Why NERC must allow eligible customer power supply regime

By Prof. Yemi Oke

The ‘eligible customer regime’ depicts another policy somersault,  and regulatory inconsistencies in the power sector. It initially generated hiccups and was hotly  an object of litigation.

It was initially introduced during the reign of Babatunde Raji Fashola,   the then  Minister of Power, Works and Housing. Few years later, the policy implementers and the  bureaucracies suddenly realized the policy was shoddily  implemented at the time they did and have now decided to back-off.

As one of the sector experts, it’s my considered view that this is another avoidable acrimonious policy distortion. Without doubt, one of the best policies promoted so far in the Nigerian Electricity Supply Industry (NESI) is the Eligible Customer Regulation 2017 (ECR).

The regulation on Eligible Customer Declaration was invoked late 2016 in line with the provisions of the Electric Power Sector Reform Act of 2005. The Minister was moved to do this following  a slew of outcries by industrial consumers over poor electricity supply services, in spite of the 2,000 megawatts unutilised (in waste) power available from the Generation Companies (GenCos).

This policy becomes even more rational realizing that Nigeria’s inflation rate of over 17 percent is driven mostly by high costs of goods and services. There are over 10,000 MSMEs in Nigeria with the Manufacturers Association of Nigeria (MAN),  estimating that its about 2,500  spending 40% of production cost on self-generated power which is imputed into the prices of goods and services.

Nearly half of all electricity generated are from self generated power. These realities contribute in constraining the growth of the economy, and impeding any plans to diversify it from over dependency on the oil and gas sector.

The policy makes it practically possible for 2,000MW unutilised power mentioned above to  be transmitted directly to industries on a direct contract basis between a GenCo and company owners. Therefore, reversing this laudable initiative will amount to a disservice to the Nigerian economy.

I must acknowledge that successful implementation of the legal framework enabling the process (Eligible Customer Regulation) has met some obstacles since 2017.

The Nigerian Electricity Regulatory Commission (NERC) enacted the regulation in 2017 and aims to further promote this policy which is to enable a customer who is not satisfied with the services of any of the 11 Distribution Companies (DisCos) to opt to connect directly to a GenCo through the Transmission Company of Nigeria (TCN), or through a DisCo.

This, in my considered opinion, brings about sector efficiency, healthy competition and operational efficiency.

The title of the regulation stems from the fact that the customer must be “eligible” to do this by ensuring that the facility is a large power consumer with 2 megawatts hour per hour (2MW/H) ,and above consumption capacity.

They could be connected through a 33 kilovolts (kV) power distribution line or a 132kV transmission line. The parameters of “eligibility” are clearly spelt out and give no room for conjecture.

For instance, if the TCN transmits power to such a consumer from a GenCo, then TCN will be paid an agreed Transmission Use of System (TUOS) charge, and if it is through a DisCo, such DisCo gets the Distribution Use of System (DUOS) charge. The customer is expected to have a solid tripartite agreement with the GenCo, the TUOS/DUOS provider and itself with penalties and compensation for defaults in power supply.

The clause on penalties for defaults is an incentive that is not yet operational in the Nigerian Electricity Market (NEM). As such, industry owners including members of MAN have expressed delight over this as they would have a better guarantee of power supply to their industries.

The DisCos have been kicking against the policy from inception saying industrial customers are the key drivers of their revenue base. They complain that it will lead to ‘cherry picking’ of these customers by the GenCos and will adversely affect their liquidity. Their apprehension appears untenable realising that, if properly implemented, DisCos tend to benefit more from the scheme. However, the consumers welcomed this idea and have moved to key into it.

For the three eligible consumers that keyed into this in 2018 having contracting power from GenCos showed massive growth on overall improvement in their level of productivity which also impacted positively on national productivity outlook.

The results were soon visible: Increased Electricity Consumption by 654% which of course led to an increase in productivity by 241%. The companies were also able to increase their staff strength, adding a combined 1,759 direct jobs and most importantly, they consistently paid their bills, 100% without any government subsidy.

Presently, there are about 10 customers signed up as ECs and total consumption by these 10 ECs stands at approximately 45MW- (about 1% of overall electricity distribution capacity of 4,500MW in the country).

The daily power supply records within three months between May and August 2019 also showed that those industrial customers had nearly 24 hour power supply during the period – a testimonial that was good for the power sector and Nigeria as a whole.

For the Nigerian Electricity Supply Industry, this policy was fast changing the sector paradigm in terms of profitability and sustainability.     For instance, it has impacted positively to facilitating healthy  competition in the NESI.

The policy has also led to promoting rapid expansion of generation capacity and opportunities for improvement of supply. It encourages third party access to investment in transmission and distribution infrastructure (as all the customers constructed their dedicated 132KV & 33KV lines, investments that the DisCos were unable or constrained from undertaking to improve the quality of service to these customers) and improving the financial liquidity of the electricity industry as a whole.

The gains of the policy since it was introduced are now being reversed or undermined by the NERC. It is reported that the DisCos prevailed on the regulator to discontinue it. Thus, on July 7, 2021, NERC wrote to TCN ordering it to disconnect all eligible customers from their contracted GenCos and revert them to their respective DisCos.

I wish to state, clearly, that the policy inconsistency will do further harm to the power sector, and entire productivity outlook of the Nigerian economy. Quite frankly, it will do more grievous harms than any perceived “good” to the power sector and the Nigerian economy.

In one of the several schemings that played out as a prelude to the unfortunate reversal of the policy, the Port Harcourt Electricity Distribution Company (PHEDC) had written a letter to NERC in June complaining that Olam Crown Flour Mills (formerly Dangote Flour Mills) exited PHEDC’s network and was recognised as an eligible customer by TCN.

The NERC in a letter to TCN, said it had reviewed the complaint and found that Olam and TCN’s actions were against the provision of the ECR.

NERC further stated it has not issued eligible customer status to any customer of the DisCos because they could not meet certain requirements.

NERC mandated the GenCos ready to enter into an eligible agreement to provide evidence that they have capacity more than what they had contracted with the Nigerian Bulk Electricity Trading Plc (NBET) as grid supply. It also indicated that they must have an executed bilateral agreement with a DisCo for the construction of a distribution system (DUOS) to supply the customer and charge for it where applicable.

This requirement did not provide for the TUOS of TCN which is what most of the customers who are already weary of the DisCos’ services are adopting along with the respective GenCos.

In compliance with the NERC directive, TCN in a letter dated August 3, 2021 to all the Eligible Customers, notified that the companies will have their power connection terminated immediately.

The implication is that the affected customers would now have to go back to relying on their DisCos to get the power they had contracted through the bilateral contract they had, bringing them back to the old inconsistent power supply regime for their industries.

The question that beg for answers here without recourse to unending petitions and lawsuits is, shouldn’t the DISCOs consider structuring the transaction together and getting revenues from the DUoS/CTC charges from on grid/off-grid customers in their franchise areas?

It is counterproductive, illogical and unwise for any one  to deny the other the  opportunity of doing something which you have proved unable to do.

Is it not very clear and apparent to all that a buoyant and thriving economy will create more customers and revenue for all stakeholders in the value chain? In the face of skyrocketing prices of goods and services in the country, is it rational to throw roadblocks along the path of an initiative that will help stabilise the prices of the products of local manufacturers?

Doesn’t it fly against all logic that a country – in fact, the most energy poor country in the world – grappling with power supply shortage will have 2,000MW generating capacity lying idle and a means to put it to use is being crippled? Certainly, the motive behind the reversal of the eligible customer policy is less than noble.

Prof. Yemi Oke

(Professor of Energy/Electricity Law, University of Lagos, Nigeria)