{MUST READ} THE ELIGIBLE CUSTOMER POLICY : "BEFORE WE SHOOT OURSELVES IN THE FOOT"

 The concept of eligible customer has been an interesting discuss ever since the Minister for Power, Works and Housing declared the Eligible Customer Policy on May 15, 2017. Ostensibly, the policy is meant to further improve revenue reporting by other stakeholders in the power sector, especially the Generating Companies (GenCos) and Transmission Company of Nigeria (TCN).

     Amid the dwindling percentage of invoices paid by the Distribution Companies (DisCo) as reported by Nigeria Bulk Electricity Trader (NBET), the GenCos and TCN have consistently maintained that the massive revenue shortfall would lead to their inability to continue operations and eventual bankruptcy. The introduction of eligible customer policy allows GenCos to enter into bilateral agreements with willing customers that demand/require more than 2MW of electric power. This type of arrangement gives GenCos and TCN access to a direct revenue stream within the electricity market.

Mr. Gur Mohammed.MD/CEO Transmission Company of Nigeria (TCN)

     Recently, TCN made a plea to the regulator (Nigerian Electricity Regulatory Commission) to declare specific categories of customers as eligible customers based on the voltage profile of their supply. In their request, TCN made the case that industrial customers who are supplied at 132KV and 330KV do not benefit from the services of the DisCos since the operations of the DisCos are limited to 33KV and below. Ostensibly, this move was made to activate the eligible customer market further. The number of eligible customers under this category as proposed by TCN exceeds a hundred (100) industrial customers. The anticipation is that with this number of customers declared as eligible customers, the revenue reporting by the GenCos will improve significantly. This class of customers also joined TCN in making this call.

I-WIN’s Perspective

At the moment, the DisCos collect payment for electricity from the high-end industrial customers (132KV & 330KV), though they neither own nor maintain any facility used in supplying electricity to them.

By allowing the Discos to collect revenue from high-end industrial customers, the pressure on electricity tariff is reduced with regard to the residential customers (R2 and R1). The basis for this assertion is the fact that the principle of tariff is based on cross-subsidy; where industrial and commercial customers subsidise the low-end residential customers. The DISCOS made this case at the inception of the Transitional Electricity Market (TEM) on February 2015, and their request to keep these class of customers as part of their tariff design was granted. However, TCN’s request negates the basis for this exercise. By removing this class of customers, the DISCOS will necessarily require/request for a tariff review to ameliorate the anticipated revenues shortfall.

Currently, D class customers (the class in which the industrial customers fall into) pay about N40, but going by the existing eligible customer contract in the market today, the average price paid by this category of customers is below N30. Therefore, the removal of this class of customers from the DISCOS tariff structure means that these customers will be obliged a tariff far lower than what they are currently paying. The major questions are; who really benefits from TCN’s call to move this class of customers to eligible customers? Who truly profits from the call for eligible customers in the first place?

                I-WIN’s (Independent Energy Watch Initiative) understanding and take on this matter is as follows;

The eligible customer policy means different things to different people; to the GenCos it is an opportunity to ameliorate the chronic revenue shortfalls they suffer as it enables them to have direct access to market revenues; to TCN, in addition to having direct access to market revenues, it also provides the opportunity of earning wheeling charges that are higher than the rates prescribed by the regulator; and to the eligible customers, this policy offers the opportunity to pay tariffs that are significantly less than the rates they currently pay under the prevailing tariff regimes. This scenario is possible because this class of customers gets to avoid distribution charges if they are served on voltages higher than 33KV.

The cry for eligible customer is all about interests. Firstly, the GENCOS are frustrated and maybe justifiably so, because reports from NBET revealed they are getting only 30% of their invoices, it makes sense for them to legally look for all other possible alternatives for them to survive, including the eligible customer.

Secondly, our understanding is that the willing charge by TCN on the eligible customer contracts is higher than what is obtained from the market. Therefore, it means that TCN’s incentive may as well be additional revenue per unit of electricity.

The third class of interest is the industrialists. An industrialist who receives power at 132KV and 330KV is not in any way affected by the performances of the DISCOS, so the clamour by this class of customers to be declared eligible customers is based on their financial incentive. Once this class of customer is classified as eligible customers, they will get to pay half of their current tariff. The fourth class of interest is the power sector in general and Nigerians at large.

Revenue dumping: A new menace

Who really bears the financial brunt in the electricity market when industrialists that use power for commercial purposes pay nearly as little as residential customers? Who makes up for the revenue differential which will be dumped as a result of eligible customer policy?

The answer is obvious; the DISCOS will ask for tariff increment, and residential customers who do not use electricity for commercial purposes will have to bear the burden as tariff will keep rising. 

It is evident that the clamour for eligible customer regime will lead to revenue dumping by the electricity market. The logic of revenue dumping is quite simple; when high-end industrial customers get to pay nearly half of what they are currently paying under the prevailing tariffs, that part of revenue avoided gets lost permanently, further exacerbating the financial crisis in the sector. Therefore, it is obvious that revenue dumping, a current reality in the eligible customer scheme, is an unintended consequence of the eligible customer policy.

The objectives of the eligible customer policy are three-fold; reduce instances of stranded generation capacity, increase power supply availability, and improve liquidity in the electricity market. Therefore, while the intention is to improve power availability to high-end industrial users, it is doubtful if the intention was for this class of customers to pay less for electricity. Also, the regulator must realise the correlation between this policy and tariff.

The Nigerian electricity market is no-where near ready for eligible customer. However, the only way the eligible customer policy will work without having a debilitating effect on the Nigerian power sector is for the regulator to ensure that any category of customers classified as eligible customers continues to pay the same tariff prior to being declared as eligible customers. By so doing, revenue dumping arising from the eligible customer policy will be averted. This strategy does not refrain the GENCOS from entering into their preferred bilateral contracts with an identified eligible customer. However, what this implies is that the differential from the agreed price of power generated by a GenCo will be transferred to NBET and this process must be superintended by the regulator.

Prof. James Adeche Momoh. Chairman/CEO, Nigerian Electricity Regulatory Commission (NERC)

This way, the GenCos will have direct access to electricity market revenues, and at the same time, the electricity market will not suffer any shortfall. The other option, not recommended, is for the regulator to increase existing tariffs to accommodate the revenue shortfalls, while the industrial customers progressively pay less.

I-WIN recommends that both the regulator and NBET develop a mechanism for revenue protection to be part of the protocols observed under the bilateral arrangement for eligible customer contracts.