The Nigerian Electricity Regulation Commission (NERC), the body that regulates the electricity sector, will go ahead with the process that could lead to the cancellation of licences of eight electricity distribution companies (DisCos) accused of remitting poorly to the market even after they withdrew their petitions against the regulator’s review of how much they could remit back to the market.
The DisCos’ petitions against the regulator’s decision led to the order to cancel their licences, operators say.
In August this year, NERC issued the 2016-2018 Minor Review of Multi Year Tariff Order (MYTO) 2015 and Minimum Remittance Order for the year 2019 (Minor Review). The orders impose at least 30 percent increase in electricity tariffs for consumers while also raising remittance threshold to the market by the DisCos.
The DisCos said the order would not achieve cost-reflective tariff because it did not factor in technical and operating losses they suffer in the business before arriving at the rate.
The DisCos also said that NERC has not accounted for the years 2015 and 2016 which were adversely affected by events outside their control. Government ministries and departments were not paying electricity bills. There were general elections in 2015 and the economy entered a recession in 2016, factors that contributed to the regulator’s decision to keep tariffs constant even when it could not guarantee commercial returns for operators.
NERC said the DisCos could recoup shortages in both years in the future, a mechanism called ‘sculpting’, only the prices didn’t move until July 2019. The same year, the regulator imposed on DisCos the obligation to remit more to the market.
This is the substance of the DisCos’ petitions against the Minor Review Order.
“But the regulator was angry that we filed petitions against it and ordered public hearings,” said an official in one of the DisCos.
Sunday Oduntan, executive secretary, Association of Nigerian Electricity Distribution Companies, in a press release said meeting the obligations imposed by the regulator would severely harm their operations leading to the inability to pay salaries or maintain equipment. The regulator followed with a threat to cancel their licences, DisCos said.
In letters to NERC withdrawing their petitions against the Minor Review Order, the DisCos cited the need to engage more with NERC.
“The Company will continue with the ongoing discussions with the Commission in seeking lasting and sustainable resolution of the issue raised in the various letters earlier submitted,” Benin DisCo wrote in a letter to the regulator dated October 30.
However, the regulator had severally urged the DisCos to improve remittance to the market as some DisCos failed to meet agreed obligations in their performance contracts to reduce technical and commercial losses. Some even kept more of the revenue collected for themselves, paying others in the value chain, like power generation companies, less.
Following DisCos’ petitions against its Minor Review Order, NERC called for public hearings this week.
“NERC wishes to notify the general public that there will be no public hearing between 9am-12 noon on November 8th, 2019 as Ibadan Electricity Distribution Company has also withdrawn its petition against the Commission.”
However, other public hearings shall hold as scheduled,” the regulator said.
While NERC has now cancelled hearings on petitions on the minor review, it will nevertheless proceed with a public hearing on DisCos’ response to its cancelation order. If the DisCos are unable to show cause why their licences should not be cancelled, they would lose them on December 7.
The regulator had issued a notice of intention to cancel distribution licences to eight DisCos on October 8 for a breach of their contract in terms of remittance to the market.
The affected DisCos include Abuja Electricity Distribution Company plc, Benin Electricity Distribution Company plc, Enugu Electricity Distribution Company plc and Ikeja Electric plc.
Others are Kaduna Electricity Distribution Company plc, Kano Electricity Distribution Company plc, Port Harcourt Electricity Distribution Company plc and Yola Electricity Distribution Company plc.
However, NERC’s decision to make the hearings public is causing unease among the DisCos. Under the Electricity Power Sector Recovery Act, section 74 says a petition by various consumer groups could set off a process leading to the cancellation of a DisCo’s licence.
The DisCos have a notoriously poor perception by the public, so it is possible that a public court for the presentation of their defence could trigger enough public outrage to cause their demise.
Lawmakers serving on the Senate and House of Representatives Committees on Power met with NERC and the DisCos on October 23, imploring the Commission to hold fire as well urging DisCos to come up with plans to improve remittance.
The lawmakers called for alternative dispute resolution mechanism, but it doesn’t seem as though the regulator, keen on wielding the big stick, was persuaded.
“The consideration of a DisCo’s written response to the Cancellation Notice is a matter of significant interest to the general public and the Commission believes that the evaluation and decision-making process must be fair and transparent to all stakeholders,” the regulator said in a note published on its website.
NERC also warned the DisCos that providing false statements in their response is a crime and “is liable on conviction to a fine not exceeding one hundred thousand naira or imprisonment for a period not exceeding six months or to both such fine and imprisonment”.
To drive home how serious it was, NERC said that all financial submissions received from the eight DisCos would be forwarded to the Central Bank of Nigeria and Federal Inland Revenue Service for additional review.
Analysts say pulling the DisCos’ licences would result in financial losses for some of the core investors and trigger massive disruption of service in the system, which could lead to massive blackouts around the country.
ISAAC ANYAOGU
