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PART VI - LICENSING


Part VI of the Electricity Act 2023 comprises sections 63 through 79. The 17 sections deal with various issues relating to the issuance of different types of licences by the Nigerian Electricity Regulation Commission (NERC, referred to as The Commission). These issues can be categorized into nine main areas:

  1. Compulsion of License for all Electricity Business Prospects (Section 63)
  2. Obligations and Permissions Relating to Licensees within an Energy Generation Framework (Sections64 and 65)
  3. Transmission License (Section 66)
  4. System Operator Licence (Section 67)
  5. Distribution Licence (Section 68)
  6. Trading Licence (Section 69)
  7. Condition for Transfer, Ceding or Mortgage licence (Section 70)
  8. Procedure for Licence Application (Sections 71 to 74)
  9. The Commission’s Duty of Inquiry to Stakeholders’ Complaints and Intervention Process (Sections 75 to 79)
Highlights of each category are provided below.

1. Necessity of License for all Electricity Business Prospects (Section 63)

Here are the key highlights of this section:
  • a) Licensing Requirement: Engaging in electricity-related businesses (generation, transmission, distribution, supply, trading, and system operation) requires a license, except for specific exclusions like captive generation or small-scale projects.
  • b) Exemptions: Individuals may generate up to 1 MW of electricity or distribute up to 100 kW without a license. States can authorize projects under certain conditions but cannot authorize inter-state distribution.
  • c) Commission's Powers: The Commission can investigate unlicensed operations, order cessation, and enforce compliance, including penalties like confiscation or disconnection.
  • d) Penalties: Violations of licensing requirements can lead to significant fines, imprisonment, or both, along with the potential forfeiture of involved undertakings.
  • e) State Authority: States have the responsibility to regulate and license mini-grids and related infrastructure unless they lack a framework or rely on the national grid, in which case the Commission has the authority.
2. Obligations and Permissions Relating to Licensees within an Energy Generation Framework (Sections64 and 65) Here are the highlights:
  • a) Compliance Requirement: Licensees must follow the rules and regulations set by the Commission, even if they plan to challenge them legally. Non-compliance is only excused if a court orders it.
  • b) License Scope and Authority: Generation licenses allow the construction, ownership, operation, and maintenance of electricity generation stations, subject to grid capacity and other license conditions.
  • c) Sale Authorization: Licensees can sell electricity or ancillary services to specified classes of persons, following the conditions in the license and the Act.
  • d) Multiple Licenses and Renewable Energy: The Commission can issue multiple licenses to independent power producers for generating electricity from renewable and non-renewable sources, under specified terms and conditions.
3. Transmission License (Section 66)

Key highlights from the section are: a) Licensing Authority:
  • Transmission service providers, under a specific license, are empowered to build, maintain, and operate smart grid interconnections. These operations should be efficient, coordinated, economical, and integrated within Nigeria and with neighboring countries.
  • The licenses ensure that all entities, such as successor generating companies, independent power producers, and consumers, have open and non-discriminatory access to the transmission system. This access is contingent on paying the appropriate transmission charges.
b) Independent Transmission Licenses:
  • The regulatory body, referred to as the Commission, has the authority to issue independent transmission network licenses in certain situations:
  • When there is a lack of existing transmission facilities and there's a need to extend the network to improve electricity access.
  • When current transmission facilities need reinforcement to connect to new power generating sources.
c) Franchise Areas:
  • The franchise area for an independent electricity transmission network is restricted to greenfield sites-undeveloped sites within designated states.
  • The existing transmission service providers' franchises encompass areas where they already have transmission facilities in place, as indicated by specific sections of the act.
4. System Operator Licence (Section 67) Key highlights from the section are:
a) Authorization: A system operation license allows the licensee to conduct system operations related to electricity. The scope of activities permitted is determined by the provisions of the Act and specific license terms.
b) Activities Included:
  • Generation Scheduling, Commitment, and Dispatch: Managing when and how much electricity is generated and sent through the grid.
  • Transmission Scheduling and Generation Outage Coordination: Planning the flow of electricity and managing outages to ensure minimal disruption.
  • Transmission Congestion Management: Handling situations where there is more demand for electricity transmission than the system can handle.
  • International Transmission Coordination: Working with international entities to manage cross-border electricity flow.
  • Ancillary Services and System Planning: Procuring services necessary to support the grid and planning for future capacity needs.
  • Administration of the Wholesale Electricity Market: Managing the market and settlement payments according to established market rules.
  • Other Necessary Activities: Additional activities required to maintain reliable and efficient operations.
c) Procurement of Ancillary Services:
  • Must generally be acquired through an open, transparent, and competitive process.
  • Exceptions can be made by the Commission under special circumstances, allowing alternative methods for procurement.
5. Distribution Licence (Section 68) Highlights are:
    a) Distribution Licensee Responsibilities:
    • Construct, operate, and maintain distribution systems.
    • Connect customers to the electricity supply.
    • Handle installation, maintenance, and reading of meters along with billing and collection.
    • Expand the distribution network in licensed areas.
    • Provide electricity supply as per the terms in their license.
    b) Purchasing Power:
    • Distribution licensees can purchase power from generation licensees and other trading licensees.
    • Contracts for bulk electricity purchases must be open, transparent, and competitive unless an exception is granted by the Commission.
    c) Franchising and Commercial Arrangements:
    • The Commission must approve distribution or supply franchising and other commercial arrangements.
    • Franchisees operate under the terms of the main licensee's license but do not hold a separate license.
    d) Electricity Distribution Franchising:The Commission can approve requests for franchising at any point, considering the market stages and the licenses' tenure.
    e) Disaggregation of Distribution and Supply:
    • The Commission can separate electricity supply from distribution, leading to the issuance of separate licenses.
      • A transfer scheme will be implemented, defining phases for transferring functions, property, and liabilities.
    f) Post-Disaggregation Operations:
    • Successor distribution licensees will focus solely on distribution.
    • New entities will be created to manage the supply operations under distinct licenses.
    g) Independent Electricity Distribution Networks:Licenses can be granted to independent Electricity Distribution Network operator where existing infrastructure is inadequate.
    h) Consumer Contributions:
    • Consumers may contribute financially to acquire, install, and maintain necessary equipment if the licensee cannot provide it in a reasonable time.
    • This requires a written request specifying detailed information about the contribution and consultation.

    6. Trading Licence (Section 69)
    Below are the highlights on the Trading licence: <
    a) Role of Trading Licensees:
    • Trading licensees can buy, sell, and trade electricity.
    • The Commission will define the terms and conditions of these licenses, considering the activities the licensee plans to engage in.
    b) Issuing Trading Licenses:
    • The Commission will issue trading licenses as needed to ensure smooth market transitions.
    • These licenses will specify requirements, including technical standards, financial strength, and creditworthiness.
    c) Functions of Trading Licensees:
    • Trading licensees are authorized to:
    • Enter novation agreements, transferring contractual rights and obligations for electricity purchase and resale.
    • Contract with generating companies and independent producers for buying and selling electricity and ancillary services.
    d) Contracting Process:
    • Contracts for electricity and ancillary services must follow an open, transparent, and competitive procedure.
    • The Commission may permit alternative methods if justified.

    7. Condition for Transfer, Ceding or Mortgage licence (Section 70)
    Key points covered in section 70 are highlighted below:
    • a) License Transfer and Assignments:A licensee is not allowed to assign, cede, or transfer their license or any part of their business without obtaining prior consent from the Commission. This includes any form of transfer such as sale, mortgage, charge, pledge, lease, franchise, exchange, or other methods.
    • b) Commission's Consent:The Commission has the authority to provide specific or general consent based on the circumstances that it deems necessary. This means the Commission can set forth terms and conditions under which such transfers might be permissible.
    • c) Acquisition and Mergers:A licensee must obtain prior written consent from the Commission before acquiring, affiliating, or merging with another entity in the electricity sector. This consent may come with conditions, such as compliance with prescribed codes of conduct.
    • d) Regulatory Sections and Exceptions:There are specific sections within the Act (Sections 7(2)(d), 15(2)(a), 67(4), (5), and (8), and others mentioned) that outline exceptions or specific provisions related to these rules. These sections may detail circumstances or conditions under which transfers or mergers might be handled differently.

    8. Procedure for Licence Application (Sections 71 to 74)
    Highlights of sections 71 to 74 are below:
    a) Application Process:
    • License applications must be submitted with the necessary fee and documents.
    • Applicants must publish notice of their application in local and national newspapers within 30 days.
    • Any interest in other licensed bodies must be disclosed.
    b) Commission's Evaluation:
    • Applications are reviewed within specific timeframes (one month for document adequacy, six months for a decision).
    • Licenses are granted if the applicant complies with relevant laws and it's in the public interest.
    • Simplified procedures might be available for smaller businesses.
    c) Terms and Conditions:
    • Licenses have terms prescribed by the Commission, including tariff methodologies and dispute resolutions through the Commission.
    • They may require specific actions like agreements with other entities or compliance with renewable energy obligations.
    • License terms could involve provisions for rural electrification and restrictions on exclusivity.
    d) Changing or Renewing Licenses:
    • Amendments can be requested by the licensee or due to complaints.
    • Renewal applications follow a similar process to initial applications.
    • The Commission can modify licenses based on performance, public interest, and other factors.
    e) Responsibilities and Compliance:
    • Licensees must submit annual accounting information and adhere to market rules.
    • Licenses may be subject to cancellation, suspension, or renewal depending on terms and licensee performance.

    9. The Commission’s Duty of Inquiry to Stakeholders’ Complaints and Intervention Process (Sections 75 to 79)
    The highlights of sections 75 through 79 of the Electricity Act 2023 are:
    a) Inquiry and Intervention (Section 75):
    • The Commission can investigate licensees based on its initiative or consumer complaints.
    • If significant issues are found, the Commission can take actions like dissolving the board, ordering specific actions, or employing other regulatory interventions.
    • Conditions for intervention include inability to fulfill obligations, prolonged defaults, management crises, or financial inadequacies.
    b) Rectifying Violations (Section 76):
    • The Commission can issue orders to licensees to correct or prevent contraventions of their license conditions.
    • A notice with grounds for the order and necessary rectifications is issued before the order.
    • Penalties up to ₦20,000,000 per day can apply for non-compliance.
    c) Revocation and Sale (Section 77-78):
    • Upon revoking a license, the Commission can order the sale of the licensee’s undertaking and manage interim operations.
    • The purchaser gains rights and obligations free from previous debts or obligations, which then attach to the purchase money.
    d) Unsold Undertakings (Section 79)::If a sale does not occur, the Commission can issue directions or schemes for the undertaking’s operation to protect consumers or public interest.
    e) Business Continuity Regulations:The Commission is tasked with creating regulations to ensure the continuity of services and the protection of all parties involved.

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