NERC Regulation: Discos May Get Reimbursed for Losing Customers

Stories by Chineme Okafor in Abuja
The electricity distribution companies (Discos) may likely be compensated for losing customers to generation companies (Gencos) under the new eligible customers’ regulation of the Nigerian Electricity Regulatory Commission (NERC), THISDAY has learnt.

Under the new regulation which NERC issued in November 2017, to govern the procedures for the supply of electricity to consumers under the categorisation, Discos were expected to lose largely big customers on their networks to Gencos. However, the regulatory commission stated that a relief – the Competition Transition Charge (CTC), would be introduced to offset such loses by the Discos.

The NERC in a consultation paper published on its webpage, which was obtained by THISDAY, explained that the provision of CTC in the eligible customers’ regulation was legal, adding that the Electric Power Sector Reform Act (EPSRA) 2005 recognised it.

It thus said it expected stakeholders in the sector to respond to its proposal for the CTC in the consultation paper.
NERC said it was acting in line with Section 28 of the EPSR Act 2005 which provided that, “If the minister determines, following consultation with the president, that a directive under section 27 will result in decreasing electricity prices to such an extent that a trading licensee or a distribution licensee would have inadequate revenue to enable payment for its committed expenditures or is unable to earn permitted rates of return on its assets, despite efficient management, the minister may issue further directives to the commission on the collection of a competition transition charges from consumers and eligible customers.”

It noted that such decision was however subject to public consultation undertaken by it, hence, its request of input from stakeholders in the industry.
According to NERC: “The CTC is the amount a distribution network operator (Disco) is entitled to collect outside its normal tariff to cater for loss of revenue or its inability to earn permitted rates of return on its assets arising from the exit of an EC (eligible consumer) from its network.”

It hinted that eligible consumers’ regulation had opened up the sector to another phase of competition which would ultimately lead to full retail competition and full customer choice.
“Major issues arising from the introduction of retail competition, however, are the concerns related to stranded costs incurred in providing services to customers exiting the Disco network and how to compensate utility in line with the provisions of the EPSR Act.

“Stranded costs largely refer to investments in infrastructure by network operators that may not be recovered within the earlier projected life span of the financed assets arising from the transition from the traditional regulatory model being operated since the enactment of the EPSR Act in 2005 and the recent introduction of competition which now provides a window for eligible customers to switch supply from the Discos to trading and generation license holders,” NERC added.

On proposed procedure for obtaining and collecting CTC, NERC indicated a distribution licensee would have to file for loss of revenue claim with it, clearly indicating that despite its efficient management, it will be unable to meet its revenue requirement arising from the exit of an eligible customer.

Such claim, it explained would also have to be submitted within a month of receipt of the prospective eligible consumers’ notice of intention to exit network by the distribution licensee.
Additionally, it said it would review the claim to determine its veracity and hold consultations on the issue with relevant stakeholders involved in the transaction.
“If the Disco’s claim for loss of revenue is satisfactorily proven, commission computes the charge and issue an order for the payment by the EC.

The CTC shall be invoiced by the Disco based on the actual meter reading of energy consumed by the EC.
“The CTC payable shall vary to the extent of the recovery of stranded costs and deferred liabilities. The EC shall post a Letter of Credit in favour of the distribution licensee covering three months estimated,” NERC stated.

It said it was proposing that only the exiting eligible consumers should bear the burden of paying the CTC in accordance with costs causation principle of rate design whereby fairness demands that costs are apportioned to causative agents.
“The commission expects that the proposed ECs whose departure from the grid may cause revenue shortfalls will be in a better position to cover the market gaps in the short-term pending when some of these costs may be redistributed to consumers in a major review.

“This is notwithstanding the long run benefit other customers may likely derive from the introduction of competition especially in terms of expected improvement in service quality from the Discos.
“The proposed regulation will ensure that Discos do not suffer undue revenue gaps as a result of the exit of the eligible customers who originally formed part of their initial revenue requirement determination as operators are expected to remain revenue neutral in the short term pending when all costs are realigned or defrayed,” the NERC said.

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