Regulatory Hammer Dangles over Power Discos

Electricity distribution companies in Nigeria’s power sector are currently on a regulatory tightrope following various orders and tough talks from the Nigerian Electricity Regulatory Commission, writes Chineme Okafor

Recent developments in Nigeria’s power sector may not have come quite pleasing to the 11 electricity distribution companies (Discos). Within the last couple of weeks, the Discos may have seen ample reasons and signs from the Nigerian Electricity Regulatory Commission (NERC) to want to be primed for probable but uncomfortable developments that are bound to come upon them.

First, it was the government’s declaration of the eligible customers’ regime on the counsel of the NERC thus approving bilateral trade relations between electricity generation companies (Gencos) and bulk power consumers. The declaration was with the intent to minimise Discos’ interference in such electricity trades.

Then followed a fresh order by NERC to maximum demand consumers without meters to henceforth stop payments of estimated bills to the Discos, but with no deliberate intent to make them lose revenues from the large power users, who constitute the most of their revenue base.

Following up on these two orders, NERC then disclosed that it would disband the boards of any of the Discos found guilty of poor operational performances since taking over their distribution assets.

Speaking at the 16th edition of the monthly power sector operators’ meeting which was hosted by the Niger Delta Power Holding Company (NDPHC) Ltd, at one of its transmission stations in Ugwuaji, Enugu State, NERC’s Commissioner for Engineering Performance and Monitoring, Prof. Frank Okafor, stated that the regulator had initiated a regulatory proceeding that may lead to the sack of the management boards of the 11 Discos over their alleged poor performance ratings.

Okafor explained that the regulatory commission was fed up with the operational excesses of the Discos, especially on their reported failures to abide by the performance agreements they signed with it in providing meters for electricity consumers in the country, and would in this regards initiate tough regulatory actions against them.

He noted that, at the moment, the Discos had failed to accomplish the terms in the metering plans they submitted to the commission, adding that they have rather resorted to unfair practices of estimated billing of consumers, a development it would no longer tolerate.

The Discos have in return accused the government of frequently interfering in the regulation of the electricity industry by the NERC, and then denying them cost reflective tariff. They’ve also stated that debts owed them by government MDAs have continued to pile up though the government has commenced efforts to pay off the debt.

The financial shortages that were built up by government’s interference in the market’s tariff have also been referred to by the Discos as a huge challenge to their operations.

Tough Talk

While explaining the opinion of the regulator on the performances of the Discos, as well as its choice of action, Okafor said: “There are so many challenges, I will tell you, and I will also tell you that a lot of the Discos have not done well in metering people. They committed to certain level of metering every year, but they have not done that.”

“We are looking at very heavy sanctions including calling off the boards of some Discos and replacing the boards. It is going to be as bad as that very soon because NERC has a right just like the Central Bank does to the banks, to sack the board and put in a new board,” he stated.

According to him, “We cannot continue to suffer like this, and power as you know without it we cannot do much. If we are going to impose any sanctions, it is going to be based on the performance agreements they signed. There are also commitment they made in this meetings and some of them have not done much.”

Buttressing the commission’s conviction on the poor showings of the Discos, Okafor noted: “Remember there was the NEMSF fund which was to beef up the metering commitment of the Discos but it doesn’t appear they are doing that and we are working to make sure that they have to do that.

“NERC developed a procedure for estimated billing, but what the Discos claim they do is definitely not what they should do and we are looking at that. The metering rates should increase tremendously, and if you must estimate, it must be reasonable because there are ways of estimating and they know but want to reap where they did not sow.”

New Order

In addition to the possible board disbandment, NERC also made to stop the Discos from profiteering from their maximum demand customers with its order stopping further estimated payments to them.

The order, which came at a time the Discos’ revenue remittance performances to the market have been extremely poor – an average of 25 per cent every month, would certainly affect the Discos’ financial status considering that this consumer class historically holds the juiciest end of their revenue base.

Accordingly, the MD customers are commercial and industrial customers, who consume high levels of electricity and contribute substantially to the revenues of Discos. The consumption threshold for MD customers is 45KVA, while their meters are connected on the 11Kv (high tension wire) electricity lines, mostly on dedicated transformers.

This class of customers include heavy users of electricity like commercial business plazas, large firms, and small-scale industries among others. They, from the statistics provided by the Manufacturers Association of Nigeria, spend billions of naira annually to power their operations, and from which the Discos benefit.

Even though the power supplies in the country and indeed to this class of consumers have been poor, MAN, in 2016 disclosed that its members spent a whopping N9 billion to generate power on daily basis to keep up with their manufacturing activities.

MAN’s president, Dr. Frank Jacobs, had during a courtesy visit to the Minister of Science and Technology, Dr. Ogbonnaya Onu, stated that, “From last year, nothing has changed in the sector. We all know that in terms of generating power, our members spend billions of naira in generating power and this is going up daily because we are daily increasing capacity. I think, it is more than N9 billion daily.”

Though Jacob did not disclose how much of the cost on electricity manufacturers pay to the Discos for supplies to them, past reports indicated that it was, however, in billions, meaning a loss of such huge revenue source would be heavy on the financial books of the Discos.

For instance, if the Abuja Disco which has a lot of government ministries, departments, and agencies (MDAs) under its service network, and which are under the MD category, fails to provide meters as directed by the NERC, it would for the period it is unable to do this, lose huge sums of revenue.

Justification

Following from its June 2016 order to the Discos to fully meter their MD consumers by November 30, 2016 which was a mutually agreed time frame for the job to be done after which it will take regulatory actions against recalcitrant Discos, the NERC subsequently pulled the trigger last week and called on unmetered MD consumers to shelve paying their bills to the Discos.

NERC said in a statement announcing this that it received appeals on compliance deadline from Discos prior to the expiration of the November 30, 2016 deadline and the deadline was extended to March 1, 2017 after consideration of these appeals.

But upon due consideration of existing facts and the expiration of the compliance deadline granted to the Discos on metering of MD customers, NERC then directed: “Any MD customer that was not metered by March 1, 2017 shall not pay any electricity bill presented by a distribution company on the basis of estimated billing methodology.”

It also asked these customers to report to it possible instances of breaches by the Discos, stating that: “No distribution company shall disconnect any MD customer that was not metered by 1 March 2017 on the basis of the customer’s refusal to pay a bill issued after the compliance deadline on the basis of estimated billing methodology. Any MD customer that was not metered by 1 March 2017 should notify the Commission directly.”

Misunderstanding

But shortly after the order was made, the Nigerian Electricity Regulatory Commission (NERC) had to clarify its application following reports that it applied to all classes of consumers including residential users.

The NERC in its clarification stated that the order barring the 11 Discos in the country from billing electricity consumers without meters was only applicable to MD and not residential consumers.

It explained in a statement from its Assistant General Manager, Media, Vivian Mbonu, that the order affected only electricity customers within the consumption threshold of 45kVA and above.

According to it, for non-maximum demand and unmetered customers on the Discos’ networks, the Discos have been notified to adhere strictly to its approved estimation methodology which it said was the ‘Estimated Billing Methodology Regulation’.

The regulatory agency also advised electricity customers to make the most of its redress mechanism in instances of contested electricity bills before seeking further legal advice.

“The underlying rationale to this directive is the effect that since this category of customers have been completely metered as directed by the commission and reported by the Discos, no maximum demand customer should be issued with estimated bills,” NERC explained.

Discos Step in

Not wanting to abate quickly and likely to cause more troubles for the Discos, their trade association – the Association of Nigerian Electricity Distributors (ANED)- also came out to clarify the position of the order.

ANED’s Chief Executive Officer, Mr. Azu Obiaya, said that while it recognised the frustrations of its other classes of customers who do not have meters, it was, however, working hard to ensure it achieves full metering of its consumers soon.

They thus called on other consumer classes who do not have meters yet to show some patience with them.

“We recognise that significant interest in the NERC notice is directly linked to our customers’ requirement that they be metered. And rightly so. It is critically important that we state that there is no more interested party in the comprehensive metering of our electricity consumers than the Discos,” said Obiaya.

Stating that the Discos were more anxious to provide meters for all its customers than the customers themselves, Obiaya further explained: “And this is because we understand and fully appreciate the importance of the balance between electricity consumers tracking their consumption versus Discos having a measure of electricity supplied to their customers that metering brings. It is our hope and expectation that such metering will be achieved sooner rather than later.”

“While we continue to operate with the estimated billing methodology that is approved and mandated by NERC, we are working diligently towards addressing the metering obligations specified under our performance agreements with the Bureau for Public Enterprises (BPE), as well as ensuring that we continue to be sensitive and responsive to the inadvertent challenges of estimated billing that our residential or non-MD customers are faced with,” he added.

Further on the NERC directive on MD customers and the dusts it had raised, he stated: “The publications have, erroneously, stated that the requirement of non-payment of electricity obligations, in the absence of the customer not being provided with a meter, applies to all electricity consumers. This is incorrect. For clarity, this requirement only applies to, and is specific to MD customers and not residential customers.

“For further clarity, MD customers are commercial and industrial customers who consume high levels of electricity and contribute substantially to the revenues of Discos. The consumption threshold for MD customers is 45KVA.The MD meters are connected on the 11Kv (high tension wire) electricity lines, mostly on dedicated transformers. The customers include heavy users of electricity like commercial business plazas, large firms, and small-scale industries among others.”