NERCs Licensing, Monitoring, Compliance and Enforcement Procedures

1
NERCs Licensing, Monitoring, Compliance and
Enforcement Procedures

• Presented by
• NERC Legal, Licensing Enforcement Division
• NERC/NARUC Workshop, Abuja
• July 14- 18, 2008

2
Acronyms

• NERC Nigerian Electricity Regulatory Commission
• EPSR Act Electric Power Sector Reform Act 2005
• PHCN Power Holding Company of Nigeria
• SCs Successor Companies
• IPPs Independent Power Producers

3
Outline

• Licensing under EPSR Act 2005
• Types of Licences
• Eligibility for Licence
• Legal Requirement
• Technical Requirements
• Commercial Requirement
• Licence Application Procedure under NERC
• Monitoring, Compliance Enforcement
• Monitoring
• Compliance Enforcement

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Licensing under EPSR Act 2005

• A key function of NERC is regulation of market
  participants via issuance of licences and other
  regulatory tools - S.32(2)(d) EPSR Act
• The Act provides that no person except in
  accordance with a licence shall engage in the
  business of electricity generation, transmission,
  system operation, distribution or trading S.62
  EPSR Act
• NERC has the authority to issue both Interim and
  Regular licences under the Act. NERC has issued
• Interim licence to PHCN S. 7 EPSR Act
• Interim generation, transmission, distribution
  and trading licences to SCs S.23 EPSR Act
• 24 generation licenses to IPPs
• 2 Distribution Licences to IPPs

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Licensing under EPSR Act 2005(cont.)

• Regular licences issued by NERC include
• Generation licence
• Grid connected
• Off-Grid
• Embedded Generation
• Transmission licence
• System Operations licence
• Distribution licence
• Grid Connected
• Off-Grid
• Trading licence
• Temporary Bulk Purchase Resale Licence

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Licensing under EPSR Act 2005(cont.)

• The Act excludes the following activities from
  the requirement for a licence
• Captive generation generation for own use
• Electricity generation not exceeding 1MW in
  aggregate at a site
• Electricity distribution not exceeding 100KW in
  aggregate at a site
• In furtherance of its licensing function, the
  Commission has published Regulations on
  Application for Licences Licence and Operating
  Fees Regulation
• Application for Licence Regulation is currently
  under amendment

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Eligibility

• Every applicant for a licence must satisfy three
  broad eligibility criteria viz Legal, Technical
  Commercial
• LEGAL REQUIREMENTS
• Incorporation of Company in Nigeria
• Submission of Audited Company reports for the
  last three years for existing companies
• Submission of Company Tax Clearance Certificate
• Objects of the company must include the licensed
  business being applied for.
• Legal Due Diligence carried out on company and
  major shareholders to ensure suitability

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Eligibility Technical Requirements

• Technical experience in the electricity industry
• Knowledge of the electricity industry
• Area of expertise (Generation, Transmission,
  Distribution, Marketing, Equipment Manufacturing)
• Skills and knowledge of Directors and top
  management
• Environmental Impact Assessment Certification

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Technical Requirements (cont.)

• Agreement / MoU with third Parties
• Network Connection (TCN or Disco)
• Fuel Supply (NNPC/NGC)
• EPC
• Station Type (Coal, Gas, Hydro, Nuclear, Wind
  etc)
• Technology Type (CCGT, IGCC, etc.)
• Layout design of facilities

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SITE SPECIFIC INFORMATION

• SITE SPECIFIC REQUIREMENTS
• Location map showing nearby settlements, roads,
  transmission lines, rivers
• Dam showing water spillage area
• Water Source and pipe line(s)
• Waste (liquid solid) Disposal area
• Noise Level

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PLANT SPECIFIC REQUIREMENTS

• Total Capacity
• Number of Generating Units
• Size of each Generating unit (MW)
• Station Load
• Who will build the sub station
• Plan for power evacuation
• Time line for project implementation including
  proposed Commissioning Date

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PLANT SPECIFIC REQUIREMENTS

• Rated Capacity (MW/ MVA)
• Terminal Voltage
• Efficiency
• Ancillary Services Capability
• Terminal Voltage (KV)
• Protection Measures
• Make and characteristics of water turbine
• Single line diagram of power plant

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KEY CONSIDERATIONS

• Suitability of station to Nigerian Condition
• Ability of station to perform in Nigeria
• Competency of project sponsor and technical
  partners
• Realistic and achievable project timeline

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Eligibility Commercial requirements

• A five year Business Plan is required which will
  include
• Technology requirements.
• Describe the technology to be deployed
• Specific requirements
• Plant-specific
• Technology and scale
• Siting and electrical connection
• Fuel source and availability
• Construction, timing and operation (COD)
• Micro assumptions (load factor)
• Auxiliary and sent out energy
• Tariff assumptions MYTO

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Commercial requirements ( cont.)

• Business plans ( to determine project viability
  and financing decisions)
• Macro assumptions (inflation, fuel price
  assumption)
• Project cost
• Financial assumptions
• Funding sources and structure
• Pay back period
• Assessment of competition and market share
• Pricing strategy and projected price
• Experience and expertise of management team
• Proposed organizational structure

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Application for Licence Procedure

• PRELIMINARY ENQUIRY
• Before a prospective applicant can apply for a
  licence, the following steps should be followed
• Applicant should conduct study to ensure
  applicant can meet industry requirements
• Applicant should confirm whether a licence is
  required for the business
• If a licence is required, an application form
  can be obtained from NERCs office or from NERCs
  website
• Submit completed application form along with
  relevant documents/information and licence
  application fee to NERC

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Application for Licence Procedure (CONT.)

• NERC reviews application form and documents for
  adequacy
• If application is complete, NERC acknowledges it
  as duly made and requests the applicant to
  publish the mandatory statutory public notice in
  two dailies
• If application is incomplete, NERC will inform
  the applicant accordingly
• If applicant fails to provide information within
  prescribed time, the application is discarded
• If applicant provides required information, NERC
  acknowledges it as duly made and requests the
  applicant to publish the mandatory statutory
  public notice in two dailies
• Publication must be in one newspaper of national
  circulation and another circulating in the area
  where the proposed project is to be sited
• Notice should state that objections and
  representations should be made to NERC within 21
  days of the publication

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Application for Licence Procedure (CONT.)

• Applicant must furnish NERC with copies of the
  published notices
• Where there is no objection to the application
  after the 21-day period, NERC will carry out a
  legal, technical and commercial evaluation of the
  application
• Where there are objections to the application
  received within the 21 days period, NERC will
  consider the objection and may place the
  application for hearing based on the objection
  filed in respect of the application
• NERC will give notice of such hearing to the
  applicant, the person objecting and other persons
  as NERC may consider appropriate

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Application for Licence Procedure (CONT.)

• NERCs findings at the hearing would be in
  writing and signed appropriately
• Where NERC decides in favour of the applicant,
  NERC will carry out a legal, technical and
  commercial evaluation of the application
• After the evaluation, a recommendation is made to
  Commission to grant or refuse licence
• Commission considers the recommendation and makes
  its decision
• Time between due acknowledgement of receipt of
  application and the date when the application is
  granted/refused must not exceed 6 months

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Application for Licence Procedure (CONT.)

• When granted, NERC will inform the applicant of
  the approval and the conditions to be satisfied
  including payment of licence fee for the grant.
  NERC also issues a timeline for conditions to be
  met up to the Commissioning of the project.
  (Annexure A)
• If NERC intends to refuse an application, it
  shall notify the applicant in writing of its
  intention and give the applicant 15 days from the
  date of notification to make representations on
  the matter
• Where no representation is made, NERC will
  re-state (in writing) the reasons for refusal of
  the application
• Where an unsuccessful representation is made,
  NERC will state (in writing) the reasons for
  refusal of the representation
• Applicant has a right of Appeal to the Commission
  and may revert to the Federal High Court on
  questions of Law

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Grounds for Refusal of Licence

• Applicant fails to meet the required criteria
• Legal
• Technical
• Commercial
• Applicant fails to produce upon request
  additional information within the time specified
  by NERC
• NERC is of the opinion that the information
  provided by the applicant is false or misleading

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Application, Licence and Operating Fees

• S/N Licence Category
• Grid-Connected Validity Period Application Fees
  (N) Licence Fees (US) Licence Amendment Fees
  (N) Annual Operating Levies
• 1 Generation 10
• Above 1MW-10MW 50,000 2,500 50,000 1.5 of
  Licensees Charges/kWh
• Above 10MW-100MW 100,000 25,000 100,000
• Above 101MW-250MW 200,000 50,000 200,000
• Above 251MW-500MW 300,000 75,000 300,000
• Above 501MW-1000MW 400,000 100,000 400,000
• Above 1000MW 500,000 200,000 500,000
• 2 Transmission 10 1,000,000 250,000 1,000,000
• 3 System Operations 10 1,000,000 250,000 1,000,000
  
• 4 Distribution/Trading 10 1,000,000 50,000 1,000,0
  00

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Application, Licence Operating Fees

• S/N Licence Category
• Off Grid Operations Validity Period Application
  Fees (N) Licence Fees (US) Licence Amendment
  Fees (N) Annual Operating Levies
• 1 Above 1MW-10MW 1 10,000 1,000 500 None
• 11MW-20MW 10,000 2,000 1,000
• 21MW-30MW 10,000 2,500 1,250
• 31MW-40MW 10,000 3,000 1,500
• 41MW-50MW 10,000 3,000 1,500
• 51MW-100MW 20,000 5,000 2,500
• Above 100 MW 50,000 6,000 3,000
• 4 Distribution/Trading 10 100,000 10,000 5,000 1.5
  of tariff charge/kWh

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CHALLENGES IN LICENSING

• Licence Tenure limited to 10 years S 71(10) EPSR
  Act
• Multiple sites licensing
• Payment of licence fees and operating levies by
  SCs
• Fulfillment of post- licensing milestones
• Issue of multiple documentations and agreements
  for licensees
• Development of appropriate licensing regime
  regulatory framework for renewables
• Ensuring smooth interface with other sister
  agencies e.g Rural Electrification Agency, Energy
  Commission of Nigeria

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For Further Information

• For more information on the Licensing Procedure,
  copies of the following documents can be obtained
  from NERCs office or downloaded from NERCs
  website, www.nercng.org
• NERC Regulation on Application for Licences
• NERC Regulation on Business Rules of the
  Commission
• Handbook on Application for Licences
• Regulation on Licence and Operating Fees
• Electric Power Sector Reform Act 2005

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Monitoring, Compliance and Enforcement

• Monitoring and enforcing licence conditions,
  including codes and standards are two key
  functions of NERC.
• A Draft Guideline on Monitoring and Enforcement
  has been developed and is before the Commission
  for Approval

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Monitoring

• Licence monitoring is undertaken through a number
  of activities including
• Post Licence issuance monitoring (NERC Annexure
  A)
• NERCs licences are currently issued subject to
  fulfilment of some conditions (contained in
  Annexure A) within 12 months of grant of licence
  including
• Obtaining Registered Title Deed to Site
• Off-take Arrangements
• Approved Environmental Impact Assessment Report
• Fuel Supply Arrangement
• EPC Contract
• Financing Agreement
• Connection Agreement
• Pre-construction Agreements
• Site Mobilization
• Commissioning of plant to be achieved within
  36-48monthe depending on plant type

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Monitoring (cont.)

• Complaints Customer complaints are the most
  common, and typically the best, avenue for
  effective licensee monitoring. Reviewing
  complaints received from other licensees as well
  as customers will ensure monitoring. (Regulations
  on Customer Complaints Handling Procedure has
  been developed by NERC)
• Regulatory Returns All licensees are required to
  complete and submit an annual return that
  contains a mixture of financial, business
  performance and operational performance data
  additional periodic reporting are also be
  required to be submitted

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Monitoring (Cont.)

• Establishment of Key Performance Indicators for
  Licensees
• NERC is working with the industry to develop a
  sector score card that will enable the public see
  how the industry is performing
• Market Monitoring NERC carries out routine
  observation of the power sector through
• Reading industry literature as well as general
  news sources
• Following financial market movements and reading
  analyst reports
• Investigating anti-competitive behaviour An
  draft Affiliate Code of Conduct Regulations has
  been developed for commissions approval prior to
  issuing a Notice of proposed rule-making.
• Surprise Audit or Site Visit NERC may carry out
  unscheduled operational audits and site visits on
  a random and periodic basis, or when there is
  suspicion of a problem, . NERC can appoint
  inspectors to carry out this function

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Monitoring (cont.)
This summaries the monitoring procedure

• NERC gathers and analyses information concerning
  the behaviour of licensees in order to ascertain
  whether any license conditions breaches are
  taking place or are expected to take place
• Information is gathered in a number of ways
  including
• -- (i) Licensee Returns
• -- (ii) Complaints
• -- (iii) Performance monitoring
• -- (iv) Market Monitoring
• -- (v) Surprise Audit or Site Visit

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Compliance and Enforcement procedure

• NERCs compliance and enforcement procedure as
  contained in the draft guidelines can be
  summarized as follows
• NERC receives initial complaint
• NERC investigates and issues a provisional Order
  if necessary
• NERC proceeds to issue a Breach Notice to
  Licensee where there is evidence of breach
• Where Licensee provides justification for breach,
  NERC reviews justification and may hold a hearing
  if necessary
• If justification has merit, NERC will rule
  accordingly

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Compliance and Enforcement (cont.)

• 6. If justification lacks merit, NERC will issue
  public notice encompassing compliance Order
• If licensee rectifies breach, NERC may impose
  sanction if necessary
• If breach is still not rectified, NERC imposes
  sanction on licensee and issues public notice of
  Sanction

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Compliance Enforcement Procedures (cont.)
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Compliance Enforcement Procedures (cont.)
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Compliance Enforcement Procedures (cont.)
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Compliance Enforcement procedure (cont.)

• NERC considers it important to use the
  enforcement powers it has under the EPSR Act
• Enforcement can usually be carried out by using a
  combination of enforcement methods including
  Orders and fines
• The level of fine should be commensurate with the
  nature of the infringement and/or losses incurred
  by affected parties
• License suspension may be considered if the
  licensee fails to abide by an enforcement order,
  fails to pay a fine levied upon it by NERC or
  fails to pay its annual fee
• Preparation for suspension and revocation is
  necessary to prevent it from being an empty
  threat
• Public engagement in the enforcement process is
  both desirable and necessary naming and
  shaming will also be used a tool to ensure
  compliance

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Compliance Enforcement procedures (cont.)

• License revocation will only be considered in
  certain circumstances
• End of a suspension period if the licensee has
  failed to address the breach
• Repeated and wilful abuse of fundamental licence
  conditions
• Failure to comply with critical license
  conditions e.g. health and safety terms
• Repeated, demonstrable technical, managerial or
  financial incompetence
• If the licence was issued through fraud or
  misrepresentation of critical material
  information
• License suspension or revocation requires the
  replacement of the operating companys directors
  and/or senior management (where the company is
  privately held this may entail the sale of the
  firm)

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Compliance Enforcement procedures (cont.)

• NERC is working with a number of Law enforcement
  agencies to collaborate on Enforcement including
• Economic Financial Crimes Commission
• Nigerian Police Force
• Nigerian Civil Defence Corp
• Independent Corrupt Practices Commission
• Federal High Court

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CHALLENGES IN MONITORING ENFORCEMENT

• Inability of most licensees to adhere to timeline
  stipulated in Annexure A
• EPSR Act provides a cap on penalties to be
  imposed
• EPSR Act does not give specific NERC enforcement
  powers
• Collaboration necessary with other agencies as
  NERC may not be able to otherwise enforce some
  Orders
• Issue of ensuring compliance by SCs during the
  transition period
• Interface with courts likely to result in delays
  as there are no special courts
• Judges may require specialist training to
  understand NERCs regulatory landscape NERC is
  planning a workshop for Judges

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• THANK YOU ALL