Nerc cow's Discos with punitive action

The Nigerian Electricity Regulatory Commission has raised concerns over the rejection of electricity loads by power distribution companies, despite widespread blackouts in many parts of Nigeria. The commission stated that it may enforce regulatory actions against Discos that fail to meet key performance targets for electricity offtake, emphasizing the growing disparity between available power capacity and customer demand.

The commission’s latest quarterly report for Q3 2023 revealed that the Partial Activation of Contract regime, implemented in July 2022, defines the target volume of energy to be off-taken by Discos at any time as their Partially Contracted Capacity (PCC). Under this regime, Discos have take-or-pay obligations on their PCC, which means they must pay for available power capacity irrespective of their offtake. This structure aligns with international best practices for long-term contract-based power procurement and ensures that power generation companies receive capacity payments to compensate them for availability.

Despite the large disparity between available capacity and customer demand, the commission expressed concern that many Discos do not take their full PCC due to technical limitations and load rejection, primarily driven by commercial reasons such as high losses in certain areas. To address this, the commission included load offtake as a key metric in its KPI Order, effective October 2022, and stated that persistent load non-offtake beyond certain thresholds may trigger regulatory actions against the management of erring Discos.

Additionally, the commission highlighted that when Discos have offtake ratios below 100 percent, they incur increased wholesale energy costs as they are still obligated to pay NBET/Gencos for unused capacity without a means to recover revenues. The report showed that during 2023/Q3, all Discos took less than their available PCC, except for Eko and Ibadan Discos, which recorded offtake performance above 100 percent, thereby benefiting from reduced wholesale energy costs.

The commission emphasized the use of its Order on Performance Monitoring Framework to enforce appropriate regulatory actions against Discos that fail to meet the KPI targets for offtake ratio and stated that the situation room set up by the commission will continue to analyze the energy offtake performance of Discos daily and intervene with their management as required.

Power consumer groups have expressed dissatisfaction with the load rejection by Discos, calling for disciplinary sanctions to ensure improved electricity supply to end users nationwide. Meanwhile, the NERC explained that the Partial Activation of Contract regime mandates compensation to Discos through Liquidated Damages in the event of capacity shortfalls by Gencos or the Transmission Company of Nigeria.

In summary, the commission outlined regulatory measures to address the issues related to electricity load rejection and emphasized the importance of ensuring that Discos meet their offtake obligations to mitigate the growing disparity between available power capacity and customer demand in the power sector.