NERC Transfers Regulatory Oversight to State Commissions

The SERC is set to take over and regulate the electricity market in their respective states. At the completion of the transfer of regulatory authority, the SERC will be empowered to grant licences and provide for the regulatory frameworks for mini-grids, Independent Electricity Distribution Network/ Independent Electricity Distribution Network Operators, and Independent Electricity Transmission Network/Independent Electricity Transmission Network Operators within their respective states.

The transfer will empower the SERC to regulate investment into electricity utilities within their states. The purpose of this reform is to create a competitive edge as state governments will be at liberty to implement the best investment policies to attract investors into the electricity markets in their states.

A key implication of this regulatory transfer is the dual regulatory regime it imposes in certain circumstances. Where the operations of the licensees – electricity generation, transmission and distribution undertaking within the states – involve reliance on any part of the national grid, or other interstate sources of generation, the approval of the NERC, and the respective SERC will be required to be obtained. However, where the activity is limited within the state, the SERC will remain the sole regulator. This will require distribution network operating within these states to delineate their networks as standalone networks within the state boundaries and the state regulation will need to install boundary meters at all border points where the electricity network crosses from their state into another state.

In addition, the end-user tariff methodology applicable in the states will be determined by the SERC respectively, and all tariff policy support for end-user customers shall be the responsibility of each state government. This gives the state governments the opportunity to promote sustainable tariff policies to further enhance their economic development.

As part of the transition process, the relevant successors of the electricity distribution licensees for the states will have to incorporate subsidiaries which will assume the responsibilities for the intrastate supply and distribution of electricity within their states. The implication of existing contractual and financial obligations of these entities to third parties in these transfers is yet to be determined.

Should you have any questions regarding the information in this legal alert, please do not hesitate to contact Oludare Senbore and Cephas Caleb. 

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Contributors
1. Elijah Joseph – Associate
2. Stephen Ezekeoma – Associate