With Eligible Customers Regime, FG Gives GenCos Alternative Survival Kit

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Starting from May 15, power generation companies in Nigeria were given the go-ahead by the industry regulator, the Nigerian Electricity Regulatory Commission, to procure, generate, and sell electricity directly to end-users across the country with very minimal interference from the 11 electricity distribution companies. Called the eligible customers regime, the declaration, which NERC announced in a statement signed by its head of public affairs, Dr. Usman Arabi, explained that the Minister of Power, Works and Housing, Mr. Babatunde Fashola, had approved the declaration, thus making it legal for the Gencos to expand their business coverage. The Gencos are now to seek and invite large power users, usually found in cluster settings, to competitively procure their power directly from them if it is cost-effective for them to do so.

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NERC subsequently clarified that the declaration was legally backed by the provisions of Section 27 of the Electric Power Sector Reform Act 2005 (EPSRA), adding that it represents a major policy directive which grants electricity consumers under the eligible customers category the right to buy power directly from Gencos almost unhindered.

It stated that under the regime, Fashola had approved four categories of eligible customers in the Nigerian Electricity Supply Industry. The first category of eligible customers, it noted, comprised a group of end-users registered with NERC whose consumption was not less than two megawatts and who were connected to a metered 11kV or 33kV delivery point on the distribution network. This group would, however, be subjected to a distribution use of system agreement for the delivery of electrical energy.

The second category of eligible customers are those connected to a metered 132kV or 330kV delivery point on the transmission network under a transmission use of system agreement for connection and delivery of energy. The third category of customers under the declaration consisted of those with consumption in excess of two megawatts on monthly basis and who were connected directly to a metered 33kV delivery point on the transmission network under a transmission use of system agreement. NERC added that eligible customers in this category must have entered into a bilateral agreement with the distribution licensee licensed to operate in the location, for the construction, installation and operation of a distribution system for connection to the 33kV delivery point.

The fourth category, according to the regulatory agency, were eligible customers whose minimum consumption would be more than two megawatts over a period of one month and who were directly connected to the metering facility of a generation company, and had entered into a bilateral agreement for the construction and operation of a distribution line with the distribution licensee licensed to operate in the location.

Rationale  

The commission justified the decision of the government to grant its request for a declaration of an eligible consumers regime in the NESI.  It said, “The declaration, which permits electricity customers to buy power directly from the generation companies is in line with the provisions of Section 27 of the Electric Power Sector Reform Act 2005 whereby eligible customers are permitted to buy power from a licensee other than electricity distribution companies.”

It added, “In exercising the power conferred on him by the said Act, the Honourable Minister of Power, Works and Housing directed the Nigerian Electricity Regulatory Commission (the Commission) to permit four categories of customers to buy power directly from a licensee other than electricity distribution companies.”

NERC equally explained that the government and the commission looked forward to the new policy quickly bringing into use new and stranded power generation capacities, which might be contracted between generation companies and eligible customers. This, it added, would in turn introduce some level of healthy competition in the market, in addition to giving the Gencos viable outlets to channel their stranded capacities, which the Discos have been unable to take on account of inadequate distribution infrastructure.

According to NERC, “The declaration further provides that at least 20 per cent of the generation capacity added by the existing or prospective generation licensee to supply eligible customer must be above the requirement of the eligible customer and is supplied under a contract with a distribution or trading licensee at a price not exceeding the average wholesale price being charged electricity distribution companies by the Nigerian Bulk Electricity Trading Plc. 

“The conditions for the declaration of eligible customer are subject to review by the Nigerian Electricity Regulatory Commission from time to time.”

Gencos’ Appreciation 

In reaction to the new policy, the Gencos, who are among the direct beneficiaries of the regime, did not hide their appreciation of the move. Through their trade association – the Association of Power Generation Companies – the Gencos said it was a welcome development, one they had consistently pushed for. They said the government’s action would eventually become a lifesaver to them and the industry, which is currently distressed.

The Gencos stated that an effective implementation of the regime would put an end to reported unhealthy market practices by the 11 Discos who have been frequently accused of dishonesty in the management of monthly revenues collected by them. These acts are said to have contributed significantly to the market’s financial troubles wherein the Gencos are unable to pay their gas debts to gas suppliers as well as meet other operational obligations.

The Gencos said the declaration would boost business competition and financial fortunes of the sector, which is troubled by heavy revenue shortfalls. APGC said Fashola’s declaration of the regime was done in good faith, adding that it was made after the government consulted with operators in the sector, and it is clear the Discos would not be able to take as much power as the Gencos would generate in a very long time.

APGC’s executive secretary, Dr. Joy Ogaji, told reporters that with the declaration, bulk electricity consumers who were willing and had the capacity to procure power directly from the Gencos would now deal with them without the Discos. Ogaji stated that the trading agreements to be adopted in the new provision would be without the usual loopholes, which operators in the sector often capitalised on to shirk their responsibilities.

According to her, this would include, “water-tight contractual agreements because this is not going to be about any national cake.”

Ogaji equally disclosed that the Discos would be allowed to register as eligible customers and take extra power above their daily Multi Year Tariff Order (MYTO) allocations, to satisfy their customers without being fined but under the strict provisions of the regime.

She stated: “Discos are actually able to get power through this arrangement on the grid. Those Discos who are willing to get additional power qualify as eligible customers as well.

“If they have more customers and are not getting enough due to the strict national grid allocation, they can ask for extra power. In that case, a Disco will need a bilateral contract not with the Nigerian Bulk Electricity Trading Plc (NBET) but with a Genco, and the Transmission Company of Nigeria being the third party.” 

While the eligible customer directive has not commenced because, according to Ogaji, the NERC has yet to complete work on its implementation framework, its eventual implementation framework would include the deposit of a credible bank guarantee by a customer to secure the contract, as well as initiation and initialling of enforceable service level agreements between parties involved. 

Ogaji stated, “Declaring the eligible customers does not mean it is only the Gencos and Discos that must become competitive, even the TCN has to become competitive and deliver on contract. When TCN defaults by not wheeling my available capacities, it will be held liable.

“It is going to be a contractual framework because NERC is not part of the activity. NERC will only register the participants after they meet the requirements, which it is working on now.”

Experts’ Views 

Speaking on the new development, Mr. Rumundaka Wonodi, who was pioneer managing director of the NBET, and now chief executive officer of ZKJ Energy Partners, an energy advisory and investment firm, stated that the declaration by the government was healthy for the electricity market. Wonodi said it was easy to see that the Gencos frequently shut-in generation capacities on account of Discos’ inability to take them on board while large power consumers relied on expensive self-generated diesel power.

According to him: “This (eligible customers) criteria allows large consumers of power, especially industrial and large commercial users, to buy power directly from Gencos. Put in another way, it allows Gencos to sell directly to end users without going through the Discos.

“The declaration of eligible customers makes it imperative for Discos to provide better services to their customers if not the ones who qualify as eligible customers may opt for a different service provider. Eligible customers deepen the market and should lead to a competitive tension that will benefit the consumers.”

Source: ThisDay

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