Proem
A lot has been happening very recently, in the electric power sector. Amongst these was the declaration of ‘eligible customer’ status by the minister in charge of the electric power sector. This status permits certain consumers of electric power, for example large industries etc., to approach power generation companies directly and negotiate to purchase electric power, using the infrastructure of the relevant electricity distribution company or the of the transmission company merely as conduit to wheel said electric power. Specifically, section 27 of the Electricity Power Sector Reforms Act 2005 (“EPSRA”) empowers the minister in charge of electric power, to so do.
However, this declaration which is only the implementation of the EPSRA has proved controversial and the Association of Nigerian Electricity Distributors (“ANED”) which is the pressure group of the electricity distribution companies has expressed its reservation and the declaration of a ‘force majeure’ is being considered because of the said declaration. Although, the author is of the view that there is no strong legal argument to declare a ‘force majeure’. There are, nonetheless, other plausible legal options which the distribution companies may explore.
This paper seeks to, concisely, examine five issues that are currently controversial in the electric power sector, at the moment.
Whether the Minister in Charge of Electric Power Can Validly Declare Eligible Customer Status?
An ‘eligible customer’ is defined under Section 100 of the EPSRA, as one entitled to purchase power from a licensee other than a distribution licensee. Further, Section 27 of the EPSRA allows for the Minister of Power to issue a directive to the Nigerian Electricity Regulatory Commission (“NERC”) stipulating the classes of people that constitute eligible customers.
In furtherance of its powers, the minister in charge of electric power recently issued a directive to NERC stating the classes of customers that may constitute eligible customers pursuant to the EPSRA.
Those Eligible Customers who can purchase power directly from the generation companies are:
a) end-users or groups thereof, whose consumption is not less than 2MWhr/h, and are connected to a metered 11kV or 33kV delivery point on the distribution network.
(b) end users or groups thereof, who are connected to a metered 132kV or 330kV delivery point on the transmission network under a transmission use of system agreement for connection and delivery of energy;
(c) end users or groups thereof, who have consumption in excess of 2MWhr/h on monthly basis and connected directly to a metered 33kV delivery point on the transmission network, under a transmission use of system agreement. They must have entered into a bilateral agreement with the distribution licensee licensed to operate in the location, for the construction, installation and operation of a distribution system for connection to the 33kV delivery point;
(d) end users or groups thereof, whose minimum consumption is more than 2MWhr/h over a period of one month and directly connected to the metering facility of a generation company. Such eligible customers must have entered into a bilateral agreement for the construction and operation of a distribution line with the distribution licensee licenced to operate in the location.
It is clear from section 27 of the EPSRA that the minister is empowered to declare eligible customer status. In fact, a critical review of section 25 of EPSRA, suggests that this should have occurred much earlier.
Can the Declaration of Eligible Customer Status be a Basis for Declaring Force Majeure by the Electricity Distribution Companies?
The term ‘force majeure’ typically bears the meaning given to same in the relevant agreement with the requisite qualifications and limitations stated in the relevant contract of agreement. Same may be defined to cover certain natural disasters acts such as terrorism, war etc. However, though the opening language for any clause majeure clause may use terms such as natural disasters and the likes, the specific items usually listed thereafter, limit the scope of what tantamounts to ‘force majeure’.
It is the writer’s understanding, that the electricity distribution companies are, under the auspices of ANED, actively exploring the option of declaring force majeure as a direct reaction to the declaration of eligible customer status by the minister of in charge of electric power.
To determine whether there is any legal justification a critical look at the entire Clause 7 of the PA which makes copious provisions regarding force majeure events is pertinent. Whereas Clause 7.1 of the PA defines the term ‘force majeure’ to cover any event beyond the reasonable control of a Party thereto, Clauses 7.3 and 7.4, in particular, limit the events which may qualify as force majeure events through the ejasdum generis and noscitur a sociis canons of interpretation, especially where the clause is read contextually without any intent to be mischievous.
Does the Declaration of the Eligible Customer Status Automatically Entitle Distribution Companies to Competition Transition Charges?
The answer to the above is in the negative as Section 28 of the EPSRA gives the Minister, after consultation with the President of the Federal Republic of Nigeria, the discretionary power to allow for collection of Competition Transition Charges (“CTC”) from consumers and Eligible Customers where the eligible customer declaration leads to decreasing electricity prices to such an extent that a trading licensee or a electricity distribution company would have inadequate revenue (a) to enable payment for its committed expenditure or (b) is unable to earn permitted rates of return on its assets, despite the efficient management of the DisCo.
Further, the minister in charge of power, may direct NERC on the manner of the distribution of the CTC collected and also the entire duration the CTC remains in place.
Can the Nigerian Electricity Regulatory Commission (NERC) Change the Boards of Electricity Generation and Distribution Companies?
The response to the foregoing, is in the affirmative. NERC serves as the regulator of the power industry and by virtue of this and omnibus provisions of the EPSRA, is generally empowered to oversee the activities of licensees. The Electricity Industry (Enforcement) Regulations 2014 (the “EI Regulations”) of NERC, stipulate that NERC may alter the boards and management of licensees.
These changes/ alterations to be effected by NERC must be by written notice, and should be such that NERC considers necessary (which may include the removal of members of the Board of Directors or management staff of the licensee and within such time as NERC may specify.
By virtue of the EI Regulations, the relevant licensee is afforded 10 days to comply with NERC’s directive and must notify NERC in writing of its compliance in a manner prescribed by NERC. In addition, NERC has the power to remove any board member or management staff of the licensee who does not or ceases to meet the minimum qualifications for such positions prescribed in NERC’s Guidelines and Assessment Criteria for Fit and Proper Persons for Corporate and Individual Participation in Regulated Electricity Undertakings.
Can the Association of Nigerian Electricity Distributors Declare Force Majeure?
Generally, the principle of privity of contract ensures that the enforcement of the terms and conditions of contracts may be by only the parties thereto. Unless a specific contract or legislation allows a specified third party to benefit therefrom, only parties to a contract can benefit under same. Thus, generally, a stranger to the contract cannot, therefore, invoke any of the covenants contained in it.
Based on this principle, ANED cannot declare a force majeure, as it would lack the standing in enforcement of any obligations under the agreement, as ANED is not a party under the PA. Based on the PA, it would be impossible to prove an interest that suffices for ANED to declare or seek to declare force majeure.
Ayodele Oni
Ayodele Oni ([email protected]), a solicitor, specializes in international energy (oil, gas & power) investment law and holds a mini-MBA in power & electricity.
