By Noel Azubuike Obiora
In 2001 California suffered an electricity crisis because its largest electric utilities were not sufficiently credit worthy to enter new long-term power contracts with generation companies, and were financially unable to purchase electricity in the spot markets due to extraordinary increases in wholesale energy prices. Consequently, the State’s Legislature passed an Emergency Law that, among other things, effectively barred any eligible customer from departing the distribution companies’ load until the crisis was contained. Today, Nigeria is essentially facing the same crisis California suffered in 2001, but Nigeria’s response is to open the gates for eligible customers to depart load.
Why is a path that was antithetical to California’s efforts to achieve reliability in 2001, helpful to Nigeria under the same or similar circumstances in 2017? Neither the Nigeria Electricity Regulatory Commission (NERC) nor the Ministry of Power, Works and Housing examined this issue before the Minister’s declaration was made.
On May 19, 2017, the Ministry of Power, Works and Housing declared Nigeria electricity distribution network ready for eligible customers to purchase power directly from Generation Companies (Gencos). The good news is that until this decision to allow eligible customers is examined in an independent, stakeholder driven, fact determinative process, no properly run business not otherwise connected to Gencos would submit itself to this declaration. NERC cannot develop an effective eligible customer framework until it has an effective, stakeholder driven regulatory process. Such a process must be independent, transparent, stakeholder driven, and fact determinative. NERC has not yet developed such a process since its inception in 2015.
An effective regulatory process on the Minister’s declaration starts with examining the question: Who wants to be an eligible customer?
This data driven question not only examines the willingness of potential eligible customers but also collects data on the level of their commitment as well as the value and cost to meet that commitment both to the potential customer and the system. In the absence of actionable data on the question of who wants to be an eligible customer, one must assume that Nigeria’s power system administrators have not yet asked this simple question.
Further, an effective regulatory question also asks: How many eligible customers can each distribution area reliably and cost-effectively take? Can some distribution areas have eligible customers while others do not? If so, what non-discriminatory criteria would NERC employ to determine which regions should and which regions should not have eligible customers? These questions are separate from the technical questions of connectivity, distribution side metering, and open access requirements and “rights”, all of which are also preliminary questions an effective regulatory process must examine and understand before the mandate set forth in the Electric Power Supply Regulatory Act (EPSR) can be implemented.
The EPSR contemplated that the exit of eligible customers would have a debilitating effect on Distribution system’s reliability, which is why it provided for a customer transition charge in the event of an eligible customer declaration. Eligible customers must realize that this charge is to be imposed on them, in part to pay for investments that were made on their behalf while they were on the Distribution company’s system. Further, should they decide to return to the fold of the distribution company after leaving, there is a further charge, indeed a penalty that applies for that reconnection, and they must agree to both charges before exiting. Where at least one large electricity jurisdiction in the world has considered such declaration and concluded that it would be especially onerous to existing customers left on the grid, particularly the small residential and small commercial interests, Nigeria must tread carefully and equip its regulator with the right tools to make an independent assessment of the declaration.
Hopefully, all those who can be eligible customers are successfully run businesses, like banks, hotels, manufacturers and processing facilities, shopping malls, and so on. These businesses understand that “reliability” is achieved with guarantees not directives. Therefore, they should be asking the question: What “reliability guarantee” would the eligible customer get from Gencos that would be different from their current service? Absent an adequate response to this “reliability” question, the eligible customer declaration will not change anything. Further, in giving Gencos the license to supply retail electricity, NERC must realize that it has ventured into a precarious model that is highly susceptible to market manipulation, in any competitive electricity market that ultimately emerges, and NERC must establish safeguards against this vulnerability,
- Obiora is based in Abuja.