1. Introduction
After receiving presidential approval for amendments to Paragraph 14(b) Part II of the 1999 Constitution of the Federal Republic of Nigeria, the electricity market in Nigeria underwent a shift change towards decentralisation. This amendment empowered the state to make laws concerning electricity generation, transmission, and distribution for regions without access to a national grid system. Thus, states were effectively granted the authority to legislate on these matters independently. Consequently, each state gained legislative autonomy over electricity generation, transmission, and distribution within its jurisdiction. The State Electricity Authority became responsible for issuing licenses for mini-grids, IEDN/IEDNQ5, and IETN/IETNOs, while the Nigerian Electricity Regulatory Commission (NERC) maintained regulatory oversight in states lacking a legal or institutional framework for regulation.
The Order on the Transfer of Regulatory Oversight of the Electricity Market from the Nigerian Electricity Regulatory Commission to the Enugu State Electricity Regulatory Commission ("EERC") ("The Order") signifies a pivotal shift in the governance of the electricity sector in Nigeria. This regulatory action, per the Electricity Act 2023, is a move towards decentralisation of the electricity market to enhance management efficiency, operational efficiency, and regulatory effectiveness within the state's electricity sector. This Order aims to transfer regulatory oversight to EERC, provide a transition plan, and address transitional matters arising from the transfer. This piece will explore the Order's key components and analyse the decentralisation's effectiveness.
2. Background of the Order
NERC oversees the Nigerian Electricity Supply Industry ("NESI") under the Electricity Act 2023 ("EA") and retains the role of central regulator with regulatory oversight on inter-state/international generation, transmission, supply, trading, and system operation. States wishing to institute and oversee intrastate electricity markets must adhere to the guidelines outlined in Section 230 of the Electricity Act 20231. This section provides that the states shall formally inform NERC of their intention to do so. Subsequently, the NERC is tasked with devising a transition plan and schedule for transferring regulatory authority over the intrastate electricity market from the NERC itself. This enables states to pass legislation for the creation of an electricity market, an electricity regulatory body, and inform the appropriate successor electricity distribution licensee.
Upon a state's expression of interest, it will notify the NERC, prompting the NERC to formulate and issue an order delineating a plan and schedule for the transfer of regulatory duties from the NERC to the State Regulator within 45 days of formal notification2. When a state achieves this, subsidiary companies can incorporate a subsidiary electricity distribution company within two months. They can then proceed to transfer assets, liabilities, employees, and contractual rights and obligations3. However, this transfer must be bona fide and agreed upon by the creditors, the subsidiary Company, NERC, the state electricity regulatory authority, and any third party.4
Once this transfer is completed, NERC is stripped of regulatory responsibility for electricity market activities within that state. The State regulator will issue a license to the subsidiary Company incorporated and the company is under the regulatory oversight of the State Regulator and will not pay any form of license fees to NERC.5 However, NERC will continue to regulate electricity generation, transmission, system operation, and distribution in States that have not transferred regulatory responsibilities. The Commission and state regulatory authorities must establish an inter-governmental body to promote harmonious relationships and coordinate the development of principles, standards, and rules for reducing regulatory risk in the electricity markets6.
3. Key Components
Decentralization: Enugu State Electricity Distribution Company ("EEDC") shall establish a subsidiary, EEDC SubCo,7 to handle electricity supply and distribution in Enugu State. The subsidiary must be established within 60 days8 and obtain a license from the EERC. EEDC must identify its network's geographic boundaries and install boundary meters at border points.
Regulatory Responsibilities: NERC remains the central regulator for NESI under the new legal framework to oversee inter-state/international generation, transmission, supply, trading, and system operation. EEDC is also required to establish an Asset Register for its power infrastructure in Enugu State, assess contractual obligations and liabilities, identify energy trading points, confirm employee requirements, and transfer assets, obligations, liabilities, and employees to EEDC SubCo.9 NERC keeps a register of licensees, permit holders, certificate holders, and other authorizations in Enugu State, detailing their authorized activities and national grid use.10Transfer Process: NERC will issue a transfer of regulatory oversight notification to registered Enugu State electricity companies and approve cross-border transactions11. While the EEDC SubCo must confirm contractual details for energy and capacity supply, seek approval from NERC, and prepare a register of licensees, permit holders, certificate holders, and other authorizations, NERC notifies registered companies of the transfer of regulatory oversight and approves national grid cross-border transactions.12
Tariff Methodology: EERC is responsible for determining and adopting end-user tariff methodologies within its regulatory oversight area. The Enugu State Government is responsible for tariff policy support while NERC approves contracts and tariffs for generation and transmission services in Enugu State, and EEDC SubCo must seek approval from NERC for energy and capacity supply.13 NERC notifies registered companies of a transfer of regulatory oversight.
Completion Timeline: it provides a completion date to the effect that all transfers envisaged by the order shall be completed by the 22nd of October, 2024.14
4. Reflections
Decentralization allows EERC to tailor regulatory frameworks and tariff structures to the specific needs of Enugu State, which may potentially lead to more responsive and efficient governance. The EERC will be closely connected to local stakeholders, and this could promote accountability and transparency in electricity market operations within Enugu State. Decentralization can help streamline decision-making processes and improve operational efficiency by aligning regulatory functions with the unique characteristics and requirements of Enugu State's electricity market. EERC's exclusive responsibility for determining end-user tariff methodology could also promote innovation and competition within the local electricity market, encouraging new service offerings and pricing strategies to meet consumer demands and improve service delivery.
While decentralization offers benefits, challenges such as capacity building, resource allocation, and coordination between state and federal regulatory bodies may arise. Effective collaboration and communication mechanisms are also essential for successful implementation. The effectiveness of decentralization will be measured by its impact on consumers, including service reliability, affordability, and access to electricity. EERC's ability to address consumer needs and ensure fair market practices will be crucial in evaluating the success of the regulatory transfer. This will depend on the ability of EERC to effectively regulate the electricity market, foster innovation, and ensure consumer protection while addressing the challenges associated with the transition. In all, the Order is a progressive step towards state-level empowerment in the electricity sector. It sets a framework for efficient governance and tailored service delivery within Enugu State and highlights a strategic approach to address local market dynamics and enhance regulatory efficiency.
Footnotes
1Part 9, NERC Order, 2024
2Part 9(3,) NERC Order, 2024
3Part 9 (4), NERC Order, 2024
4Part 9 (5), NERC Order, 2024
5]Part 9(8), NERC Order, 2024
6Part 9(10), NERC Orders 2024
7Part A, NERC Order, 2024
8Part B, NERC Order, 2024
9Part D, NERC Order, 2024
10Part E, NERC Order, 2024
11Part E, NERC Order, 2024
12Part F, NERC Order, 2024
13Part G, NERC Order, 2024
14Part H, NERC Order, 2024
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