The eligible customer declaration; pros and cons

by | February 6, 2018 12:35 am

Nigeria’s power sector is one with a chequered history, from the days of yore where we had the Electricity Corporation of Nigeria and the Niger Dams Authority all the way to the National Electric Power Authority (NEPA) and the eventual unbundling. In May 2017, the Minister of Works, Power and Housing made a declaration in line with Section 27 of the Electric Power Sector Reform Act (EPSRA) that allows certain classes of end-use customers to purchase electricity directly from the GENCO’s. After much speculation on the regime of the eligible customer, the electricity regulator recently released a set of regulations for the Eligible Customer Declaration. With that, certain speculations have now either been concretised or dispelled. However, there are areas that still remain to be addressed.

The declaration sways in different directions for different players in the electricity industry. For the GENCO’s, it seems to be a period of ecstasy, as they can now directly deal with customers and retrieve their tariff by and for themselves. It will enable them deal with large electricity consumers and perhaps solve the illiquidity problem in the power sector for which the GENCO’s have borne the brunt in the past. For the transmission company, it portends a regime that demands a properly functioning grid, as the eligible customers who fall under the category that have to execute a Transmission Use of System (TUOS) agreement will require at all times that the grid is functioning and reliable, the failure of which will result in consequences and grave penalties. The DISCO’s however, see this as a bleak moment for them as their large and Maximum Demand (MD) customers, which provide the bulk of the tariff received from customers by the DISCO’s are included under the categories of eligible customers. I do not find it to be an unworthy development, because truly, the time has come for this sort of transition in the country’s power sector. If the DISCO’s have not been able to effectively supply power, meter customers, ensure proper billing rates, erode electricity theft and collect tariffs since the unbundling, then perhaps the eligible customer declaration creates a necessary competition that will put them on their toes. The good thing too, is that, the eligible customers are not mandated –only allowed- to purchase power directly from the GENCO’s, thus the DISCO’s have a shot at keeping their customers by ensuring effective delivery of services. There is also the Distribution Use of System (DUoS) agreement which gives them the opportunity to distribute from the GENCOs to the eligible customer, a service they have to ensure high quality delivery for in order not to be facing lawsuits from the eligible customers for failure to deliver middleman minimum obligations. The Eligible Customer Regulations provides too, that DISCO’s in the area of supply of the eligible customers with serve as suppliers of last resort in the event of failure by a contracted supplier. With this string of duties and the need to bolster the confidence of customers, especially those who fall into the eligible customers category, assuredly, the DISCO’s are prompted to be more up and doing.

Yet there are certain things that in my opinion create a Pandora’s Box for this regime. First the competition transition charge which is to be used to offset any shortfall in the returns by DISCO’s as a result of the Declaration puts end-users at risk of high tariffs, a development that was fought tooth and nail by the NERC when the MYTO 2 attempted to increase the tariff rates in a bid to recoup losses of the DISCOs by transferring the burden to the customers. It is pertinent perhaps, to consider the question of what fate befalls customers, especially R1 and C1 customers, having, potentially a spike in the tariff rate.  In any event, since Section 30 of the EPSRA requires a public hearing before the fixing of the charges, then it is only fitting to wait patiently.

There also is the problem of priority. Just like in financing, where you have subordinated debts and senior debts, with senior debt holders having a first right over subordinated debt holders, there will arise the question of priority of distribution with the DISCO’s. When the DISCO’s have to service their usual customers and also have to supply eligible customer end-users as per the DUoS agreement, which of the two sets will take priority? The regulations are silent too, on the method for determining the cost by the DISCO’s and TCN for use of systems by the eligible customer.

The regulations are commendable though, as the financial requirement for end-use customers applying for the Eligibility Status to post Letters of Credit or Bank Guarantees in order to cover certain charges is forward looking and will ensure there are no stalled payment challenges.

In all, there is no scintilla of doubt that the rules of the game in Nigeria’s power sector are changing, and power has in a manner of speaking, shifted from the DISCO’s, to enable a liberalised market where end-users can now purchase directly from parties with generation or trading licenses. I am hopeful the Declaration addresses the conundrum that the sector has grovelled in, for the past four decades.

Caleb Adebayo