Legislation Review - The Electricity Act, 2023 - Part I
Introduction
On 9th June 2023, the President of the Federal Republic of Nigeria signed the Electricity Bill, 2023 into law.
The new Electricity Act, 2023 repeals the Electric Power Sector Reform Act, No.6 2005 and enacts the Electricity Act,2023 to consolidate the laws relating to the Nigerian electricity supply industry, provide a comprehensive legal and institutional framework for the power sector in Nigeria in the areas of electricity generation, transmission, system operation, distribution, supply, trading, enforcement of consumer rights and obligations. Further, the Act seeks to provide for a holistic integrated resource plan and policy that recognises all sources including the integration of renewable energy to Nigeria’s energy mix and attracts investments.
Specifically, the Electricity Act, 2023 revolutionises the Energy Sector in Nigeria by amongst others allowing electricity-generating companies to now have an additional option of generating power from renewable energy sources and also purchasing power generated from renewable energy sources. There is also now a legal premise for states of the Federation, companies, and individuals to produce, transmit and distribute electricity. The Electricity Act creates new sector-specific regulatory agencies and authorities; however, the National Electricity Regulatory Commission (NERC) is the main regulatory agency in the sector.
This Business Legislation Review identifies and highlights the salient and innovative provisions of the Electricity Act, 2023 from the aspects of its regulatory, licensing, consumer protections and other notable miscellaneous provisions.
Salient Provisions of the Electricity Act, 2023
1. National Integrated Electricity Policy and Strategic Implementation Plan
a) The Federal Government through the Ministry responsible for power shall, within one year from the commencement of the Act, initiate the process for the preparation and publication in the Federal Government Gazette, of an Integrated National Electricity Policy, and Strategic Implementation Plan (‘INEPASIP’) in consultation with relevant government authorities and other stakeholders to guide the overall development of the electric power sector in Nigeria. Section 3(1) of the Electricity Act, 2023
b) There is a requirement that the INEPASIP adopted by the FGN should amongst others encompass the following aspects relevant to the development of the electric power sector in Nigeria –
i) Development of the electric power sector based on optimal utilisation of resources such as coal, natural gas, nuclear substances, and materials as well as renewable energy sources such as solar, wind, hydro, hydrogen, and other renewable sources of energy;
ii) Captive generation or stand-alone system for generation of electricity for rural areas and non-conventional energy system;
iii) Rural electrification and for bulk purchase of power and management of local distribution in rural areas;
iv) Public-private partnership for the provision of access to electricity to all areas of the country;
v) Power-source specific policies including waivers and subsidies that will stimulate the development of renewable energy;
c) Section 4 of the Electricity Act states that there shall be a periodic review of the National Integrated Electricity Policy.
2. Regulatory Framework and Institutions Under the Electricity Act, 2023
(a) Powers of the Minister
Section 5 of the Electricity Act confers various supervisory powers on the Minister and functions of the Minster for Power. The Minister is amongst others functions responsible for -
(i)the determination, formulation and monitoring of government policy for the Nigerian electricity supply industry and performing the various functions assigned to him under the Act and other Acts of the National Assembly.
(ii) advise the Federal Government on all matters pertaining to the Nigerian electric power sector;
(iii)promote the development of local content in the Nigerian electricity supply industry.
(b) The Nigerian Electricity Regulatory Commission
The NERC or the Commission is established by section 33 of the Electricity Act, 2023. Section 34 of the Electricity Act, 2023 provides for the objects and functions of the Commission. The objects of the Commission as stated in that section are to:
a) create, promote, and preserve the efficient industry and market structures, and ensure the optimal utilization of resources for the provision of electricity services;
b) maximize access to electricity services, by promoting and facilitating consumer connections to distribution systems in both rural and urban areas;
c) ensure that an adequate supply of electricity is available to consumers;
d) ensure that the prices charged by licensees are fair to consumers and are sufficient to allow the licensees to finance their activities and to allow for reasonable earnings for efficient operation;
e) ensure the safety, security, reliability, and quality of service in the production and delivery of electricity to consumers;
f) ensure that regulation is fair and balanced for licensees, consumers, investors, and other stakeholders; and
g) present quarterly reports to the President and National Assembly on its activities.
Pursuant to Section 34(2) of the Electricity Act, 2023 the powers of the Commission are amongst other powers as follows:
(a) promote competition and private sector participation, when and where feasible; (b) establish or, as the case may be, approve appropriate operating codes and safety, security, reliability, and quality standards; (c) establish appropriate consumer rights and obligations regarding the provision and use of electricity services; (d) license and regulate persons engaged in the generation, transmission, system operation, distribution, and trading of electricity; (e) approve amendments to the market rules; (f) monitor the operation of the electricity market; and (g) undertake such other activities which are necessary or convenient for the better carrying out of or giving effect to the objects of the Commission.
The NERC is generally responsible for the grant of licenses and the regulation of persons engaged in the generation, transmission, system operation, distribution, and trading of electricity. However, it is important to note that the generation of 1MW and below of electricity or a distribution network of 100KW or below are exempted.
Under the Electricity Act, 2023, the following licenses can be granted by Sections 34(2)(d) and 63 of the Electricity Act, 2023 - (a) Generation licence (b) Transmission Licence (c) System Operation Licence (d) Distribution and Supply Licence (e) Trading Licence.
Pursuant to the 1999 Constitution of the Federal Republic of Nigeria, Fifth Alteration (No. 17) Act, 2023 States of the Federation can now generate, transmit and distribute electricity in areas that are even covered by the National Grid.
Corporate Governance of the NERC
The Corporate Governance of the NERC is statutorily provided for under Sections 35 to 62 of the Electricity Act, 2023. It covered areas such as the appointment of commissioners, terms of office and conditions of service of commissioners, conditions for appointment of commissioners, the vacation of office by a commissioner, dismissal and suspension of a commissioner, chairman and vice chairman positions, meeting and procedure of the commission, remuneration and expenses of commissioners, proceedings of the commission, decisions and orders of the commission, funds of the commission, the financial year of the commission, audit of the commission’s accounts, powers of the auditors, etc
(c) Incorporation and Licensing of the Independent System Operator (ISO)
Pursuant to Section 15 of the Electricity Act, the Transmission Company of Nigeria Plc (‘TCN’) shall in accordance with the terms of its license and within such stage or period of the market as the Commission may in a written directive specify such steps as are necessary under the Companies and Allied Matter Act, to incorporate an entity, the ISO which may be a company limited by shares or have such ownership and governance structure as the NERC may specify and the entity once incorporated under the provision of this section shall immediately apply to the NERC and be licensed by the NERC as an ISO to perform such market and system operation functions as stipulated under the Act, its license and such terms and conditions as the NERC may direct.
The TCN is required to transfer to the ISO, all assets and liabilities held by the TCN pertaining to its market and system operating function and shall be subject to such powers and duties of an ISO under the terms of its license.
Section 17 of the Electricity Act states that the functions of the ISO shall be as provided under Section 67 of the Act. Section 67 simply states that subject to the terms and conditions as the NERC may specify in the license, a system operation license shall authorise the licensee to carry on system operation, including the following activities as may be specified in the license – (a) generating scheduling, commitment and dispatch; (b) transmission scheduling and generation of outage co-ordination (c) transmission congestion management (d) international transmission co-ordination (e) procurement and scheduling of ancillary services and system planning for long term capacity; etc.
Corporate Governance of the ISO
The ISO shall be subject to the National Code of Corporate Governance as required by Section 30 (1) of the Electricity Act, 2023. Pursuant to Section 30(2), the NERC is required to state in the ISO’s incorporation document the composition of the Board as follows – (a) a non-executive chairman; (b) the managing director of the ISO who shall possess at least 10 years cognate professional or management experience in an electricity generation, transmission, system operation or distribution company; (c) four Executive Directors who shall possess at least 10-years cognate experience in the sector (d) four Non-executive Directors who shall possess at least 10 years cognate experience in the sector (e) a representative of the Ministry responsible for power who shall not be below the rank of director.
The Act also requires the NERC to cause the incorporation document(s) of the ISO to include the following –
(i) An executive member of the Board shall cease to be a director of the ISO if he ceases to be an employee of the company;
(ii) The non-executive member of the Board may serve for an initial term of four years; and
(iii) Upon the expiration of the initial term of any of the non-executive members of the Board appointed, such member may be eligible for reappointment for another four years and no more.
(d) Other Power Sector Regulators
The repeal of the Electricity Power Sector Reform Act No. 6, 2005 by the Electricity Act, 2023 has resulted in the establishment of several power sector-specific regulators that have very important roles to play in power sector regulation, corporate governance, institutional and power projects financing. It is also important to note that these agencies are established in addition to the National Electricity Regulatory Commission as the main sector regulator. These other regulators are –
(i) National Hydroelectric Power Producing Areas Development Commission (N-HYPPADEC)
The N-HYPPADEC is established by Section 82 (1) of the Electricity Act, 2023 with its members being any State of the Federation where hydroelectric power is generated. These states are Benue, Gombe, Kaduna, Kebbi, Kogi, Kwara, Nasarawa, Niger, Plateau, Taraba, and any other State where hydroelectric power is generated. It is statutorily headquartered in Minna, Niger State.
Section 89(1) of the Electricity Act, 2023 provided for its functions which amongst others include (a) formulating policies and guidelines for the development of hydroelectric power-producing areas (b) conceiving, planning, and implementing in accordance with set rules, projects, and programmes for the development of hydroelectric power producing areas.
(ii) Rural Electrification Agency (REA)
Section 127(1) of the Electricity Act, 2023 established the REA.
In terms of its functions, Section 129 (1) of the Electricity Act, 2023 states that amongst others, the REA is to (i) promote universal access to affordable and sustainable electricity thereby improving the quality of life and economic opportunities for rural, unserved and underserved communities (ii) oversee, manage and execute the funding of the Rural Electrification Fund in accordance with the operational guidelines approved by the Board (iii) advocate and facilitate for tax incentives, investment capital allowance and low-interest loans for local producers of renewable energy products for electrification, etc.
(iii) Nigerian Electricity Management Services Agency (NEMSA)
The NEMSA is established by Section 172 of the Electricity Act, 2023. Section 176 of the Electricity Act provides for its functions which amongst others include to (i) carry out electrical inspectorate services for the NESI (ii) enforce all statutory technical electrical standards and regulations as published by the Commission and all other relevant statutory bodies (iii) collaborate with Standard Organisation of Nigeria and other relevant government agencies to ensure that all major electrical materials and equipment used in Nigeria are of the right quality and standards.
(iv) National Power Training Institute of Nigeria (NPTIN)
Section 185 of the Electricity Act, 2023 established the National Power Training Institute of Nigeria.
Pursuant to Section 186 of the Act, the Institute is amongst others required to perform the following functions – (i) serve as a focal point for human resources development and workforce capacity building as well as a research centre for matters relating to electric power in Nigeria and possibly Africa in general; (ii) offer engineering, technical and other training or certificate programmes in collaboration with both foreign and local institutes for professionals and practitioners in the power sector and serve as a pupillage centre and finishing school for graduates of engineering. (ii) provide capacity in formulating and implementing of pilot projects in relevant fields and ensure maintenance, effective monitoring of technical standards and compliance in the industry and dissemination of new ideas and technologies to the power industry.
Qualifications and Disclaimers: This Publication is prepared strictly for informational purposes. It should not be relied upon or serve as a substitute for proper legal advice. Counsel will not be held liable for any action or inaction that is premised strictly on this Business Legislation Review.
For Further Information, Please Contact –
1. Mr. Ikemefuna Stephen Nwoye – Founder/Managing Counsel - ikemefunaSnwoye@nigerianbar.ng /+2349033053175.
2. Miss Favour Enam Jideofor – Associate/+2349053050145
3. Miss Anita Ewere Usiagwu - Paralegal/ +2349071698389