RESEARCH ON THE ELECTRICITY DISTRIBUTION SUB FRANCHISING IN NIGERIA

1.0. Introduction

Stakeholders in the Nigerian Electricity Supply Industry (NESI) have agreed that the Discos in
Nigeria have not been able to meet stakeholder expectations in providing access to safe and reliable
electricity services to all customers within their franchise territory since the unbundling of the power
sector in Nigeria through the Electric Power Supply Reform Act (EPSRA) 2005.

As a result, by investing in metering, billing, collection, and network rehabilitation and growth, the
introduction of sub-franchising of DisCos' operations and coverage regions is expected to improve
the quality of power delivery to customers.

What is Sub-Franchising ?

Sub-franchising (also known as Distribution Franchising) is a business model used by a DisCo to

authorize a third party to provide electric distribution utility services on its behalf in a specific area
within the DisCo's area of supply, according to a Consultation Paper on Distribution Franchising in
Nigeria published on 12 April 2019. Proposals for franchising arrangements can be initiated by
DisCos or customer groups (community) within a defined geographical border, according to this
structure. The community may formally approach the DisCo through a registered association to
express its interest and establish franchising agreements in the areas of supply, metering, invoicing,
and collection, as well as additional investment in distribution networks where suitable. Furthermore,
any unserved or underserved community may use the provisions of the NERC's Regulation on
Independent Electricity Distribution Network (IEDN) to discover solutions to their supply
difficulties, if appropriate.

2.0. Objectives of the Distribution Franchising Regulations

Section 96(1) of the EPSR Act authorizes the Commission to establish regulations on matters that, in
its view, are necessary or convenient to be prescribed for the EPSR Act to be carried out or given
effect. As a result, the Commission believes that the proposal for Distribution Franchising will help
to address some of the industry's existing issues, particularly in the distribution subsector.

The proposed legislation on distribution franchising has as its overriding goal the facilitation of the
establishment of favorable business models that will attract third-party investments in the supply of
adequate, safe, reliable, and reasonably priced energy to DisCos' customers. According to the
Consultation Paper on Distribution Franchising in Nigeria, the following are the listed goals of sub-
franchising certain aspects of the distribution parts of the power sector.

i. Improved Investments in the Networks; This Regulation is expected to drive the

needed prudent investments in addressing the financial and infrastructure gap in the NESI
distribution subsector, depending on the terms of the Franchise Agreement.

ii. Bridging of Power Supply Deficit; The current level of power generation in the various
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 DisCos across the country is significantly lower than the customer load demand. The Franchisee
may acquire power from additional sources outside of the contracted capacity with NBET on a
bilateral basis through the national grid or from embedded generating sources to make up for the
supply gap. The Bulk Power Procurement Regulation and the Embedded Generation Regulation will
apply as needed in this regard.

iii. Improved Customer Satisfaction; It is expected that there will be improved customer
satisfaction in terms of availability, quality of electricity supply and customer services.

iv. Technological Improvements; Facilitate adoption of advanced technologies in

the design and operations of modern grid systems that can offer cheaper and flexible alternatives to
customers.

v. Better Service: To avail opportunities for underserved customer groups desirous of

better services by prompting the Distribution Company to engage Franchisee(s) for the provision of
the desired services in the respective area(s).

vi. Flexibility for approving franchising agreements with DisCo companies.

vii. Make certain that these franchising arrangements do no derail from the terms and objectives
of the Distribution Licenses.

3.0. The Distribution Franchising Model

NERC’s Consultation Paper structured franchising guidelines along four (4) distinct and separate
models namely;

i. Metering, Billing and Collection (MBC): The distribution function of metering, billing and
collection may be outsourced to a third party based on the franchising model. A typical
configuration may be to franchise the metering, billing and collection of a 33kV or 11kV
feeder or a cluster of feeders to a third party for the supply of electricity to rural, semi-urban
or urban areas.

ii. Total Management of Electricity Distribution Function; Under this arrangement, the
Franchisee is responsible for maintaining the electricity distribution system (comprising
HT/LT lines, meters, distribution transformers, breakers, and in addition to MBC function).
The Franchisee undertakes the rehabilitation and upgrading of the distribution system, as
required, by investing its own funds and recover through a Project Agreement with the
Distribution Licensee.

iii. Distributed Generation (DG) based Electricity Distribution Franchisee; In addition to

the functions mentioned above, the Franchisee may undertake to procure more energy either
through bilateral arrangements over the transmission network (TCN grid) or embedded at
local distribution networks level to meet the electricity deficit (or peak demand deficit) of
customers within the franchise area.

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 iv. Loss Reduction and Provision of Embedded Regulation;

Also, stakeholders are further advised to be innovative and can also approach NERC with any other
model it thinks can proffer solutions, provided same is approved by the corresponding DisCo
company.

Section four (4) of the Franchising Guidelines titled ‘ Key Roles and Responsibilities’ in summation
provides, that no DisCo is to enter into any arrangement within it’s franchise area, with a formal
application and approval from NERC. The guidelines further provided a list of procedures to be
followed for the application of its approvals as;

a. the DisCo is to engage a prospective franchisee, preferably but not compulsorily

through an open competitive bidding process;

b. the DisCo is to negotiate the franchising arrangement and proper documentation with the
franchisee;

c. prior to the execution of the franchising documents, the DisCo is to apply to NERC for a “no
objection” in respect of the franchising arrangement; and upon obtaining NERC’s consent, the
DisCo may execute the proper documentation to commence the franchising arrangement.

In considering the application for “no objection” filed by the DisCo, NERC is to have regard to
certain commercial and contractual considerations, including: (i) the DisCos should adopt an
open competitive approach to engaging prospective franchisees, where possible; (ii) related
parties to the DisCos, such as directors and shareholders, are not eligible franchisees; (iii) the
franchising arrangement is to be on the basis of an elaborate contract containing certain
fundamental elements; (iv) the franchisee is to provide security for its payment obligation in a
form acceptable by the DisCo; (v) the tariff applicable to the franchising arrangement will be
consistent with the tariff methodology approved by NERC; (vi) the DisCo is to have held a
customer consultation prior to procuring such additional generation capacity, subject to
NERC’s review and a potential public hearing; and (vii) the procurement of additional
generation capacity in the franchising arrangement shall be in compliance with subsisting
NERC orders, regulations and guidelines.

4.0. Delineation Of Technical Boundaries (Tb) Of Distribution Franchise Areas

and Provision of Supplementary Electric Power

The first step in the process of appointment of franchisees is selection of the area to be
franchised. NERC Maintained that a careful and thorough research is required before
determining the area to be franchised. In its consultation, it proposed six (6) possible delineations
of technical boundaries (TB) of Distribution Franchise Areas as follows:

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 i. TB1: Multiple 33kV Distribution Feeders with the Input at 132/33kV
Transmission/Distribution Interface to supply customers at 33/0.400kV or 11/0.400kV
with the possibility of injection of additional power from Embedded Generators
connected at 33kV and or 11kV Busses on Island or Synchronized operation Modes. This
is mostly applicable in the Urban Areas. Please refer to the diagram – TB Option1;

ii. TB2: A Single 33kV Distribution Feeder with the Input at 132/33kV
Transmission/Distribution Interface to supply customers at 33/0.400kV or 11/0.400kV
with possibility of injection of additional power from Embedded Generators connected at
33kV and or 11kV Busses on Island or Synchronized Operation Modes. This is mostly
applicable in the Urban Areas. Please refer to the diagram – TB Option2;

iii. TB3: A Single 33kV Distribution Feeder with Input at 33/0.400kV

Transmission/Distribution Interface to supply customers directly on 33/0.400kV with
possibility of additional power from Embedded Generators at 33kV Bus on Island or
synchronized Operation Modes. This Model applies mostly to Rural Areas with a few in
Urban Areas. Please refer to the diagram – TB Option 3;

iv. TB4: Multiple 11kV Distribution Feeders with Input at 11/0.400kV distribution interface
to supply customers at 11/0.400kV with possibility of injection of additional power from
Embedded Generators connected at 11kV Bus on Island or Synchronized Operation
Modes. This Model applies mostly to delineated areas such as big Markets, Universities,
Schools, and Hospitals etc. within the Urban Areas with a few in Rural Areas. Please
refer to the diagram – TB Option4;

v. TB5: A Single 11kV Distribution Feeder with multiple distribution transformers (DTs)
with Input at 11/0.400kV distribution Bus Interface to supply customers at 11/0.400kV
with possibility of injection of additional power from Embedded Generators connected at
11kV Bus on Island or Synchronized Operation Modes. This Model applies mostly to
delineated areas such as Markets, schools, Hospitals etc. within the Urban Areas with a
few in Rural Areas. Please refer to the diagram – TB Option5;

vi. TB6: A Single 11kV Distribution Feeder with a single distribution transformer (DT) with
Input at 11/0.400kV distribution Bus Interface to supply customers at 11/0.400kV with
possibility of injection of additional power from at the Primary Side of the 11kV
Distribution Transformer on Island or Synchronized Operation Modes. This Model
applies mostly to delineated areas such as Markets, schools, Hospitals etc. within the
Urban Areas with a few in Rural Areas. Please refer to the diagram – TB Option6.

5.0. CONCLUSION

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 The Franchisee must be familiar with electrical distribution management and have the financial
means to invest in the necessary distribution system upgrades and expansions. In order to achieve
specified performance improvements, the Franchisee may implement the MAP Regulations,
reduce ATC&C losses, and perform other services ordinarily done by DisCos within the
franchised region in accordance with the Franchise Agreement between the parties. The
Commission's proposed franchising system excludes the granting of franchisee licenses. The
Franchisee will operate under the DisCo's power distribution license and must follow the DisCo's
rules and regulations.

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