Can TCN Really Disconnect an erring DisCo?

TCN and the New Tango with DisCos: An new wine in an old skin

The on-going battle between Kano Electricity Distribution Company (KEDCO) and the Transmission Company of Nigeria (TCN) has brought to focus the effectiveness of certain key power sector market instruments. The brouhaha at best describes the current state of the Nigerian Electricity Market; weak in enforcement, undisciplined, and questionable regulatory oversight capacity.

In the case between the Market Operator (TCN) and Kano DisCo (KEDCO), the Market Rules expressly grants the Market Operator the power to “Settle payments in respect of Ancillary Services and other costs of operating the system and administering the Wholesale Electricity Market.” The market rules also grant the MO the power of enforcement as provided for in 10.2.16 “supervise Participants compliance with, and enforce the Market Rules and Grid Code.” In the current case, the enforcement includes suspension and disconnection of KEDCO. While the MO has seemingly carried out its duties as prescribed by the Market Rules, KEDCO disputes the invoice stating that the MO has not paid the award of N3.2bn which was awarded to it by NERC. The questions arising from this issue clearly shows a Market lacking leadership and discipline.

 It is evident from the state of gross noncompliance by the DisCos that the Market Operator (MO) has failed in the aspect of enforcement. However, the current new verve or ‘self-discovery’ by the MO deserves some kudos as it deserves further scrutiny.

Is KEDCO right in its dispute of the invoice?

When a participant disputes an invoice, there are laid down procedures for resolution of such disputes. In this case, KEDCO is refusing to pay its invoice due to failure of the MO to fulfil a previous monetary award. The validity of KEDCO’s action can be argued; however, as the Law rightly states, “he who comes to equity must come with clean hands.” Is it justifiable that an MO who has failed to obey the rules of the Market, carry out its duties as stipulated in Market Rules in a just manner? If a Participant defaults on payments, due to an invoice dispute (in this case KEDCO), the MO is obligated to draw down on the Security Cover as provided for by the Participant in order to settle the Market. As observed in this case, KEDCO has not paid the Security Cover in full. The current Market indiscipline is characterized by gross misconduct on the part of the MO and also the Participants. So, the pertinent question is ‘who bells the cat where operators and supervisors are undisciplined alike.’

What are the implications of disconnecting a market participant from supply?

In carrying out its duties with regards to disconnection of erring market participants, does this disconnection mean a total disconnection from the Transmission Network? The Market Rules, in describing a disconnection, provides that when a Disconnection is carried out, the participant is disconnected from the Network and all its rights shall be terminated.  The implications of carrying out the provisions of the Market Rules has far-reaching economic and political consequences. A DisCo such as KEDCO, as with most DisCos in Nigeria, covers a number of states; KEDCO covers Kano, Jigawa and Katsina states. Disconnecting KEDCO from the national grid will have a negative economic impact on these states, and with the current security challenges in the North East, this disconnection may result in the increase in insecurity in these states. Notwithstanding all these, what are the remedies available for consumers who regularly pay their bills? It is evident that the rights of customers were not considered during the draft of these rules and may be tested in courts of competent jurisdiction in the even that TCN carries out the enforcement of electrical disconnection of erring DisCos. The implications of the provision for electrical disconnection of erring DisCos portents far-reaching political and economic negative consequences. These issues throw up the question of how well these Rules and Regulations guiding the Market were thought-out, especially as it pertains to their practical implications.

Does the Sector have a functional Regulator?

The function of a Regulator is to ensure that the Market is run according to the Rules and Regulations guiding the sector. In case of a dispute, the Regulator sees to it that the Dispute Resolution processes are carried on appropriately and finalized according to the agreements between the parties concerned. However, in the TCN -KEDCO issue situation where an Alternate Dispute Resolution Panel, as provided for in the Market Rules, has awarded a party to a dispute (KEDCO) the sum of N3.2bn and the awardee is yet to receive the settlement, present the issue of regulatory enforcement capacity. The blatant disregard for the Rules and Regulations governing the Market shows that the Regulator is not performing optimally. It is not enough to make Rules and Regulations; there is the added need to ensure compliance with established rules and regulations. This situation, unfortunately, is an area where NERC has consistently dillydallied.  It is in this regard that the Market indiscipline and disregard for rules continues to persist without fear of regulatory sanction.
NERC has much work to do in order to carry out its duties while maintaining a viable and efficient Market.

It is of utmost importance that the Regulator improves in carrying out its duties as this will have a ripple effect on the Sector. The Regulator also needs to take into consideration the implications of the Rules and Regulations it makes in order to allow for full adherence without complicated consequences. It is advised that some of these Rules and Regulations be reviewed and improved in order to allow optimal enforcement.