Nigerian Electricity Regulatory Commission

1. Nigerian Electricity Regulatory Commission Technical Regulation and Monitoring Challenges • A Presentation at NERC/NARUC Peer Review Exchange Programme in Ghana By Engr. Mary E. Awolokun Commissioner (ES&S) 2ndJune 2014 Electricity on Demand

2. Presentation Outline • Introduction • Legal Framework for NERC • Mandates and Objectives of NERC • NERC’s Technical Regulatory Responsibilities • Work Done on Technical Regulation and Monitoring (Regulatory Instruments) • Technical Regulation/Monitoring Challenges • Way Forward • Other Areas of Interest • Conclusion. Electricity on Demand 2

3. INTRODUCTION • Background and the Power Sector Reform. • Electricity was introduced into Nigeria in 1846 about 15 years after the utility concept took root in Britain. • National Electric Power Authority (NEPA) eventually emerged as a monopoly after the merger of Electricity Corporation of Nigeria and Niger Dams Authority in 1972. • Persistent Issues – led to the decision by government to embark on reforms. The drivers of the reform include: • Limited access to electricity ; low connection rates. • Inadequate power generation capacity. • Insufficient capital for investment. • Ineffective regulation. • Non-cost-reflective tariff. • High technical and commercial losses. • Inadequate transmission and distribution infrastructure. • Inefficient use of electricity by consumers. Electricity on Demand 3

4. LEGAL FRAMEWORK OF NERC The Nigerian electricity sector reform process commenced in 2000 with the National Electric Power Policy (NEPP) which was given a legal backing in 2005 with the passage of the Electric Power Sector Reform Act (2005). It involves the following: • Structural reform which involves unbundling or separating the potentially competitive functions from the existing vertically integrated monopoly (NEPA) and establishing a competitive industry structure for commercial operations; • Regulatory framework establishing the Nigerian Electricity Regulatory Commission (NERC) to regulate the industry; • Immediate opening - of the generation sector and eventually the distribution (retail sector) to new entrants;  • Competitive neutrality – establishing governance structures for the unbundled entities;  • Market design-establishing a national electricity market with associated institutions: Gencos, Transco, System Operator/Market Operator, DISCOs and Trader, with rules to manage the market; • Privatisation - of distribution and generation companies with only the transmission company retained under private Management; • Open access- enabling new participants especially the generators access to monopoly network infrastructure. NERC oversees prices and terms of engagement. Existing as well as expected engineering challenges can be traced to legacy issues and also to the imperatives of the ongoing reforms. Electricity on Demand

5. Mandates and Objectives of NERC The principal objectives of NERC as enshrined in the EPSR Act (2005) include amongst others: • To create, promote, and preserve efficient industry and market structures, and to ensure the optimal utilization of resources for the provision of electricity services; • To maximize access to electricity services, by promoting and facilitating consumer connections to distribution systems in both rural and urban areas; • To ensure that an adequate supply of electricity is available to consumers; • To ensure that the prices charged by licensees are sufficient to allow the licensees to finance their activities and to allow for reasonable earnings for efficient operation; • To ensure the safety, security, reliability, and quality of service in the production and delivery of electricity to consumers; • To ensure that regulation is fair and balanced for licensees, consumers, investors and others stakeholders; Electricity on Demand

6. How NERC is Realizing its OBJECTS • NERC is tackling the underlisted broad key regulatory issues: • Adequacy, reliability and security of electricity supply; • Development of a competitive wholesale and retail electricity market (where the private sector will be the key driver); • Establishment of a pricing mechanism that will provide incentives to investors as well as protect consumers; • Ensuring a level playing field to all operators, both new and old as well as ensuring open access to transmission and distribution facilities; • Monitoring of quality of service to ensure that consumers get value for their money; Electricity on Demand

7. NERC’s Technical Regulatory Responsibilities • Section 96 of the EPSR Act of 2005 empowers the Commission to make regulations prescribing all matters (including technical matters) which are required to be prescribed for carrying out its objectives and functions. • The Commission has developed technical codes and regulations to successfully carry out it’s functions and responsibilities effectively. Electricity on Demand

8. Work Done on Technical Regulation and Monitoring (Regulatory Instruments) • The following technical codes and standards have been developed by the Commission: • Grid Code (undergoing review) • Distribution Code (undergoing review) • Metering Code (version2 just approved) • Health and Safety Standards Manual and Code • Nigerian Electricity Supply and Installation Standards (NESIS) Regulation (Draft submitted to the Commission for approval) • They were designed in line with international standards. Electricity on Demand

9. Work Done on Technical Regulation and Monitoring (Regulatory Instruments) Cont’d...Technical Codes • Grid Code:Grid Code contains the day to day operating procedures and principles governing the development, maintenance and operations of an effective, well coordinated and economic transmission system for the electricity sector in Nigeria. In a nutshell, one can say that the Grid Code is the operating standards for the transmission system. • Distribution Code: It contains the day to day operating procedures and principles governing the development, operation and maintenance of an effective, well coordinated and economic distribution system. Electricity on Demand 9

10. Work Done on Technical Regulation and Monitoring (Regulatory Instruments) Cont’d...Technical Codes • Metering Code: It contains the day to day operating procedures and standards toensure that modern accurate metering systems with reliable communication facilities are deployed across the industry’s production and supply chains to measure and record energy production, transportation and utilization. • Nigerian Electricity Supply & Installation Standards (NESIS): The Commission has embarked on the review of CAP 106 Regulations and the development of the NESIS that covers generation, transmission, distribution and utilization. A multi-professional committee has just completed work on it and submitted a report to the Commission for further regulatory actions. Electricity on Demand 10

11. Work Done on Technical Regulation and Monitoring (Regulatory Instruments) Cont’d...Technical Codes • Health & Safety: Safety in the electricity sector is the responsibility of every one that produces, transports, supply and uses electricity. Every operator and user of electricity needs to handle electricity in such a way that the safety of persons and equipment is ensured. The Commission has developed a world class Health and Safety Standards Manual (which has been codified and approved) to ensure the optimal provision of health & safety in the power industry in Nigeria. Electricity on Demand 11

12. Work Done on Technical Regulation and Monitoring (Regulatory Instruments) Cont’d...Technical Codes • The Commission is keenly monitoring the implementation of the health & safety standards manual and conducts performance reviews on quarterly basis to ensure compliance with set standards. • The Commission also conducts accident investigations and direct the implementation of appropriate recommendations on identified gaps/lapses to forestall future occurrence. • In addition, we participate in consumer education and enlightenment on health and safety issues throughPower Consumer Assemblies (PCAs). Electricity on Demand 12

13. Work Done on Technical Regulation and Monitoring (Regulatory Instruments)Regulations • The following regulations and guidelines have been drafted and are operational: • Regulation on Embedded Generation; • Regulation on Independent Electricity Distribution Networks (IEDN); • Regulation on Independent Transmission Networks (IETN); • Regulation on Captive Power Generation; • Guidelines on De-rated Power Plants; • Guidelines for the Registration of Metering Service Providers; • Regulation on Regulatory Compliance Reporting; • Regulations on Methodology for Estimated Billing; • Regulation on Acquisition of Land and Access Rights for Electricity Projects; Electricity on Demand

14. Work Done on Technical Regulation and Monitoring (Regulatory Instruments)Regulations • The following Regulations are undergoing development and are in varying degrees of completion: • Regulation on Smart Metering Standards; • Regulation on Smart Grid Standards; • Regulation on Geographic Information System (GIS) for Regulated Assets; • Regulation on Electric Fencing; • Regulation on Vegetation Control; • Regulation on Electric Power System Construction Safety; • Regulation on the Registration of Electrical Contractors; • Regulation on the Registration of Meter & Instruments Testing & Calibration Stations. Electricity on Demand

15. Technical Regulation/Monitoring Challenges • Generation: • LOW GENERATION CAPACITY: currently, there is low generation capacity level in the NESI. The Peak generation to date is 4,517.62MW as at 23/12/2012 for a country of more than 160 million people. • GENERATION ARCHITECTURE: Overdependence on Central Plant Generation Model mostly connected to the National Grid. • FUEL MIX: Lack of adequate fuel mix diversity – overdependence on gas-fired power plants (about 85% gas plants and 15% hydropower). • CONCENTRATION OF GENERATION ASSETS: New power plants mostly sited in vulnerable Niger Delta Region – also face fuel availability and power transmission evacuation constraints; • INADEQUATE CAPACITY GROWTH: there is very slow capacity additions in generation, transmission and distribution leading to inadequate capacity growth principally due to the following: • Poor Planning for system capacity expansion to meet demand • Long lead delivery times of Central Plants (Thermal and Hydro) • Long lead delivery of networks expansion and re-enforcement projects (transmission and distribution) Electricity on Demand 15

16. Technical Regulation/Monitoring Challenges • Network Grid Constraints: • Poor System Expansion Planning; • Radial and unreliable transmission system resulting to over centralized and inflexible transmission network architecture; • Inadequate Transformation Capacity at both transmission and distribution levels; • Inadequate Metering and Communication infrastructure at the national grid level; • High Transmission System Losses (over 13%); • Fragile System Security with low or no redundancies; • Poor Networks Reliability and Power Quality; • Poor Asset Management, Maintenance & Operations; • Inadequate Monitoring Tools ( e.g. Supervisory Control And Data Acquisition - SCADA). Electricity on Demand

17. Technical Regulation/Monitoring Challenges • Health and Safety Constraints: • Before passage of the EPSR Act 2005; Health & Safety Standards were: • Not uniform; Not reflective of Best Practices based on International Standards; Not evenly enforced; • Not consistently adopted throughout Generation, Distribution and Transmission Sub-sectors; • Operators’ disregard to existing Health & Safety Standards • Poor safety practices by operators (risk analysis, record keeping, personnel training and analytics) • Frequent accidents resulting infatalities and Injuries • Public disregard forexisting Safety standards (Encroachment of Public on Networks Right of Way) • Likely making the sector inefficient and more costly Electricity on Demand 17

18. Way Forward Generation: • Implementation of the Embedded Generation Regulation to increase generation capacity in the short term; • Licensing of potential IPPs (Routing Evaluation of Applications); • Development of Framework for utilizing excess generation capacity; • Coordination of generation availability and adequacy reports by the System Operator and Market Operator; • Generation resources mapping and resolution of fuel supply challenges: Gas Availability, Quality and Reliability Issues, Coal and other Fuel Sources; • Compliance Monitoring: Grid Code, Metering Code, Health & Safety Code and other Regulations to ensure compliance with standards in generation; • Inspections, testing and certifications of new and modified generation projects to ensure Quality Assurance (QA) and facilitate early completion (to commence soon); • Review, approval and monitoring of Maintenance / Outage Plan for Power Plants through the System Operator; Electricity on Demand

19. Way Forward Cont’d... Transmission: • Closing of the outstanding grid metering gaps and quick resolution of Issues; • Ensure the development of a robust short, medium and long term System Expansion Plan by the System Operator; • Ensure that accurate Load Demand Projection is conducted by the System Operator; • Address the transmission system reliability, quality and availability issues; • Make sure there is a well articulated, coordinated and executable Maintenance / outage Plan for the power system; • Ensure reduction of System Collapses by addressing the major causes such as vegetation control, protection coordination, adequacy etc. • Ensure that the System Operator procures adequate Ancillary Services from Generators to provide system security, reliability, quality and stability; • Inspections, testing and certifications of new and modified transmission projects to ensure Quality Assurance (QA) and facilitate early completion (to commence soon); • Compliance Monitoring: Grid Code, Metering Code, Health & Safety Code and other Regulations to ensure compliance with standards in transmission; • Licensing (Routing Evaluation of Applications for transmission licences) Electricity on Demand

20. Way forward Cont’d... Distribution: • Ensure the Metering of all inter-Disco Boundaries and Consumers by the Discos; • Ensure the development of robust short, medium and long term distribution Systems Expansion Plans and Studies by the Discos; • Address the distribution system reliability, quality and availability issues; • Encourage & support the Discos to embark on Embedded Generation to mitigate against the gap in the electricity supply and availability in a short term; • Make sure there is a well articulated, coordinated and executable load shedding plan by the Discos; • Ensure reduction of the frequent customer black-outs due to the ineffectiveness of the Discos; • Inspections, testing and certifications of new and modified distribution projects to ensure Quality Assurance (QA) and facilitate early completion (to commence soon); • Compliance Monitoring: Distribution Code, Metering Code, Health & Safety Code and other Regulations to ensure compliance with standards in distribution; • Licensing (Routing Evaluation of Applications for distribution licences) Electricity on Demand

21. Way Forward Health & Safety: • Enforce the implementation of the Health & Safety Code; • Validate the accuracy of HSE statistics/indicators and establish baseline figures; Set achievable targets and monitor performance (quarterly health & safety Managers meetings to review performances); • Produce quarterly and annual Industry Health & Safety Performance Reports; • Establish a Penalty/Reward system/ compensation scheme for electrical accident victims; • Conclude the partnership arrangement with MiOSHA, NEMA, and other Agencies to promote safety in the NESI through exchanges, trainings and other capacity development programs; • Conduct Safety Inspections to ensure safety assurance of facilities and personnel (ongoing); • Demand licensees to conduct safety audits of their facilities. • Conduct Workshops on the newly approved Health & Safety Code across the country. • Procurement of Test and Monitoring Equipment to monitor health and safety compliance with statutory limits for emissions , noise etc. Electricity on Demand

22. Other Areas of Interest • Stranded generation capacities due to: • gas supply issues such as vandalism, inadequate supply by producers etc. The Commission is now working closely with the Petroleum Sector to mitigate the gas supply constraints through ensuring adequate commercial framework; • transmission evacuation capacity constraints. The Commission is facilitating the early completion of several ongoing transmission projects and encouraging private funding arrangement for the transmission; • There is need for the price of gas to power to be reviewed to a reasonable level to attract the required investment in the gas sector to ensure availability, quality of supply of gas to the power plants; • The passage of the Petroleum Industry Bill (PIB) still pending with the national assembly. It’s early passage is expected to bring about positive changes to gas subsector and impact on the power sector. The Commission is supporting the early passage of this Bill. • We anticipate significant improvement in generation capacity through the embedded generation in the short term. Electricity on Demand

23. Conclusion • The key role of the Commission is to facilitate the orderly reform and development of a competitive power sector that will ensure adequate supply of affordable, safe, secure and reliable electricity in Nigeria; • Going forward the Commission has been addressing these challenges through several regulatory interventions; • The Commission expects new issues and challenges to constantly crop up in the pursuit of it’s mandates and is always forward looking to address such challenges; • The industry is fast evolving and a lot of the challenges will mainly arise from the inadequacies of the system; Research is a vital tool. • Manpower development in the sector is another critical success factor. • There is need to build confidence and hope in the emerging electricity market and manage expectations; • An open and transparent consultative process in addressing issues and challenges is vital; • NESI is gradually on the path to sustainable development. Electricity on Demand

24. THANK YOU Contact us at: Adamawa Plaza, Plot 1099 First Avenue, Off Shehu Shagari Way, Central Business District, Abuja Website: www.nercng.org Email: info@nercng.org