Key highlights
- State electricity regulation could lead to increased costs for consumers and operators in the short to medium term.
- Small states may struggle to attract power investments, and this could increase costs for customers in neighboring states.
- NERC will continue to carry out its duties despite the implementation of state electricity regulation.
Legal Practitioner and Former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr Sam Amadi, has said that state electricity regulation will mean more consumer and operator costs for Nigerians.
Disclosing this during an exclusive chat with Nairametrics, Dr Amadi provided some insights into how the state electricity regulation will affect consumers, operators, and state governments.
Creating multiple regulatory institutions within a state, according to Dr Amadi, is inefficient as this could lead to increased costs for consumers in the short to medium term. He said:
- “If there are no improvements in the quality or quantity of energy, the cost will be passed on to customers. Providing extra regulatory support means the bodies will be paid by the market, meanwhile, the market has not expanded. However, the structure set up will determine if the market will expand and investments will come in.”
Some states are too small to attract power investments
Dr Amadi highlighted the fact that some states cannot attract any investment, because the numbers are too small. He provided a scenario of removing Rivers state from the Port Harcourt Disco (PHED), which would lead to consumers in Cross River, Bayelsa, and Akwa Ibom seeing an increase in costs because industrial customers from Rivers state are no longer there, and revenues will drop at PHED.
So, the cost burden will be passed to those in Cross River, Bayelsa, and Akwa Ibom. And these locations may not have the same number of industrial customers as Rivers state, which could help reduce the cost burden on household and small medium enterprise (SME) customers.
Widening of tax bracket for operators
According to Dr Amadi, the state electricity regulation will amount to a widening of the tax bracket for operators in the sector. He said that If states have the power to generate, transmit and distribute electricity, it is expected that operators will pay taxes and fees to the state.
Dr Amadi said that there will be state-approved taxes as the incentives to drive up internally generated revenues in the states will be higher. He however clarified that it might not be that operators will pay more in terms of taxes, but they will be paying state royalties or taxes depending on how the market is structured in those states they are operating in.
NERC is not abolished but the implementation of state electricity regulation needs to tackle multiple regulations
If the implementation of the state electricity regulation is not executed properly, the country will have to deal with multiple regulations across the board and it needs to be avoided.
Dr Amadi told Nairametrics that companies doing business in the states will be guided by states because they are involved in the supply, selling of power, looking for embedded generation licenses, off-grid positioning, and similar action steps, so they should be state regulated.
He also noted that the constitutional amendment did not stop NERC from carrying out its duties, it only said states can now do the same thing. He said:
- “NERC is not abolished, If the states take up the responsibility of regulating transmission, distribution, and generation, then, there could be a potential conflict between federal law and state law. In this case, there will be a need to determine boundaries. It is either they kill off the federal regulation or limit its operation to federally owned assets.”
The fate of distribution companies (Discos)
According to Dr Amadi, if states take over distribution and make electricity laws, it means Discos (distribution companies) could have multiple operations.
There could be a grandfathering of Discos. For example, a company in a state can decide to work with Abuja Disco. So, that collaboration can birth subsidiaries licensed by the state authority and will operate in that state but are now operating differently from other states who have different regulations.
He also added that in the case of distribution, there is no federal capital territory apart from the FCT, Abuja, which means NERC will probably be regulating distribution in the FCT alone.
How NERC will exist side by side with state regulators
Dr Amadi told Nairametrics that NERC can exist side by side if there is a general review of the mandates of the commission and the soon-to-be-established, state regulators. For example, we can have NERC solely manage the transmission of electricity and regulate it in terms of the law which others can use.
According to Dr Amadi, it all depends on jurisdictional arrangements; if it is properly arranged, NERC can exercise specialized jurisdiction over interstate transmission networks, and issues around the transmission of power.
Meanwhile, states can be responsible for setting up transmission networks if they can do that. This means that states can have companies that are transmitters, but federal regulation is what they operate with. He said:
- “Also, we can have states set up distribution companies where NERC provides economic regulation while the states can do their technical and consumer regulations. We can as well unbundle NERC and make it deal with the federal transmission. But the question is not what can be done, it is what is economically viable and technically feasible.
- “Which of the states can run a transmission network? Few states in Nigeria can do that. For instance, can Ekiti state run a transmission company?
- “All over the world, we usually have power transmission as a public good, meaning that one transmission line works for everybody then each of the states has its distribution company, they are responsible for the transmission asset within their state and then they can have multiple suppliers who are selling power from the distribution grid that is coming from the transmission networks.
- “In Nigeria, we are dealing with between 4000 to 5000 megawatts (MW), maybe Ekiti could have 200 to 300 MW daily, is that enough to build a transmission and distribution network?
- “So, I think the new constitutional amendment is a Greek gift and is not a substantial transformation in terms of operation ability.”
Discussing how to increase costs is the focus??? How about increasing the amount to 24hr lights