Thursday 14 June 2018
C002D5556
BUSINESS DAY
LEGALINSIGHT
31
Overview of the NERC meter asset provider regulations 2018 IVIE EHANMO
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he regulatory framework on Meter Asset Provider (MAP) came into effect on the 8th of March 2018 and became enforceable by the Nigerian Electricity Regulatory Commission (NERC) from April 3rd 2018. The regulation which sets out to govern the relationship between Distribution Companies (DisCos) and third-party meter vendors was conceived by NERC to address the issues of estimated billing of customers, protection of the revenue stream of the DisCos and ultimately foster and accelerate an energy accounting system for the Nigerian Electricity Supply Industry (NESI) through the engagement of Meter Assets Providers (MAPs), for effective metering of customers. The main objectives of the regulation are as follows: Encourage the development of independent and competitive meter services in NESI; Eliminate estimated billing practices in NESI; Attract private investment to the provision of metering services in NESI; Close the metering gap through accelerated meter roll out in NESI; Enhance revenue assurance in NESI. Therefore, the underlying aim of the regulation is to enable DisCos focus on their core business which is the distribution of power whilst meeting their contractual metering targets through third party alliance. It is envisioned that this innovative approach will accelerate investment in meter production and services which is estimated to attract over 200 Billion Naira investment into the NESI over the next few years of full implementation. However, despite the intention(s) behind the regulation, it is worthy to note that the regulation fails to recognize the existing metering targets of the DisCos as set out in the Performance Agreement which is the primary transaction agreement governing the operation of the DisCos in the NESI. The regulation provides that within 120 days of the regulation taking effect, NERC shall develop an order to cap the estimated bill of unmetered customers to address the issue of estimated billing in the NESI. The target for the commencement of the enforcement of
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the proposed cap is however ambitious (4 months following the date on which the regulation comes into effect) and should ideally align with the meter roll out schedule/deployment programs of the respective DisCos. The regulation anticipates that the DisCos will be expected to start meeting their metering targets by an arrangement (based on a procurement process) entered between the DisCos and Meter Asset Providers (MAPs), which will be 120 days from the 3rd of April 2018. To this end, DisCos will have to enter into Meter Service Agreement (MSA, which shall be for a tenure of 15 years, and should cover the life cycle of meters procured) with MAPs to provide specified number of meters to cover a target area within the timeframe of the agreement. While the metering responsibility has been acceded to the MAPs, there would still be a significant level of metering effort required on the part of the DisCos which will in effect require additional expenditure beyond the current provisions in the Multi Year Tariff Order (MYTO). DisCos will need to ramp up their respective networks to ensure they are suitable for tamper resistant metering, thus requiring additional CAPEX and ongoing OPEX for payments to MAPs especially considering the fact that the regulation anticipates the MAPs to be paid in full the Meter Service Charge (MSC) by customers during each billing cycle, without taking account of instances where the DisCos receive only partial payment from customers or instances of non-payment by customers.
The DisCos will be responsible for requesting for bids from qualified and NERC Certified Meter Service Providers (MSPs) under a transparent process while NERC will be responsible for issuing a permit to the successful bidder who shall execute a Meter Service Agreement (MSA) with the DisCos to cover target areas during a specified timeframe. While the MAP is not restricted from acquiring several permits under distinctive procurement processes conducted by the DisCos, the regulation is unclear as to whether DisCos on the other hand can engage multiple MAPs to cater to different segments of the metering process, which will more than likely be the preferred choice for DisCos as the regulation seems to make reference to a single bidder and single procurement process (Regulation 8(10)) without also taking cognizance of the fact that the MAP may have multiple meter manufactures. Significantly, the DisCos will be expected to provide guarantee or payment security and make periodic payments to the MAPs for the cost of the installed meters over a period of 10 years (which is the tenure of the MAP permit in the first instance according to the regulation) whilst the MAPs are expected to execute a performance bond (under a Service Level Agreement) in favour of the DisCos. Upon default of payment by the DisCos, the MAPs will be entitled to draw down on the guarantee or payment security depending on the payment structure adopted between parties as captured in the regulation. The regulation allows customers to exercise the choice of providing customer-financing for meter installation which will entitle the customers who have funded the meter installation to enjoy energy credit to cover the amount expended by the customer. Customers in this instance will be precluded and exempt from paying the MSC to the DisCos. The regulation provides for the rights and obligations of the parties, i.e. the DisCos, the MAPs (Third Party Vendor), and the Customers. Whilst the regulation gives DisCos the right to access the installed meters in order to carry out its operations, it confers ownership rights of the asset on the MAP until payment has been fully amortised via the MSC by beneficiary
customers. The regulation stipulates procedures a prospective MAP will have to comply with to effectively provide services to the DisCos. The regulation requires that the prospective MAP will have to apply for a permit along with meeting certain technical, technological and documentation requirements, after which NERC will convey a decision granting a permit or otherwise within twenty-one days (21 days) of submission of the required documentation to NERC (Section 8). The regulation requires that upon the grant of MAP permit, the DisCos can enter a Meter Service Agreement (MSA) with the successful applicant which will provide the contractual framework underpinning the relationship, rights and obligations of the parties. The contractual structure as captured in the regulation anticipates indexation provisions over the tenure of the MSA to address variability in applicable macro-economic conditions (Section 19(1)(d)). This contractual indexation should also be tied to the MYTO and tariff provisions considering the fact that DisCos OPEX will be tied to prevailing MYTO provisions, otherwise there would be a disparity in cost components as is currently the case with the PPA’s and the MYTO in NESI. Statutorily, the regulation encapsulates some of the rights and obligations of the DisCos, MAPs and customers under this third-party metering arrangement scheme. On the other hand, the regulation provides amongst others that the MAPs shall have full legal ownership of the meters until full payment has been made by the beneficial customers. It is however unclear how a beneficial customer can claim full legal ownership of the meter(s) in its entirety as the regulation prohibits movement of the meters by customers (Section 17(5)). Traditional DisCo meter procurements ensures that title of the assets are passed across to a DisCo after the meters are certified as properly supplied and installed. DisCos lose asset ownership rights if their metering programs are contracted under the new regulatory environment. If ownership does not revert to the DisCo, customer moves between DisCo territories becomes very complicated under the current arrangement. The regulation provides for the option of customers to pay for the
meters which shall be installed by the MAP within ten (10) working days of the receipt of the full payment in which case such customers won’t be liable to pay Meter Service Charges (MSCs). It does appear that once full payment has been made by the customer for the meters, the customer qualifies for energy credit from the DisCo servicing the area until the cost of purchase by the customer is fully defrayed. This financing option however does not seem to consider the ongoing costs of operating and maintaining the meter. The regulation provides a “Limited Grandfather Clause” as it shall not override existing metering contracts (Section 24). However, meters installed / deployed by the Distribution Licensee beyond December 31, 2018 under a subsisting contract shall be structured under the MAP regulatory framework (Section 2: Transitional Arrangements). NERC is effectively breaking subsisting DisCo metering contracts / agreements into meters installed /deployed pre and post 31 Dec 2018. All existing contracts with installations scheduled after 31 Dec 2018, must be renegotiated into the “newly prescribed” MAP regulatory construct. The MAP Regulatory constructs says meters are “owned” by MAPs. As such from 1 Jan 2019, all meters acquired shall not be included in the DisCo’s Regulatory Asset Base which feeds into the Tariff Reset. DisCos may need to seek clarification on the applicable commencement date - 8 March 2018 vs 3 April 2018 to ensure existing contracts fall outside the full bandwidth of the MAP regulations and are only subject to transitional arrangements. Ivie Ehanmo is an Energy Lawyer/Power Sector Legal and Regulatory Specialist. She is a Partner at the prestigious law firm- George Etomi & Partners where she manages the firm’s Energy and Infrastructure Projects and is also a Senior Legal and Regulatory Consultant for Energy Market and Regulatory Consultants (EMRC) (Formerly Mercados EMI), a leading consultancy working for power and utility companies, regulators, traders, power market operators and policy makers in electricity and gas around the world.
NBA Abuja branch gets new Chairman
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he Abuja branch of the Nigerian Bar Association (unity bar) of NBA on Monday, 11th June, 2018 elected its Exco with Folarin Aluko emerging as Chairman of the branch. This was contained in a statement sent to the Media by the immediate past chair, Ezenwa Anumnu. According to Anumnu, the election was adjudged success, free and fair. Other elected members are Augustine Ejiofor as Vice Chairman, Nweze Photos from the Nigerian Bar Association (NBA) Stakeholders’ meeting organized by the Electoral Nnaebuka, Secretary, Jimoh Committee of the NBA (ECNBA) to formally open all the nominations submitted by contestants for Hameed Ajibola, assist secretary, Ananukwa Chinedu the National Offices of the NBA.
Augustine, financial Secretary, Olarenwaju Temitope Treasurer, Obinna Cajetan Yagazie, Social secretary, Asanya Ogochukwu, Publicity Secretary, Sa’ad Sani Dawaki, legal Adviser. In another development, the NBA Benin Branch on Sunday, 10th June, also elected new Executives to administer its affairs, with Collins Benson emerging as its Ogiegbaen as its Chairman. The election, which recorded a huge success, took place at the State High Court Complex, GRA, Benin City.