the Regulation, I can state unequivocally that this is unfounded of the stakeholders who have failed to meet the requirements of the Regulation and attempting to pass the buck. In fact, to fault NERC as they have, is undermining the powers of the Commission as the regulator of the Nigerian power sector, vested with the requisite authority to ensure sanity in the Nigerian Electricity Market (NEM) and NESI as provided by the EPSRA.

The NERC has not canceled the Regulation as claimed in the article. The directive is simply to stop the illegality that has been perpetrated by these companies and their supplier GenCo who have gone rogue for four years unchecked. No regulated market is sustainable where market participants are allowed to create their own set of arbitrary rules.

Oduntan is the executive director, Research & Advocacy, Association of Nigerian Electricity Distributors (ANED).