Understanding electricity distribution franchising in Nigeria


The Nigerian Electricity Regulatory Commission (“NERC” or the “Commission”) is created by the Electric Power Sector Reform Act (the “EPSRA” or the “Act”) to, among other things, license and regulate legal persons engaged in the generation, transmission, system operation, distribution, and trading of electricity. In giving effect to the provisions of section 32, 62, and 67 of the EPSRA, the Commission licensed Eleven (11) Distribution Companies (herein called the “DisCos”) to undertake, but not limited, to the following regulated activities:

1. Connection of customers for the purpose of provision of electricity supply;

2. Installation, maintenance and reading of meters, billing and collection; and

3. Wide ranging functions contained in the electricity distribution license terms and conditions issued to the 11 DisCos.

The provision of these services by DisCos on a non-discriminatory basis is a fundamental requirement arising from the natural monopoly they enjoy as distribution network service providers. The sustainability of this traditional regulatory framework is increasingly becoming difficult due to continued technological improvements and advancement in the capabilities of Distributed Energy Resources (DER). Additionally, since the commencement of the power sector reforms in 2005, the DisCos in Nigeria are unable to satisfactorily meet stakeholders’ expectations in the provision of access to safe and reliable electricity services to all customers within their franchise territories,especially those areas that are not considered to be economically viable.

Accordingly, introducing sub-franchising of DisCos’ operations and coverage areas is expected to improve quality of supply of electricity to customers through investment in metering, billing, collection and network rehabilitation and expansion.

Sub-franchising (referred to as Distribution Franchising for this purpose) means the business model applied by a DisCo to authorise a third party to provide electric distribution utility services on its behalf in a particular area within the DisCo’s area of supply. Proposals for the franchising arrangement can either be initiated by DisCos or customer groups (community) within a specified geographic boundary. The community, through a registered association, may formally approach the DisCo to declare its interest and initiate franchising arrangements in the areas of supply, metering, billing and collection including additional investment in the distribution networks where appropriate. Additionally, any unserved or underserved community have the option of exploring the provisions of NERC’s Regulation on Independent Electricity Distribution Network (IEDN) in finding solutions to their supply challenges as may be applicable

Consultation Paper on Distribution Franchising in Nigeria

This document sets out for consultation, the Commission’s proposal to introduce a regulation to guide sub-franchising activities in DisCos’ operations and coverage areas in order to take advantage of evolving technologies and adopt new business models in overcoming the challenges inhibiting DisCos from providing access to adequate, safe and reliable services efficiently.

In particular, this consultation paper seeks to:

a. Provide industry stakeholders with information about the proposed regulatory framework for Distribution Franchising;

b. Solicit for stakeholders’ views and comments on the proposed Framework for Regulating Distribution Franchising;

c. Propose areas of concern in the development of the proposed regulations.

NERC anticipates that submissions from the public will provide information on specific issues relating to Distribution Franchising as well as alternatives to proposals contained in this paper, thereby assisting the Commission in developing a robust regulation on Distribution Franchising in Nigeria.

1.2 Objective of the Distribution Franchising Regulations

The overarching objective of the proposed regulation on distribution franchising is to facilitate the development of favourable business models that would attract third party investments in the supply of adequate, safe, reliable and prudently priced electricity to customers of DisCos. The implementation of the Distribution Franchising is expected to provide the following contributions:

a. Improved Investments in the Networks;

Depending on the terms of the Franchise Agreement, it is expected that this Regulation will stimulate the desired prudent investments in filling the funding and infrastructure gap in the distribution subsector of the NESI.

b. Bridging of Power Supply Deficit;

The current power generation level is significantly lower than the customer load demand in the various DisCos across the country. To bridge this supply deficit, the Franchisee may procure from other sources of power outside the contracted capacity with NBET on a bilateral arrangement through the national grid or from embedded generation sources. In this regard, the Bulk Power Procurement Regulation and Embedded Generation Regulation shall be applicable as appropriate.

c. Improved Customer Satisfaction;

It is expected that there will be improved customer satisfaction in terms of availability, quality of electricity supply and customer services.

Consultation Paper on Distribution Franchising in Nigeria

d. Technological Improvements; Facilitate adoption of advanced technologies in the design and operations of modern grid systems that can offer cheaper and flexible alternatives to customers.

e. Better Service: To avail opportunities for underserved customer groups desirous of better services by prompting the Distribution Company to engage Franchisee(s) for the provision of the desired services in the respective area(s).


Olusola Bello

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