NERC Considering ‘Take or Pay’ Penalty for DISCOs

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The Nigerian Electricity Regulatory Commission (NERC) has disclosed that it may set up a new regulatory penalty to curtail reported practices of electricity load rejection by some distribution companies (Discos) in Nigeria.

In its third-quarter 2019 regulatory report of activities in the sector, the regulator stated that the development was troubling. It explained that the amount of energy received by the Discos at their trading points decreased during the quarter by 3.15 per cent when compared with the previous quarter’s figures.

The NERC noted that in the quarter under review, the Discos accepted 6,627 gigawatt hour (GWh) of electricity from the grid as against the 6,843GWh they received in the second quarter of 2019.
According to the agency, the development also contributed to the 5.52 per cent decline in the total volume of energy generated in the third quarter of 2019 as compared to the second quarter of the year.

However, it stated: “In order to ensure an improvement in energy off-take by Discos, the commission is considering regulatory interventions, which may include take or pay obligation on capacity equivalent of MYTO allocation and/or adjustment of tariff mechanism, to discourage commercially induced load rejection and encourage investment in distribution networks.”

The NERC equally stated that the financial situation of the industry was still unstable but that its threats to revoke operational licenses of Discos who fail to meet up with minimum remittances to the market was yielding results.

It explained that during the quarter in review, a total invoice of N179.66 billion was issued to the 11 Discos for energy received from the Nigerian Bulk Electricity Trading Plc (NBET) and for service charge by the Market Operator (MO), but only a sum of N58.81 billion of the total invoice was settled, representing 32.73 per cent remittance performance.

“This represents a 2.13 percentage points increase from the settlement rate recorded in the second quarter of 2019. Although the Discos fully met the minimum remittance for MO, the average aggregate remittance performance to NBET was 32.73 per cent, with performance level ranging from 19.43 per cent (Jos) to 50.03 per cent (Eko).

“This is slightly lower than the minimum remittance threshold prescribed in the orders on minimum remittance issued to all Discos in July 2019 with Enugu and Ikeja failing to meet their remittance obligation during the period.

“However, following the commission’s commencement of enforcement of the minimum remittance order vide the issuance of notice for cancellation of licences, all Discos have since fully complied with their respective minimum remittance thresholds,” the commission stated.

NERC noted that notwithstanding the slight progress recorded in the third quarter of 2019, the financial viability of the market was still a major challenge threatening its sustainability.

“The liquidity challenge is partly due to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft and consumers’ apathy to payments under the widely prevailing practise of estimated billing.

“The severity of the liquidity challenge in NESI was reflected in the settlement rates of the energy invoices issued by NBET and MO to each of the Discos, as well as the non- payment by the special and international customers,” it further explained.