NERC commences consultations on unbundling of TCN

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NERC asks Discos to gross-up tariff by 50 percent

The Nigerian Electricity Regulatory Commission (NERC ) at the weekend began consultation for the unbundling of the Transmission Company of Nigeria (TCN ).

Stakeholders in the Nigerian Electricity Supply Industry (NESI ) have been asking the Federal Government to demerge the company, which is still the only value chain in the electricity market under government’s management after the privatisation of the distribution companies (DisCos ) and the Generation Companies (GenCos ) in 2013.

The TCN hitherto consists of the Independent System Operator (ISO) and the Transmission Service Provider (TSP ).

But stakeholders in the industry have always blamed its inefficiency on its combination of roles. They are of the opinion that their autonomy would make an immense improvement.

NERC, however, in its Document No: NERC/CP/2020/01, titled “Towards greater independence for the Electricity System Operator, ” indicated its readiness to balkanize the TCN.

The document explained that the Electric Power Sector Reform Act provides for the licensing of the successor
transmission company initially charged with responsibility for the building and maintaining the physical national transmission network (often referred to as the “wire
business” OR “Transmission Service Provider – TSP”) and the system operations function.

According to NERC, it is envisaged that at a time when the electricity industry is substantially privatised, the Act provides that the holder of the license for the two distinct regulated functions (Transmission Company of Nigeria Plc) may transfer the system operations function to an Independent System Operator (ISO) on such terms and conditions to be decided by the Nigerian Electricity Regulatory Commission (“Commission”).

The commission submitted that “With the gradual transition to a contract-based electricity market whereby market participants are expected to be held accountable for their obligations under the industry contracts, the recent tariff Orders issued by the Commission and performance standards contained therein indicate an imperative to consider granting greater independence for the systems operator including the functional unbundling of the Transmission Company of Nigeria Plc into TSP and the ISO.”

This consultation document is seeking for stakeholder input in advising the Commission on the (i) readiness of the electricity industry for the unbundling of the SO function to an independent system operator taking into consideration the stage of market development and the key technical prerequisites for an efficient ISO;
(ii) recommend the degree of independence that may currently be granted to the systems operator without causing disruptions in market stability; (iii) Where the unbundling of the ISO function is considered appropriate, recommend a possible ownership model and governance structure; and (iv) Where the unbundling of the ISO function is considered premature, propose possible conditions precedent and timelines for a transition.

The commission said stakeholders opinion is being solicited in respect of the following models of granting the
SO/MO function greater independence in the NESI.

According to the document, ” Financial and Operational Ring- Fencing of the SO within TCN : The SO may continue to be a part of the corporate entity of the TCN but operating within the rules of the market and in such a manner as to ensure its operational and financial autonomy.

“Government (ISO owned by FGN) :The unbundled SO/MO function may be incorporated into a distinct legal entity wholly owned by the FGN with own staff, management and Board of Directors. ”

The Commission said the unbundled SO/MO where considered desirable may be wholly owned by market
stakeholders including participants, customer groups and registered as non-profit entity e.g. PJM, CAISO, NYISO.
NERC, said the system operator, as one of the service providers for the NESI, is currently funded by the electricity market as part of the components of the tariff order.

Where the unbundling of an ISO is considered appropriate, according to the document, the annual budgets shall be approved in accordance with the provisions in the Market Rules.

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