Power customers to pay for leaving Discos networks

The Competition Transition Charge (CTC) is a new rule to make prospective Eligible Customers (EC) and other consumer class, compensate the 11 electricity Distribution Companies (DisCos) for leaving their networks to buy power directly from Generation Companies (GenCos).

Daily Trust analyses this rule as contained in Section 28 of the Electric Power Sector Reform Act (EPSRA) 2005 and enforceable by the Nigerian Electricity Regulatory Commission (NERC).

NERC on June 14, 2019 notified the public of a 21-day period in which it is soliciting contributions to a consultation paper on the CTC before the final rule is made. This period will elapse on Saturday July 6, 2019.

The commission said the CTC shall enable the DisCos recover permitted revenue and return on invested assets arising from the exit of ECs from their network.

The Eligible Customer Regulation

To ensure improved and competitive electricity supply, the former Minister of Power, Works and Housing, Mr Babatunde Fashola, empowered by the EPSRA, declared the Eligible Customer Policy in May 2017.

Fashola directed NERC to create the regulation that will enable electricity users who are not satisfied with the services of the DisCos to opt to buy power directly from the GenCos and have the energy transported to them by the Transmission Company of Nigeria (TCN).

By November 2017, NERC unveiled the Eligible Customer Regulation, opening the door for heavy industries, especially members of the Manufacturers Association of Nigeria (MAN), to connect to GenCos through TCN.

The regulation permits such bulk electricity customer to pay Transmission Use of System (TUOS) to TCN for using its energy wheeling facility to get the power to its facility. If, however, the Eligible Customer is using the DisCos line to deliver power directly to its facility, it will pay the DisCos the Distribution Use of System (DUOS) fee.

In August 2018, Mainstream Energy Solutions Ltd (MESL), operator of Kainji and Jebba hydropower GenCos announced that at least six of such companies (ECs) have been connected and are getting power directly to their facilities.

Many stakeholders including MAN, and operators of some GenCos have complained that other than the regulation, NERC had not provided the rules of engagement to enable more customers to disconnect from DisCos’ networks and get their power directly from GenCos.

NERC then published a draft consultation paper on the Competition Transition Charges (CTC) which it said would be in place before the regulation becomes completely implementable.

Upon expiry of the period for the public to submit contributions on Saturday, NERC will also hold stakeholders consultation workshops in each of the 11 DisCos to review written submissions and receive further comments from the public.

The crux of CTC

The Competition Transition Charges (CTC) consultation paper entitled, ‘NERC/2019/CP/CTC/01’ was prepared in April 2019. To implement this, Section 28 of EPSRA 2005 says if the Minister determines, following consultation with the President, that the Eligible Customer Regulation will result in decreasing electricity prices to such an extent that a DisCo would have inadequate revenue to enable payment for its committed expenditures, despite efficient management, the minister may issue further directives to NERC on the collection of Competition Transition Charges from consumers and Eligible Customers.

The CTC is the amount a DisCo is entitled to collect outside its normal tariff to cater for revenue loss arising from the exit of an Eligible Customer from its network.

While the Eligible Customer Regulation was to ensure the use of the acclaimed 2000 megawatts (MW) stranded power at the GenCos’ level, NERC said in the paper that it is determining the CTC rule to cater for ‘Stranded Costs’ which refer to loss of revenue and poor recovery of investments by DisCos arising from the transition – an Eligible Customer switching supply from the DisCos to trading with GenCos.

Some of these ‘stranded costs’ which customers must pay for before they can leave the DisCos’ networks include the computation of the DisCos vesting contracts, their shares of the N213 billion CBN loan repayment, cross subsidy of taxing high consuming customers to lower tariff of residential customers, and their overhead costs (employees’ salaries and other services).

How DisCos could be compensated

For a DisCo to be compensated, NERC said such DisCo will have to file for loss of revenue claim with the commission “clearly indicating that despite its efficient management, it will be unable to meet its revenue requirement arising from the exit of an Eligible Customer(s).”

The DisCo must write to NERC within one month of receipt of the prospective EC’s notice of intention to exit the DisCo’s network.

NERC will review the claim and consult relevant stakeholders involved in the transaction. If NRC is satisfied, it will compute the charge and issue an order for the payment by the Eligible Customer and the CTC shall be invoiced by the DisCo based on the actual meter reading of the energy consumed by the customer. The customer will be made to post a Letter of Credit (LC) in favour of the DisCo for at least three months.

Although the EPSR Act provides that the burden of stranded cost may be allocated to electricity consumers and the specific Eligible Customer and be charged the CTC, NERC said it is proposing that only the exiting EC should pay the CTC because he is leaving the DisCo’s network that will result in the under-recovery of the DisCo’s stranded cost.

NERC, however, called on the public to determine what class of electricity customers will join the Eligible Customer in paying for the CTC pending when it holds a major tariff review which occurs every five years.

 

Source: Daily Trust

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