NERC, Tariff Regulation and the Powers of the Legislature in Electricity ‘Tariffing’ in Nigeria
Proem
In the past, the mechanism utilized in setting electricity prices in Nigeria was ill-defined and impervious and also because electricity was considered a public benefit to be provided by the government, electricity prices had traditionally been less than cost of production. At that point, the sector was organized as a state monopoly through the National Electric Power Authority (NEPA) which was responsible for power generation, transmission and distribution and was controlled by the ministry of power.
Available capacity was an insignificant fraction of what was required as the tariff payable was less than the cost of producing electricity. With tariffs/ electricity prices less than the cost of generating same and the competing requests for government’s dwindling income, the power sector (and indeed NEPA) could not maintain its facilities, equipment and infrastructure and neither could same be upgraded or expanded. It was soon realized that the low electricity prices (which were, in fact, lower than the cost of producing same) were not sustainable and the entire sector required reforms.
Upon commencement of democratic rule in the year 1999, the federal government embarked on comprehensive reforms of the sector as set out in a 2001 National Electric Power Policy document. The principles set out in the said policy document were enacted into law in the year 2005 (EPSRA). Amongst the provisions of the said law was the establishment of a regulator for the electric power sector, empowered to, inter alia, set tariffs for the power sector. Specifically, Section 76 of the EPSRA governs tariff regulation and tariff regulation is to be applied to transmission, distribution and system operation and where NERC considers price regulation is necessary to prevent abuse of market power, it would consider price regulation for generation and electricity trading.
Prices for these activities are to be regulated according to one or more methodologies adopted by NERC and such methodologies are to allow licensees operating efficiently to recover the full costs of their business activities, including a reasonable return on capital invested, provide incentives for improved technical and economic efficiency, provide incentives for continued improvement of quality of service, give consumers economically efficient signals, phase out or substantially reduce cross-subsidies amongst others.
Tariffing and the Legislature’s Powers
Regarding tariffing, it pertinent to note that, specifically, the relevant statutory and constitutional provisions are Section 76 of the Electric Power Sector Reform Act and Sections 4 and 88 and 89 of the Nigerian constitution (which by the way, is the supreme law of the land from which other laws derive their validity) and the legislative lists contained in the Nigerian constitution. It is also germane to note that under the constitution, the legislature, executive and judiciary have their powers, duties and functions specifically adumbrated, and these vary.
Section 4 of the constitution provides for the legislative powers of the National Assembly. It states in subsection (1) that “the legislative powers of the federal republic of Nigeria shall be vested in the National Assembly for the federation, which shall consist of a Senate and a House of Representatives.” Subsection (2) of the same Section 4 goes on to state that “the National Assembly shall have power to make laws for the peace, order and good government of the federation or any part thereof with respect to any matter included in the Exclusive Legislative List set out in Part I of the Second Schedule to this Constitution.”
Furthermore subsection (4) states that “In addition to, and without prejudice to, the powers conferred by subsection (2) of this section, the National Assembly shall have power to make laws with respect to certain matters listed under the said subsection.
The wording of the Constitution in relation to the legislative powers of the National Assembly prescribes that the National Assembly shall “make laws” or “have the power to make laws”. It can be gleaned from same that the intention of the draftsman was for the National assembly to make laws with respect to matters that it is empowered to so do. It is in furtherance of these legislative powers that the National Assembly enacted the EPSRA referred to earlier (recall that same is the principal law which specifically governs the electric power sector but is subordinate to the Nigerian constitution).
The EPSRA empowers NERC, pursuant to Section 76, to regulate tariff for transmission, generation, distribution and system operation and in regulating tariff and empowers NERC 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 earnings for efficient operation.” Consequent upon the exercise of this statutory power NERC developed the MYTO 2.1 and other previous tariffs.
Apart from the powers to make law, Section 88 (1) (b) provides that the National Assembly shall have the power to “direct or cause to be directed an investigation into the conduct of affairs of any person, authority, Ministry or government department charged or intended to be charged with the duty of or responsibility for executing or administering laws enacted by the National Assembly.
The foregoing being the case, it is pertinent to determine (in light of the current brouhaha on tariff adjustment/ increase) whether the federal legislature can suspend the implementation of the function of an agency of government (in this case, that of NERC) whilst conducting investigation into the affairs of same.
Whilst Section 88 (1) (b) of the constitution empowers the Senate to conduct investigations into the affairs of an agency of government, this power is exercisable only for the purposes provided under section 88 (2) (a) and (b) and may be exercised only in the manner spelt out in Section 89(1).
Specifically, by virtue of Section 88(1) (b) the powers of investigation are for the purposes of making laws with respect to the exclusive list and correcting any defects in existing laws and exposing corruption, inefficiency or waste in the execution or administration of laws within its legislative competence and in the disbursement or administration of funds appropriated.
Section 89(1) referred to above, however, expressly specifies the powers of the Senate or the House of Representatives or a committee (appointed in connection therewith) in relation to such investigations to be power to procure all such evidence, written or oral, direct or circumstantial, as it may think necessary or desirable, and examine all persons as witnesses whose evidence may be material or relevant to the subject matter; power to require such evidence to be given on oath; power to summon any person in Nigeria to give evidence at any place or produce any document or other thing in his possession or under his control, and examine him as a witness and require him to produce any document or other thing in his possession or under his control, subject to all just exceptions;
The senate also does have the power to issue a warrant to compel the attendance of any person who, after having been summoned to attend, fails, refuses or neglects to do so and does not excuse such failure, refusal or neglect to the satisfaction of the House or the committee in question, and order him to pay all costs which may have been occasioned in compelling his attendance or by reason of his failure, refusal or neglect to obey the summons, and also to impose such fine as may be prescribed for any such failure, refused or neglect; and any fine so imposed shall be recoverable in the same manner as a fine imposed by a court of law.
The pertinent rules of interpretation are the literal rule and expressio unis rule of interpretation of statutes. Whilst the literal rule of interpretation provides that words of a statute should be given their clear literal meaning, the expressio unis rule of interpretation is that the express mention of a thing or item as is the case with Section 89(1) of the Constitution, means the exclusion of that which is not mentioned.
Hence, to the extent that the Senate can investigate agencies of government, the powers which the Senate can exercise in connection with such investigations (as spelt out in Section 89(1) of the Constitution) do not include the power to suspend any action taken by that agency under the law. Constitutional, it is within the remit of the Judiciary to do this; hence, the reason why the Constitution has gone just short of empowering the senate to do this.
In light of the above, any direction/ order to suspend the implementation of an order made by a statutory agency by a resolution of the Senate is unconstitutional. The National assembly, being presently unsatisfied with the actions of the agency may amend or review the laws creating the agency as it is constitutionally empowered. It may also go to court to have that action stalled but it can only investigate and not unilaterally stop the actions of NERC.
There is no constitutional or statutory backing for the resolutions of the Senate to make it binding on the executive. If the legislature (Senate/ House of Representatives) believes that an agency of government is in default of its statutory mandate, the constitutional thing to do is to pass a law to overrule such agency or to narrow the agency’s jurisdiction. Legislative power of appropriation could also be used to restrict the agency’s funding. In the same way, the Senate could also narrow the agency’s regulatory authority. However, ordering the agency to stop the exercise of its legitimate statutory powers appears to be usurpation of the functions of the judicial arm of government.
The foregoing, notwithstanding, with the introduction of what may be considered as more cost-reflective tariffs, NERC must now more rigorously protect consumers and ensure that the new owners of the power generation and distribution companies (in particular) make the necessary investments in metering to totally eliminate estimated billing and ensure that consumers only pay for electricity consumed. Although, the fixed component of tariffs has been removed and this is a good step towards ensuring that consumers pay for only electricity supplied monitoring of the distribution companies (who are currently natural monopolies) must be improved and a more robust monitoring system should be adopted by NERC to ensure efficiency, effectiveness and fairness.
Ayodele Oni
Ayodele Oni {ayodeleoni@outlook.com}, a solicitor, specializes in international energy (oil, gas and electricity) investment law and policy. He holds a mini-MBA in power & electricity. Follow me on twitter @ayodelegoni.