Legal Mandate

NERC was established by the Electric Power Sector Reform Act 2005 (EPSRA) to regulate the electricity sector. Having been established by an act of parliament, NERC is rated high on this indicator and is likely to boost investor and consumer confidence in the electricity sector.

Clarity of Roles and Objectives

NERC’s regulatory functions and the obligations of the regulated utilities are set out clearly in the Electric Power Sector Reform Act. This eliminates overlaps in the roles and obligations of the entities.

Independence

NERC maintains a high arm’s length relationship with the government and legislature. The law provides that Commissioners are nominated by the President of the Federal Republic of Nigeria and confirmed by the Nigerian Senate. The President also appoints the Chairperson. To ensure continuity, the terms of the commissioners are staggered. The tenure of the chairperson is 5 years while that of the other 6 commissioners are 4 years. Although the method of appointing commissioners and chief executive officers (CEOs) seems to give the government significant control over the regulator and a potential for regulatory capture, the commissioners can only be dismissed by the Upper Chamber (Senate) of the National Assembly with a simple majority vote.

NERC maintains a medium level of independence from stakeholders. The Act prohibits the appointment of commissioners of NERC if any of them has previously held a position in a regulated utility company. It also prohibits them from holding office in the utility immediately after leaving NERC. There is a mandatory cooling off period of two years. Ensuring an independent relationship with regulated entities reduces the ability of stakeholders to influence the decisions of the regulator and will boost investor confidence.

NERC rates high on independence in decision making because there is no requirement by the Act to seek approval from the executive on regulatory decisions, although stakeholder consultation is required. The regulator is the final decision-making body on regulatory matters. There are no formal provisions that allow the executive to overturn the regulatory decisions of NERC.

NERC rates high on independence in decision making because there is no requirement by the Act to seek approval from the executive on regulatory decisions, although stakeholder consultation is required. The regulator is the final decision-making body on regulatory matters. There are no formal provisions that allow the executive to overturn the regulatory decisions of NERC.

NERC has substantial level of control over its financial resources. The law details the sources of funding, and they include license fees, levies and government allocation. The board is responsible for approving the level of levies and the regulator’s budget. Control of budget allocation is directly under the board. This means that it has the authority and ability to appoint and provide adequate remuneration to its staff. Staff remuneration is based on Public Utility Salary Scale and is higher than those of the utilities. Such an arrangement is beneficial to recruit and maintain qualified staff at all times.

Accountability

NERC is rated low regarding accountability to its stakeholders. According to the respondent, NERC reports directly to the Presidency. Although the existence of a formal mechanism for regulated utilities to challenge regulatory decisions of NERC, no further information about the adjudication process was provided. In the absence of a specialised tribunal, regulated entities may challenge or contest regulatory decisions of the regulator only, through the regular judicial system

Transparency

NERC is rated high in terms of transparency of decision making. The public has access to such key regulatory documents as license application procedures, regulations, and tariff methodology, which are available from the regulator’s website. NERC is publishes major regulatory decisions and the reasons behind the decisions although the publication of regulatory documents and decisions is not mandatory under the law.

Predictability

NERC receives a substantial rating for developing clear mechanisms regarding the process to be followed for tariffs, licensing and when making and implementing changes in regulatory procedures and documents. The tariff methodology, adopted in 2014 clearly spells out procedures for tariff reviews. It can be changed by the regulator in consultation with regulated firms and stakeholders. This will assure investors that there will not be arbitrary or unexpected changes to the regulatory environment. There is a predictable mechanism used by the regulator to disallow costs considered unreasonably incurred by a regulated entity. High predictability will encourage commitment to longer-term investments. Procedures and timelines for obtaining licences are published on the NERC website and applicants are regularly updated on the status of their licensing applications. The procedures may be changed by regulatory action.

Participation

NERC is rated medium for ensuring that there is a clear mechanism for stakeholder participation in the regulatory decision-making process. Although stakeholder consultation is not a strict requirement in the law, the regulator engages stakeholders through public and consultative hearings. It also receives written submissions from stakeholders and publishes these comments. This will allow for the consideration of stakeholder views in the decision-making process.

Open Access to Information

NERC is rated high for its open access to information. It has a website (www.nerc.gov.ng) where key regulatory documents are accessible. It ensures that underlying justifications for major regulatory decisions are made available.

Economic Regulation/ Tariff Setting

The level of development of economic regulation is low. NERC reports that it has developed a tariff setting methodology, which includes a schedule for major and minor tariff adjustment, a written formula that prescribes how end-user tariff levels are to be set and mechanisms to compensate generators for the provision of firm capacity or ancillary services, however a copy was not attached and no indication was provided to point to the document. NERC reports that there is a provision in the tariff methodology that requires the utility to seek approval from the regulator prior to making major investments. However, NERC has not undertaken a cost of service studies and the current tariff in Nigeria is still below the cost-reflective rate level. Utilities are not compensated for the costs of stranded assets but commercial and industrial consumers cross-subsidize residential consumers. This has the potential to increase the cost of doing business in the country.

Technical Regulation / Quality of Service

There is a high level of development in quality-of-service regulations and codes in Nigeria. NERC collects data and carries out analysis on the performance of utilities and discusses the results with them. Fines are imposed on utilities that fail to meet quality of service standards. Although ceilings have not been set and enforced for key quality of service indicators such as the Systems Average Interruption Duration Index (SAIDI) and the Systems Average Interruption Frequency Index (SAIFI), the introduction of service-reflective tariffs partly addresses this. Under the service-reflective tariffs, consumer categories are assured a minim number of hours of electricity supply in a day in return for a commensurate tariff.

Licensing Framework

There is a high level of development of the licensing framework, covering both grid-connected and off-grid systems, to guide potential investors interested in entering the market.

Institutional Capacity

There is a substantial level of human capacity to deal with all the key regulatory functions of the NERC, including technical and economic analysis and modelling.

Renewable Energy Development

There is a low level of regulatory development for renewable energy. Renewable energy assessments have been carried out to inform the public on the commercial development of RE resources. The country has established a Renewable Energy Master Plan (REMP) that directs how the country will increase the share of renewable energy generation. The country has developed policies and regulations including NERC Renewable Energy Feed-In Tariff Regulations 2015 (covering Solar, Wind, Biomass & Small Hydro); National Renewable Energy and Energy Efficiency Policy 2015; Renewable Electricity Policy Guidelines 2006; and National Electric Power Policy 2001. The framework guarantees access to the gird however there is no dispatch priority given to renewable energy.

Mini-Grid and Off-Grid Systems

There is a high level of regulatory development for mini-grid and stand-alone systems – both grid-connected and off-grid. Established mini grid regulations (2016) highlights the procedures and processes for mini grid developers to operate in the country, clear provisions in terms of technical and quality standards and systems certification are in place. Under the willing buyer; willing seller model, mini grid operators may enter into direct agreements with the community consumers in specific areas. The regulation provides for compensation to the operator if and when the distribution utility expands it network. Fiscal incentives available are duty exemptions and grants for capital costs.

Energy Efficiency Development

NERC scores low in its regulatory framework for energy efficiency. This is because although there is an energy efficiency policy or legislation aimed at improving the scale and scope of energy efficiency adoption in Nigeria the action plan and all activities are targeted at improving energy efficiency at the utility level. According to the respondent, there are no fiscal incentives for energy efficiency projects or efficient equipment acquisition. Neither MEPS nor labels have been developed for end-use electrical appliances.

Implementation of energy efficiency is under Ministry of Power and Energy Commission of Nigeria (ECN). ECN has developed Minimum Energy Performance Standards (MEPS) in lighting and refrigeration products that have been adopted by the Standards Organisation of Nigeria (SON) and Nigeria Customs Service.

Financial Performance and Competitiveness

The level of development in economic regulation does not translate into regulatory outcomes regarding financial performance of the utility and the sector. From the perspective of the utilities, there is a low level of development in financial performance and competitiveness of the utilities. At the current tariff level, coupled with the high losses and low collection rates, the total revenue from electricity sold by the utilities is inadequate to cover their total expenditure on operations and maintenance as well as their debt service obligations. Although the regulator approves power purchase agreements and recognize price adjustment clauses in the power purchase agreements for tariff setting, it does not always follow the schedules for tariff reviews. There are mechanisms to deal with power theft but no predictable mechanism to disallow cost considered unreasonably incurred by the utilities. However there is an agreed transitional path between regulator and utilities to attain cost reflective tariffs.

Quality of Service Delivery (Commercial and Technical)

The level of regulatory development on quality-of-service delivery is low. There are no ceilings set for important indicators such as SAIDI and SAIFI and they are not factored into tariff setting. The lack of a consistent mechanism to hold utilities to strict quality of service standards could undermine consumer confidence.

Facilitating Electricity Access

The level of regulatory development to facilitate access to electricity is rated low. The government, utilities, consumers, and non-governmental organizations provide funds for rural electrification in Nigeria. However, the regulator does not reflect in the tariff, the need for the utilities to recover investment made in rural electrification.