Discos May Cede Networks to Third-party Power Distributors

•  NERC mulls new regulation
Chineme Okafor in Abuja

Worried by the inability of the 11 distribution companies to distribute power to many consumers, the Nigerian Electricity Regulatory Commission (NERC) has said it is considering a new regulation to allow third-party investors take up and maintain parts of the vast electricity distribution networks currently owned by the Discos.
The regulatory agency said the proposed regulation was necessitated by the lack of capacity of the Discos to deliver electricity to many consumers.

THISDAY gathered that under the regulation, Discos would be encouraged to cede parts of their networks to third-party investors on the basis of three likely business scenarios.
A consultation paper on the regulation, which was put out yesterday by NERC on its website, and titled: ‘Distribution Franchising in Nigeria,’ explained that by sub-franchising, the Discos would authorise a third-party to provide electricity distribution utility services on its behalf in a particular area within the Disco’s area of supply.
NERC added that the franchising arrangement can either be initiated by Discos or customer groups, including communities within a specified geographical boundary that may approach a Disco to allow it take up parts or all of its functions.
In the consultation paper, NERC equally clarified that specific roles for a demarcated area or function within the total licensed coverage of distribution can be franchised out by a Disco to a third party.
The regulatory agency, however, maintained that the main elements of such franchising arrangement may include the Disco supplying electricity to the franchisee metered at some injection point at a pre-determined price as per the franchise agreement and the franchisee supplying electricity to consumers of the Disco in an allocated area with tariff approved by NERC.
Depending on the franchising model chosen, NERC added that the franchisee may manage the metering, billing and collection (MBC) activities or the entire electricity distribution system in an allocated area, which may include the maintenance, upgrade and strengthening of the distribution system.
It also stated that the franchisee shall pay in full the cost of bulk energy to the Disco in line with the terms and conditions of their franchise agreement, and retain a portion of the revenue collected from consumers after deducting amount payable to the Disco.
“The franchisee will operate under the overall guidance of the Disco’s license and the Disco remains responsible to the regulator for compliance with its licensing terms and conditions.
“The franchisee may also procure additional generation from bilateral sources (outside capacities contracted with NBET) through the transmission grid and/or from embedded generation through distribution network to supplement the existing supply but procured in compliance with existing regulations of the Commission,” NERC explained.
NERC also noted that within the planned arrangement, its approved tariff in the Multi Year Tariff Order (MYTO) will be applicable.
“However, where distribution franchisee makes investments to provide additional power at a premium cost outside the provisions of the MYTO to cover the supply shortfall, it may attract “surcharge” subject to the commission’s approval in line with relevant rules and regulations,” NERC added.
On the business structures that may be adopted in the regulation, NERC stated that a franchisee could become a MBC (metering, billion and collection) company, thus allowing Discos to outsource their function of metering, billing and collection to a third party.
“A typical configuration may be to franchise the metering, billing and collection of a 33kV or 11kV feeder or a cluster of feeders to a third party for the supply of electricity to rural, semi urban or urban areas,” NERC said with regards to the MBC.
Also, the arrangement could have the third-party take over total management of the Discos’ function and in which the franchisee is responsible for maintaining the electricity distribution system.
“The franchisee undertakes the rehabilitation and upgrading of the distribution system, as required, by investing its own funds and recover through a project agreement with the distribution licensee,” NERC said.
The regulatory body added that the franchisee could undertake to procure more energy either through bilateral arrangements over the transmission network or embedded at local distribution networks level to meet the electricity deficit or peak demand deficit of customers within the franchise area.
“A carefully thought out and well implemented distribution franchise model is expected to result in a ‘win-win’situation for the Disco, the franchisee and the customers.
“The franchisee is required to have electrical distribution management expertise and the capacity to invest resources into the upgrade and expansion of the distribution system as required.
“The franchisee may implement the MAP Regulations, reduce ATC&C losses and carry out other services ordinarily carried out by Discos within the franchised area to achieve targeted performance improvements in accordance with the franchise agreement between the parties,” NERC added.
According to NERC, it envisaged that this will not involve the issuance of a licence to franchisees because they are expected to operate under the Discos’ distribution license.
It said the Discos would however engage a franchisee through competitive procurement processes.
Justifying the proposed regulation, NERC said: “Since the commencement of the power sector reforms in 2005, the Discos in Nigeria are unable to satisfactorily meet stakeholders’ expectations in the provision of access to safe and reliable electricity services to all customers within their franchise territories, especially those areas that are not considered to be economically viable.”
“Accordingly, introducing sub-franchising of Discos’ operations and coverage areas is expected to improve quality of supply of electricity to customers through investment in metering, billing, collection and network rehabilitation and expansion,” NERC added.