The introduction of Service Reflective Tariffs (SRT) as a precursor to Cost Reflective Tariffs (CRT) has further highlighted the need to unbundle the Transmission Company of Nigeria (TCN) into two entities, namely, a Transmission Service Provider (TSP) and an Independent System Operator (ISO), in line with the original plan for the Nigerian Electricity Supply Industry (NESI) enabled by the Electric Power Sector Reform Act (EPSRA) 2005.
Naturally, emotions can run high and opinions may be divided, about “divorcing” a System Operator (SO) which has for long being part of a TCN family.
The Nigerian Electricity Regulatory Commission (NERC) has sought the views of stakeholders in the NESI on the plan to have a fully independent system operator in the electricitymarket. Owing to the importance of data and the analysis thereof in decision making, it is imperative to find out exactly what the thinking of Nigerians are on the subject.
I decided to find out.
The Questionnaire
The google form application was used to request for the views of Nigerians from all walks of life who are generally interested in the affairs of the power sector.
Five questions were asked.
- Do you think it is the right time to unbundle TCN?
- If you answer Yes to question 1, should we separate the SO from TSP with their separate licences, ownership and governance framework but retain both in TCN?
- If your answer to question 2 is No, should we have a separate SO from TSP and let them be totally separated in all ways – licences, staff, ownership, governance, etc?
- If your answer to question 1 is Yes, what ownership model and governance structure will you recommend?
- If your answer to question 1 is No, and you think unbundling TCN is premature, state the reasons why, proposing conditions precedent and timelines for transition.
Analysis of Responses
58 percent of responders firmly believe that unbundling of TCN is long overdue while 42 percent feel otherwise. 75 percent of responders are happy with the SO and TSP having separate licences, staff, processes, including ownership and governance frameworks as long as both licensees are being retained within the current TCN structure. 25 percent want total separation in the absolute or “hard” sense of it. When it comes to having a fully independent system operator that is completely separated from the transmission system provider in a way that will mean the end of TCN, responders remain emotionally attached. 58 percent of responders firmly believe in the “hard” unbundling of TCN while 42 percent feel otherwise especially if the separation will lead to having a system operator, fully independent of TCN. Analysing the responses using John Venn Diagram, it is clear that 17 percent of the responders will not want to see a move that will lead to the end of TCN as we know it today.
Generally speaking, responders feel strongly about their views on the unbundling of TCN. Those who want to continue to have the SO in TCN will consider a separation, if and only if, the SO remains part of TCN. That is to say, with reference to the current state, they prefer the do nothing option. On the flip side, those who want the “hard” unbundling of TCN want it no matter what, wanting nothing short of a divorce.
An ISO within TCN
Retaining the ISO in TCN may be the simpler solution in terms of management and control functions from the point of view of the regulator, NERC, as the unbundling process will create some degree of confusion especially if the implementation is not carefully managed. As the NESI has still not achieved the aim of privatization, now may not the time to further thinker with a less troubled part of the NESI. Considering the recent change in leadership of TCN, the current leadership may not find the task easy as it enters uncharted waters.
A very important reason to let things stand as they are now is that with the level of illiquidity and ATC&C losses in the NESI today, no appreciable impact would be felt from an isolated case of unbundling TCN. It may be wiser to first address these issues while at the same time seek efficiency measures such as the SRT to be able to withstand the possible disturbances and market shocks that may follow the decision to unbundle TCN.
The idea to have separate licences for the TSP and the SO while retaining the SO within TCN is the status quo ante because that is how things are currently. As a matter of fact, the SO has been “ring-fenced” within the TCN for so long and hasn’t had much progress to show for the status quo. At privatization, significant resources was put into evolving the structure that will eventually separate the SO from TCN by Manitoba Hydro International (MHI), the management firm in charge of TCN by the time of privatization in November 2013. NERC should dig deeper into the affairs of TCN under the management contract with MHI for the purpose of critically analysing how to improve the status quo. Yes, maintaining the current structure does not come without drawbacks.
If the status quo remains and the company is left as Transmission Company of Nigeria while Nigerian professional power engineering practitioners, actively in service or those “retired but not tired”, in and out of the company, are allowed to become shareholders, it may be possible to have a progressive and profitable company because of their stakes in the company! Who says why not? We haven’t tried this option before.
The Hard Separation
Under performance incentives and penalty regimes, it is absolutely important for the system operator to be separate and perceived to be unbiased in the discharge of its duties to all participants in the electricity market. Therefore, for efficiency and accountability, there is no reason to still keep TCN if it is to be unbundled. TCN will have to cease to exist as a corporate entity. The TSP and ISO would have their own governing structures and governance frameworks. If accommodation is an issue, there are lots of seized properties around that can be allocated to the ISO. In this “hard” line approach, it is good to have the two organizations stay apart physically to create and operate in different ambience and develop their operational structures as expansively as possible to take on their mandates as envisioned by the privatization Act going forward. It has to be said though that full independence can still be achieved if the ISO occupies a part of the existing Power House in Abuja but more has to be done in the way of demarcation of structure, processes, culture, branding, and even access to the building.
A fully independent system operator will enhance transparency in the regime under Service Reflective Tariffs as power distribution and transmission service providers operate as market participants bound by monitored service level agreements (SLAs), not only between them, but with other participants, on the basis of which performances, incentives, and penalties are measured as entities become more committed to improved customer service delivery. Also, if it is considered to have regional or state grids, where the national grid network infrastructure is considered too big for a single entity to manage, the government will have to hands-off the power business and focus squarely on regulatory functions, for TCN to attract private investment in distributed generation based on renewable and non-renewable power systems. This is all the more so because, as a country, state ownership of monopolies hasn’t yielded much success for us in the past. A case in point is the Nigerian Telecommunications Limited (NITEL). It was unable to successfully make available efficient and reliable services to Nigerian consumers.
A total separation of the entities in areas including but not limited to governance, ownership and licensing, will create manageable transmission infrastructure for operational efficiency, lead to more effectiveness, Independence and proper check and balance in the NESI. However, we cannot eat our cake and have it. If we want to unbundle TCN, the System Operator has to become fully independent. It will never truly be independent unless there is a total separation.
Furthermore, it can be argued also that the basis for the separation of the SO and TSP should equally apply to the separation of the market operator (MO) as an independent organization within the NESI. In the future, as the electricity market mature, one expects that the TSP, ISO and MO will operate independent of one another. This is the grand plan for the privatization of the NESI.
Some additional advantages of having a fully independent system operator includes the reduction in bureaucracy that slows down authorization processes, reduction in mismanagement and a further deepening of the power sector reform that will result.
In terms of ownership structure, there are a number of models to examine from other privatized electricity systems in the power industry worldwide. State ownership with regional control centres utilizing Supervisory, Control, and Data Acquisition (SCADA) systems and or Advanced Distribution Management System for monitoring, controlling and reconfiguring the grid abound. Some electricity markets have total government ownership of the transmission system claiming security concerns especially in this day and age of cyber security and data espionage. In some climes, horizontal or interdependent form of projected organisational/ governance structure has been trialled even as public private partnership (PPP). Although another school of thought believes that having the fully independent system operator owned by the electricity market will drive market efficiency, it has to be said that it can be very uncomfortable for most Governments to hands-off completely from the power business.
While respondents have mixed feelings about the implementation of the policy to unbundle TCN into TSP and ISO, the more popular opinion is that the unbundling is long overdue and should be done immediately. Even though the privatization of the NESI has not yielded all the desired benefits, and there is a genuine fear that any further unbundling in the process of privatization before the market reaches stability will create further chaos, there can be no better time than now to unbundle TCN, get ready to deal with whatever it throws up, and do whatever needs to be done to make things functional in the NESI following the unbundling of TCN.
Contruutor: Engr Idowu Oyebanjo, CEO of Idfon Power Engineering Consultants (iPEC) Limited
