Introduction:

The Nigerian Electricity Regulatory Commission (“NERC” or the “Commission”) has delegated regulatory authority over Oyo State’s power market to the Oyo State Electricity Regulatory Commission (“OSERC”). As a result of this order, the newly established OSERC will assume the regulatory responsibilities tasks that NERC previously had prior to decentralization. Decentralisation of Nigerian power regulation is supported by both the 2023 Electricity Act and the 2023 Constitutional Amendment Act, which align with this change. The commission has granted Oyo State the right to control its electricity market independent of NERC through via Order No. NERC/2024/110. This designation makes Oyo State the fifth state with this authority. Before this, Ondo, Imo, Enugu, and Ekiti states were granted similar oversight over their electricity sectors, encompassing power generation, distribution, and transmission. The new regulatory framework for Oyo State, approved by NERC Chairman Sanusi Garba, will take effect on August 6, 2024.

Brief Background

NERC has long overseen the Nigerian Electricity Supply Industry (“NESI”), under a centrally controlled framework. However, following presidential approval of constitutional modifications on March 17, 2023, this centralized system underwent significant transformation. The Electricity Act of 2023, specifically section 2(2), supports the autonomy of states in overseeing their electricity markets. It guarantees that state laws, even in the presence of Federal legislation, continue to apply to all facets of the electricity industry, including transmission, generation, operation of systems, distribution, supply, and retailing. Despite this decentralisation, NERC remains a critical primary regulator, particularly in overseeing the overall,  operations of electricity on both national and international levels.  

States are now empowered to regulate smaller electrical grids, Independent Electricity Distribution Networks (“IEDNS”), and Independent Electricity Transmission Networks (“IETNS”) within their borders, provided they establish the necessary required institutional and legal frameworks. However, states intending to develop and manage interstate electricity markets must adhere to Section 230 of the Act.

Objectives of the Order

The primary objective of the Order is to systematically transition the regulatory authority and oversight responsibilities from the NERC to the OSERC.

Key Directives:

• Decentralisation of Regulatory Authority: The Order aims to implement the constitutional amendments that give states legislative control over their electricity markets. This allows Oyo State to control, oversee, and regulate every aspect of the electricity industry that falls under its scope. This includes setting up and running markets, regulatory agencies, and power plants owned by the state.
• Improvement of State-Specific Regulatory Framework: The Order seeks to create and apply state-specific regulatory frameworks, policies, and tariffs adapted to the requirements and conditions of Oyo State’s electricity market by transferring regulatory oversight to OSERC. This personalisation is anticipated to result in improved regulation and alignment with regional social, ecological, and economic concerns.
  
  
• Enhancement of Service Delivery and Market Efficiency: By creating a more responsive and localised regulatory framework, the Order seeks to enhance the effectiveness of Oyo State’s electricity distribution and supply. To guarantee a more effective, dependable, and continuous power supply to Oyo State consumers, this includes establishing IBEDC SubCo, a subsidiary of the Ibadan Electricity Distribution Company (“IBEDC”), which will be solely in charge of the state’s electricity distribution and supply.
  
  
• Clarity in Asset and Liability Management: The Order lays out the necessary procedures for the identification, valuation, and transfer of all power infrastructure assets, contractual obligations, liabilities, and personnel related to IBEDC’s operations in Oyo State to the newly incorporated IBEDC SubCo. This transfer aims to clarify and guarantee that all assets and liabilities are appropriately managed and accounted for, facilitating a seamless regulatory transition.
  
  
• Facilitation of Inter-Institutional Collaboration: To preserve regulatory coherence and reduce risks related to the transition, the Order highlights how crucial it is that NERC and OSERC continue to collaborate. As part of this partnership, the federal and state levels of government will harmonise concepts, standards, and regulations to provide uniformity and stability throughout the NESI.
  
  
• Protection of Stakeholders’ Interests: By guaranteeing that the transition process is open, systematic, and inclusive, the Order aims to safeguard the interests of all parties involved, including customers, license holders, and permit holders. To reduce any possible hiccups or uncertainties throughout the transition, all impacted parties will be formally notified, and precise standards for tariff setting, contract approval, and regulatory compliance will be established.
  
  
• Timely and Orderly Transition: A precise timeline for the transition is outlined in the Order, with the procedure scheduled to start on August 6, 2024, and end on February 5, 2025. This schedule is designed to ensure that all tasks are completed in a timely and organised manner, including the incorporation of IBEDC SubCo, transfer of liabilities and assets, and the assumption of regulatory responsibilities by OSERC.

Conclusion and Recommendations

The decentralisation of energy regulation has reached a significant milestone with the Order for the Transfer of Regulatory Oversight of the Energy Market in Oyo State. This change is a calculated step toward improving local governance, aligning regulations with Oyo State’s specific needs, and developing a more responsive and effective energy market. By granting OSERC the authority to manage regulatory responsibilities, the state is better equipped to handle the opportunities and problems within its electricity sector. For the successful implementation of this Order, all stakeholders—including regulatory bodies and to electricity providers—must adhere to the detailed transition plan and timelines outlined by NERC. This will guarantee an orderly transfer of duties, which would eventually result in improved better service delivery, increased operational effectiveness, and steady growth in the electricity market in Oyo State. Going forward, the Oyo State Government and OSERC must maintain a collaborative relationship with NERC to navigate any challenges that may arise and, ensure that this regulatory shift’s objectives are fully realised.