August 28, 2024/CSL Research
Based on news reports, the Nigerian Electricity Regulatory Commission (NERC) announced on Tuesday that it has granted six states the authority to regulate their own electricity markets. In a statement on X (formerly Twitter), NERC confirmed that Enugu, Ekiti, Ondo, Imo, Oyo, and Edo States have established their own electricity regulatory agencies and will now oversee the electricity markets within their respective jurisdictions.
NERC described this regulatory shift as the “Order of Transfer of Regulatory Oversight of the Electricity Market” in these states. This order transfers regulatory authority from NERC to the newly established State Electricity Regulatory Commissions (SERCs) in Enugu, Ekiti, Ondo, Imo, Oyo, and Edo. As a result, these states are now empowered to regulate their electricity markets independently.
The independent regulator, the Nigerian Electricity Regulatory Commission (NERC) post the privatisation was charged with shepherding the industry to its ultimate structure – a multi-operator, competitive, open-traded electricity market. NERC regulates various aspects of embedded generation including distribution planning, connection requirements and commissioning procedure. It has also determined that the MYTO methodology is to be the basis for calculating the tariffs for embedded generators. This does not mean that NERC regulates the ultimate tariff between the power generator and the distribution licensee.
MYTO merely offers a benchmark for establishing costs; the actual wholesale tariff between the DisCo and embedded GenCo (IPP) is left to be agreed on commercial terms between the two parties. However, once the tariffs are agreed, they will need to be approved by NERC in its capacity, inter alia, to ensure consumer rights are not being overlooked and to prevent excessive and/or non-applicable costs being passed on to consumers.
By empowering state governments to regulate their electricity markets, these states can tailor regulations to address local needs and challenges more effectively than a centralized body might. State regulatory bodies may be more agile in responding to issues like power outages, tariff disputes, and infrastructure development, as they can act without waiting for federal approval. States can implement solutions that are more closely aligned with their specific energy demands, leading to potential improvements in efficiency, reliability, and service delivery. With regulatory control, states might attract more localized investments and innovative energy solutions, particularly in renewable energy or off-grid technologies.
That said, while this move towards decentralization could lead to more responsive and efficient regulation of electricity markets at the state level, it also presents challenges in terms of coordination, consistency, and regulatory capacity. States that lack the necessary expertise, resources, or infrastructure might struggle with implementation.
There may be challenges in coordinating between NERC and the state bodies, particularly in areas where federal and state jurisdictions overlap, such as interstate power grids. More importantly, different states might adopt varying regulations, which could lead to inconsistencies in electricity tariffs, quality of service, and consumer protection across the country. This variation might complicate operations for businesses that operate in multiple states.
