NERC Sidesteps Gencos’ Complaints of Poor Settlement, Unfair Practices

Chineme Okafor in Abuja
The Nigerian Electricity Regulatory Commission (NERC) has said it will not be involved in the constant demand by power generation companies (Gencos) in Nigeria’s electricity market to ensure the market recognises and include capacity charges in their monthly bills for payment to the market.

It said, the Gencos have power purchase agreements (PPAs) with the Nigerian Bulk Electricity Trading Plc (NBET), which contains payment for capacity charges, insisting that on the strength of this, it would not get involved as it understood the sanctity of such contracts must be respected.

The Gencos, through their association, the Association of Power Generating Companies (APGC), recently alleged that the NERC had connived with the electricity distribution companies (Discos) in the market to deny them of payment for capacity charges.

According to them, even though capacity payments were global norms in the electricity supply industry and play critical roles in enabling the Gencos to optimise their power generation capacities, they were yet to receive the payment and would want it paid for.

But in an e-mailed statement by NERC made available to THISDAY, the regulator stated that payment for capacity charge under an effective power purchase agreement was a contractual issue between the Nigerian Bulk Electricity Trading Plc and power generation company.
It added: “The Nigerian Electricity Regulatory Commission believes in the sanctity of contracts and therefore does not issue orders or regulations that are in conflict with valid subsisting contracts.”

The Gencos in their claims had said that every PPA nominated capacity, metered energy and deemed capacity were amongst the must-occur events in any electricity market transaction, adding that nominated capacities are also paid for by the market.

“The Genco makes its day-ahead declaration of how much it can generate (available capacity) for that given date and the System Operator (SO) nominates the capacity it can dispatch/transmit. In every electricity market, this nominated capacity is paid for and with consideration for the suppressed capacity as prompted by System Operator’s instructions; a reasonable return on capital invested in the business is a critical incentive for continued improvement in technical capacity as well as quality of service,” it said.

It further noted that the NERC in 2015 as part of its preparation for the Transitional Electricity Market (TEM), came up with an obnoxious new capacity definition entrenched it in the TEM Supplementary Order No. NERC/15/0011 dated 18th March, 2015.

According to the Gencos, the NERC in the order, stated that GenCos without effective PPAs shall be paid for their delivered energy and delivered capacity by NBET which in this regards represented the capacity equivalent of the energy delivered at the Gencos bus bar.

It added that the regulatory directive thus brought down the actual billable mobilised Gencos capacity, thus leading to the Discos been billed less.
“In lay man terms, this redefinition of capacity by NERC means that if a Genco declares 500MW as available on any day and the grid or TCN only nominates to take 100MW, which to a large extent is based on what the Discos want to take and distribute, that Genco will only be paid energy and the capacity equivalent of 100MW, while the Genco is left to bear the capacity cost of making available the remaining 400MW
“How can any country grow its power base on this flawed and lopsided regulation that penalises/punishes a generator for investing to increase its available capacity? This lopsided regulation inadvertently provides support for any Disco to decide and take less and less power that is available and still crave/lobby for a higher tariff,” said the Gencos.

They opined that the regulation was a clear anomaly in the market and a cheating on Gencos, adding that they were however keeping records of such losses for eventual claim in due course.

“The market must appreciate that, available capacities are backed up by committed fuel, man-power, insurance, service contracts and all the necessary resources and declared to the System Operator (SO) on day-ahead basis. The SO confirms same, instructs Gencos on dispatch based on availability of the grid and Discos demand.”