Lagos — Minister for Power, Works, and Housing, Babatunde Fashola, has, in the long run, bowed to Distribution Companies, DisCos’ pressure over allowing potential customers under their jurisdictions, to independently source for electricity outside theirs, a process is widely known as Eligible Customers, EC.
The DisCos had since the introduction of EC, argued that the process had contributed to a huge loss of revenue, as they have lost high-purchasing customers to independent producers.
However, the Minister had argued that the EC was the way to go since the DisCos could not sufficiently provide power to all customers within their networks.
in a consultation paper obtained by SweetcrudeReports on Sunday, Fashola has directed industry regulator, the Nigerian Electricity Regulatory Commission, NERC, to collect Competition Transition Charge, CTC from ECs, to serve as compensation to DisCos for their losses.
“The act of switching supplier by an EC is likely to leave a network operator with revenue deficit arising from assets may not be put in use and thus be stranded and liabilities that may not be recovered within the tariff cycle. It, therefore, becomes imperative for the utility to be compensated for this loss of revenue so as to enable it to sustain efficient service delivery and provide for growth and new investment”
“The aforementioned costs are not a permanent feature of the market but have arisen from the decision and choices made by customers. As the market continues to transit towards full retail competition, the regulator is required to ensure that the DisCos continue to maintain the opportunity to recover the allowed, efficient, verifiable and prudent costs. This is in consideration of the fact that the utility may have, prior to the commencement of the EC Regulation, made investments towards ensuring that the potential ECs in their franchise area was adequately served.”
NERC said it is required to, under the provisions of section 27 of the Electric Power Sector Reform, EPSR Act 2005, to determine the amount of CTC and the arrangement for its collection and distribution following a consultative rule-making process.
According to the Commission, the consultation paper was developed with a view to seeking inputs from all stakeholders notably the potential ECs, DisCos, other network operators, generators, trading licensees, government and electricity customers.
It explained that the introduction of competition into the industry will impact all the network operators (DisCos and Transmission Service Provider) as well as retail customers.
With the issuance of the Eligible Customer regulations, NERC said a number of DisCo customers have indicated interest in acquiring eligibility status, thereby exiting the contract for supply from a DisCo in preference for a bilateral contract for the supply of energy with a licensed generator or a trading licensee.
Section 76(1a) of the EPSR Act provides that utilities shall be given the opportunity to recover its efficient operating costs and a reasonable return on investment.
NERC explained that the argument for CTC is on account of the possible inability of the DisCo, where justifiable, to earn its allowed return on capital on the assets is invested in the business, its allowed return of capital (depreciation) that would enable it to recover the capital cost over the useful life of the assets and its efficient operating costs and overheads.
As a transitional mechanism, the CTC has been provided under the EPSR Act to allow the DisCos to recover the loss of allowed revenue arising from the exit of EC from their network. These costs consist of stranded assets and liabilities that adversely impact on the ability to recover approved revenue requirement.
NERC said it has in conformity with regulatory compact, provide the network operators with a tariff order designed to cover their prudent cost of doing business as well as a reasonable return on investment.
