NERC: practical issues for new commissioners to consider
It is no news that new commissioners of the Nigerian Electricity Regulatory Commission (“NERC”) have been nominated by the Presidency and barring any last-minute surprise or hitch, same would be confirmed by the legislative arm of government and would subsequently assume office.
Despite the absence of Commissioners, NERC’s activities have gone on reasonably well; although some decisions and actions have stalled because of the lack of commissioners. The foregoing is the case, notwithstanding the fact that, by virtue of Section 44 the Electric Power Sector Reform Act (EPSRA), the absence of Commissioners does not invalidate any action or decision taken by NERC.
Many individuals (including a few former members of staff of NERC) and practitioners in the electric power state have expressed a lack of confidence in NERC, and in fact claim that there was a ‘Regulatory Capture’ of NERC when the immediate past Commissioners, held sway. ‘Regulatory Capture’ is a form of failure by a Regulator which occurs where a regulatory agency, formed to act in the best interest of the public, rather, advances the commercial or political interests of groups that dominate the industry or sector it is charged with regulating. Thus, it is important that the new Commissioners immediately re-build confidence in NERC and ensure the attractiveness of the electric power sector, to prospective investors.
It is the case that, beyond protecting public interest, the new Commissioners need to also ensure that the sector remains attractive to would-be investors. Consequently, the role of NERC is one that involves forging a delicate balance between public interest and enterprise promotion. The writer, being an electricity consumer, power policy expert and having had the opportunity to advise both the private sector and the Regulator has advanced a number of issues the new Commissioners may want to quickly look into as soon as they assume office.
Efficiency, Speed and Timeliness- Key to Sector Attractiveness
I have had the opportunity to advise and support several private sector entities looking to do business in the sector and have witnessed the frustration many of them have experienced and many others have also complained about with regard to doing business with NERC. The frustration ranges from the inordinate delay in obtaining minor certifications/ approvals for meter installations to the terrible delay in obtaining licences. Not a few business people have lost good opportunities because the Regulator has been slow in giving its approval or at least communicating its decision one way or the other.
The process for many NERCapprovals should ideally not exceed two (2) weeks whilst for licensing, the primary statute in the power sector (EPSRA) specifies a maximum period of six (6) months. However, this could be done within three (3) months of submitting the relevant application. The writer is not assuming that this is an easy task. Nevertheless, where there are clear timelines and also efficiency, together with the relevant sanctions for failing to fulfil obligations (such as timelines) by the relevant officials, things are likely to improve rapidly.
Entrepreneurs and investors should not lose out on contracts and projects simply because of tardiness by the Regulator or pure ineptitude. This simply, does not help business. The writer in fact, recommends that NERC considers a change management model with the introduction of a strong but clear ‘Key Performance Indicator’ system with sanctions for failure to perform. NERC may also need to consider changing some of its consultants who haven’t performed.
Data-Driven Regulation- Key to Excellent Regulatory Performance
Data Driven Regulation basically requires that information is systematically collected, analyzed and monitored to recognize risks and measure progress against outcomes. It is thus, pertinent to identify useful and relevant data sources. To be positioned to make decisions based on accurate data based-intelligence, there is the need to expand the existing knowledge spectrum and enrich the current evidence platform.
Where this is done in the electric power sector, matters such as baseline studies and figures can be adequately attended to, as issues around customer enumeration are given due consideration. The foregoing then drive the decision making of the Regulators whilst also determining the types of Regulations that should be issued by NERC.
Where the exact number of customers and their needs are determined and the relevant baseline figures in terms of losses are identified, then the Multi Year Tariff can be adjusted without complaints by the Discos. To get here, however, the right consultants need to be appointed to deal with these matters such that there is almost a 100% accuracy. It is at this point that data-driven Regulation becomes successful and the right Regulations which address the relevant matters are issued by NERC.
Enforcement of Metering Regulation and Obligations of Distribution Companies- Key to Improved Power Supply
To reduce the metering gap NERC introduced, in the year 2014, measures such as the Credited Advance Program for Metering Implementation (CAPMI) where a relevant customer was required to pay in advance for the installation of the meters and then recover its costs through discounted billing by the relevant Disco. Many customers were willing to pay for the meters in advance but it appeared that the Disco were comfortable with continuing to charge for estimated energy consumed by the burner-tip. Eventually, as good as the CAPMI initiative was, it didn’t quite come-off in address the metering situation, and this has been attributed substantially to the unwillingness of the Discos who appeared to suggest that metered customers were ‘unprofitable’ when compared to unmetered customers. This year, the current minister of power requested that the scheme be discontinued.
A metering system ensures that the customer is charged for the volume of energy consumed. However, for customers with non-functional meters, billing continues to be done arbitrarily and at the discretion of the Discos who are comfortable with the balance achieved by transferring arbitrary energy charges to the unmetered customer. Due to this, the customers continue to contest the arbitrary charges, refuse to pay them or even resort to self-help by ‘tapping’ energy illegally.
To this end, NERC sought to fix a cap on the amount that the Discos could charge for estimated billing for energy use and released a Concept Paper on Capping Estimation of Energy Consumption (the “Concept Paper”). The intention espoused in the Concept Paper was to introduce ‘an estimate charges capping system’. In this respect, NERC intended to protect the customer and dis-incentivize Discos from estimated billing such that it then became imperative for them to accelerate the metering of all unmetered customers.
The Concept Paper, for example, proposed a cap of 125kwh per month for R2 customers who constitute the vast majority of the unmetered customers. Unfortunately, it is not the case that one can boldly say that NERC under the previous Commissioners saw this through or were indeed determined to see to its implementation or enforcement.
Further, many of the Discos had complained about the purported capping of estimated billing. However, it is the responsibility of Discos to ensure the metering of customers is in line with Paragraph 1 of the NERC Regulation on Connection and Disconnection Procedures. Therefore, these companies have a legal responsibility to ensure all customers are metered within the specified period. Thus, the complaint regarding the proposed capping is weak, especially because the CAPMI initiative failed to achieve the desired result majorly because the distribution companies frustrated the effort of a Regulator which was itself lethargic.
It is essential that the whole of Nigeria is metered. This is because, until the country is completely metered, fairness, equity and genuine push to ensure efficiency cannot occur. This is so because, consumers are unlikely to want to continue to pay for electricity whilst Discos would not derive enough funds to fulfil their obligations to other market participants.
It is clearly the case that, psychologically, people are more likely to pay for what they clearly know they used, than what they believe is an estimate especially where bare facts don’t support the estimates. The writer believes that energy theft would reduce where the sector is technology driven and proper metering is done. NERC and the new commissioners need to drive this.
Amendment of the Grid Code and Market Rules- Key to Supporting a Strong Energy Mix
The writer has been incredibly involved in government’s push for a stronger energy mix and in particular, the current drive for solar modules and packs in the country and has had the opportunity to advise both the government and the private sector on issues connected to solar modules and packs especially those to be grid connected and it is clear that at the time of drafting the Grid Code and effecting the most recent amendments, the consultants were either oblivious of the potentials of solar in Nigeria (maybe were also only versed in thermal power) or were told to concentrate only on thermal plants (especially gas) and hydro as the Grid Code does contain several provisions which would prevent solar projects form being commercially viable in this part of the world.
One way of dealing with the challenges with the inadequacy of the Grid Code, in particular, is to seek Derogations from NERC/ the System Operator, which may or may not be granted and which if granted may be granted only for a period of time and whether this gives sufficient comfort is a different conversation. Apart from Derogations, the writer has considered a few more options on which it has advised some of its clients and the relevant ministries, departments and agencies of the government. The foregoing, notwithstanding, the most efficient option is the prompt amendment of the Grid Code.
In amending the code, it is important that local Nigerian resources including engineers and lawyers are involved as there are typical ‘local Nigerian issues’ foreign lawyers and consultants almost always miss out. Unfortunately, Nigerian working on Nigerian deals are quick to use foreign resources at exorbitant costs and yet, critical matters are missed out or dealt with lightly because those resources (foreign experts, lawyers etc.) are using foreign templates which may not appreciate Nigerian peculiarities. We shall continue with other issues, in the next edition of this column.
Ayodele Oni