Introduction
In response to the fifth alteration of the 1999 Constitution which puts electricity on the concurrent legislative list and the subsequent enactment of the Electricity Act 2023 (as amended) which applies until a State enacts its own electricity laws, the Lagos State House of Assembly is currently considering the Lagos State Electricity Bill 2024 (the "Bill"). This Legislation aims to overhaul the Lagos State's power sector by repealing the Electric Power Sector Reform Law 2018 ("EPSR Law 2018") and create the Lagos state electricity market ("Lagos Electricity Market"). The Bill introduces innovative measures to enhance accessibility, reliability, and sustainability of electricity across the state. This article explores the transformative provisions of the Bill and predicts the likely impacts ahead of implementation. The Bill has 21 parts and outlines the roles and responsibilities of the Lagos State Government, the Lagos State Ministry of Energy and Mineral Resources (the "Energy Ministry") (through the Energy Commissioner), the Lagos State Electricity Regulatory Commission ("LASERC") as well as the LASERC Executive and Non-Executive Commissioners.
Highlights of the Bill
The Lagos Electricity Market: The cornerstone of the Bill is the establishment of a distinct Lagos Electricity Market, envisioned to operate independently of the national grid and under the regulated activities and oversight of the LASERC. The Bill defines it as "the electricity market established for the State by this Law under the regulated activities of the Commission" and contemplates its establishment as a market that is commercially and technically sound and is well-funded and financially viable. The Lagos Electricity Market is also envisioned to be administered by the Lagos Independent System Operator which will oversee system operations and market operations in such manner as the LASERC may prescribe in the terms and conditions of the Lagos ISO's licence. The Bill also contemplates that a "Power Enforcement Unit", to be headed by a serving Magistrate, will be constituted as an enforcement unit of the Energy Ministry and will principally liaise with the LASERC, licensees, market participants and other stakeholders to address issues of electricity theft, theft of and damage to electricity installations and infrastructure and other connected matters.
Transitional Provisions and Pre-Existing Licensees: The Bill provides that licences, permits, etc. held by pre-existing licensees (i.e. entities licensed by the Nigerian Electricity Regulatory Commission ("NERC") to operate within Lagos State) for the provision of electricity services and which was effective immediately before the commencement date shall continue to have effect for the remainder of its period of validity. It shall be deemed to have been issued by the LASERC under the relevant provisions of the Bill, with such modifications as deemed necessary to ensure the attainment of the objectives of the electricity policy of the State and this Law. This provision appears to contradict the provisions of the Electricity Act 2023 which provides that entities licensed by NERC will continue to be regulated by NERC and they are only obligated to incorporate subsidiary companies ("SubCos") for each state within which they operate and spin-off operations in such state to the respective SubCos. This is also replicated under section 75(1) of the Bill where the LASERC is to, within eighteen (18) months of the enactment of the Law, draw up a transfer scheme for separation and transfer of the existing distribution company to a subsidiary company which shall inherit all existing agreements to which the existing distribution company is a beneficiary prior to the commencement of this Law. However, the Bill provides elsewhere that "any person carrying on regulated activities or operating an undertaking in Lagos State prior to the commencement of this Law shall take steps to apply to the Commission for a licence within three (3) months of the coming into effect of this Law" which is based on the assumption that the Lagos State will be able to complete the transition formalities under the Electricity Act 2023 (as well as establishment of the Lagos ISO and the drawing up of a transfer scheme which, as contemplated by the Bill, will be set up within 18 months from commencement of the Law) within three (3) months. It is hoped that the Bill will be amended accordingly to expunge this confusion or that the LASERC, upon incorporation, will by virtue of the phrase "with such modifications as deemed necessary to ensure the attainment of the objectives of the electricity policy of the State and this Law" as provided in section 137 of the Bill, prescribe modalities which aligns with the transitional provisions under the Bill with that prescribed under the Electricity Act 2023 so as to prevent confusion for innocent licensees and market operators.
The Lagos Independent System Operator: The Bill contemplates the establishment of the Lagos Independent System Operator ("Lagos ISO") as a company limited by guarantee by the Energy Ministry within 18 months or such later time as the Energy Commissioner may approve. The Lagos ISO will have operational control of the State Grid and oversee all activities crucial to the efficient operation of the Lagos Electricity within itself, in relation to the national grid and in relation to the grid of another state, such as procurement, scheduling, coordination and general administration of the wholesale electricity market including trading and settlement systems.
The Lagos ISO will also develop and modify the Market Rules which will, subject to the review and approval of the LASERC, have the effect of a contract between each licensee/market participant and the Lagos ISO pursuant to which each licensee/market participant and the Lagos ISO respectively agree to perform and observe the terms and conditions of the Market Rules.
Additionally, it is noteworthy to note that LASERC is obligated to issue regulation prescribing the time when the Lagos ISO's system operation activities will commence in relation to the distributions systems of the State Grid. Given that Lagos ISO's administration of the Lagos Electricity Market is subject to the regulatory oversight of the LASERC, we believe this is based on the assumption that monopolistic market activities are regulated while non-monopolistic activities are best left to market competition and the intention here also appears to be that LASERC-licensed electricity distributors, suppliers and traders should be left to compete in the distribution segment of the electricity market, independently of the market rules (which is administered by the Lagos ISO) until such a time that innovations such as net-metering (as contemplated in section 92(2)(j) of the Bill) and several other enabling technologies (being the fruit of the competition) are introduced into the Lagos Electricity Market.
The Lagos State Electricity Regulatory Commission: The Bill contemplates the establishment of the Lagos State Electricity Regulatory Commission and confers it with an "autonomous status" in the performance of all functions and duties which are necessary for the attainment of its objectives under the Bill. The LASERC is intended to have roles and responsibilities similar to
(i) that of the NERC in the national electricity market such as the power to deal with all licences and maintain regulatory oversight on the licencees and
(ii) that of the Nigerian Electricity Services Management Agency ("NEMSA") in the electricity market such as develop, test, certify and enforce standards and guidelines for the design, procurement, construction, operation, maintenance and utilization of generating stations, power plants, transmission system, distribution system and electricity installations in the State.
The LASERC may also make regulations or guidelines for the effective implementation of the provisions of the Bill. The Bill stipulates that companies intending to engage in activities such as generation, transmission, distribution, trading, or supply within Lagos State will require a license from the LASERC. The preservation of the LASERC's autonomous status is reflected in the language of the Bill in terms of how the Energy Ministry/Energy Commissioner may only issue policy directives to it and how the Lagos State Government is duty-bound to protect its independence. The LASERC will be administered by five (5) Commissioners, 2 non-executive (one of whom will be appointed Chairperson) and 3 executive Commissioners, who will be responsible for its management and general oversight.
The LASERC, in addition to other obligations in the Bill, will also be:
(a) obligated to establish and administer the "Fund of the Commission" from which all administrative and operating costs of the LASERC will be drawn;
(b) empowered to make regulations in respect of matters listed under Sections 21(2), 93(1) and 93(2) of the Bill and any other matters required for the safe, reliable and efficient operation of the Lagos Electricity Market; and
(c) obligated to prepare the "Report of the Commission" every six (6) months and issue the Lagos Electricity Market Report every year.
We will continue the highlights in our next edition of the ETT.
Lagos State Electrification Agency: The Bill contemplates the establishment of a Lagos State Electrification Agency (the "Agency") which will replace the Lagos State Electricity Board established under the EPSR Law 2018. It also appears to have roles similar to that of the Rural Electrification Agency ("REA") such as facilitation of electricity solutions for unserved and underserved areas within Lagos State and general oversight over off-grid electrification. It is obligated to undertake grassroot engagement with persons affected by its activities, programmes and projects. The Agency will also be tasked with the general administration and supervision of the Lagos State Electrification Fund (the "Electrification Fund") which will specifically focus on financing electrification projects in unserved and underserved areas of Lagos. This Electrification Fund aims to bridge the gap in electricity access, ensuring both new connections and better service delivery. The Bill also provides clear guidelines for selecting projects for which the monies in the Electrification Fund will be deployed and the Agency will be obligated to keep the Electrification Fund separate from the "Fund of the Agency" from which all administrative and operating costs of the Agency will be drawn.
Renewable Energy and Emission Reduction: The Bill underscores a commitment to emission reduction as well as a clean and renewable energy sources for electricity generation, aligning with global sustainability trends. It mandates the Lagos State Government, the Energy Ministry, the Commission as well as stakeholders within Lagos State to promote the development and utilisation of renewable energy sources for electricity generation in the State.
The Bill provides that there will be a Renewable Energy, Energy Efficiency, and Demand Side Management (DSM) Strategy and Action Plan (the "Action Plan") within eighteen (18) months of the Law's commencement. The Action Plan is contemplated to outline short, medium, and long-term targets and incentives for renewable energy and energy efficiency and modalities for creating an enabling environment for renewable energy adoption, implementation of energy efficiency measures, and effective management of demand. Also, the LASERC will be obligated to issue regulations in respect of renewable energy adoption in response to a request from a producer of electricity from renewable energy sources within the State;), energy efficiency, demand-side management as well as emission reduction standards and compliance monitoring in collaboration with the Lagos State Environmental Protection Agency ("LASEPA").
Notable is the provision of the Bill which obligates the LASERC to implement a mechanism for the issuance of guarantees of origin (renewable energy certificates) in response to a request from a producer of electricity from renewable energy sources within the State. This will significantly support private commercial arrangements for carbon offset programmes in terms of renewable energy projects in Lagos and also assist monitoring and evaluation of utilisation of proceeds from green bonds.
Additionally, quite notable is the provision in the Bill relating to the displacement of fossil-based feedstock, which states that the LASERC may, by regulations, require that electricity generating plants or any class of generating plants located and utilised for any purpose in Lagos State using "distillates"1 as fuel to transit to gas or renewable energy sources within a transition period, which period shall not be less than 6 (six) months or more than 24 (twenty-four) months from the effective date of the regulation. This is quite significant – to not just Lagos State but to the Nigeria's energy transition drive – as the issuance of such regulations will facilitate a speedier monetisation of Nigeria's vast gas resources and the unlocking of opportunities for renewable energy projects from sustainability-minded investors.
Off-Grid Electrification: Although, the Agency2, as mentioned above, is to have oversight over off-grid electrification, the Bill obligates the Energy Ministry to, within eighteen (18) months from the commencement date of the Law and subject to the approval of the Lagos State Governor, issue an Off-Grid Electrification Strategy and Action Plan (the "Action Plan"). The Action Plan is to stipulate the State's short-, medium- and long-term targets for off-grid solutions, map potential cost-effective off-grid solutions suitable to each unserved or underserved area and provide for the monitoring and evaluation framework to track the implementation of the Action Plan and the attendant annual reviews of relevant measures introduced by the State. It would appear that the Agency – which has oversight over off-grid electrification – would have been more suited to prepare and present the Action Plan instead of the Energy Ministry (whose role should ideally be limited to policy directives). It is hoped that the Energy Ministry in preparing the Action Plan will do so in close collaboration with the Agency.
Regulatory Sandbox: The Bill defines this as "a framework that allows entities to test run innovative products, services, solutions and business models within the Lagos Electricity Market" and provides that the LASERC may make regulations for the establishment of a regulatory sandbox for the Lagos Electricity Market.
Consumer Protection Measures: The Bill strengthens consumer rights, ensuring fair treatment and competition within the market. The legislation also incorporates robust consumer protection measures, designed to safeguard the rights of electricity consumers and ensure fair treatment within the Lagos Electricity Market.
Disaggregation of licenses: The Bill contemplates that there will be an eighteen (18) months transitional period after which no single licensee will be permitted to engage in two or more market activities streamlined under the Bill namely, generation, trading, supply, transmission or distribution of electricity, and it shall also be an offence to supply electricity without a meter.
Host Communities Development Trust Fund: The Bill establishes a Host Communities Development Trust Fund (the "HCD Trust Fund") and provides for a framework within which electricity generation companies will be mandated to allocate 2% of their annual operating expenditure to develop host communities. Notably, "host communities" are communities in which electricity generation companies carry out electricity generation operations. The HCD Trust Fund shall be received, managed and administered by a reputable Trustee to be jointly appointed by concerned electricity generation companies and the representatives of the host communities. The HCD Trust Fund is intended for infrastructural projects identified by the communities and disputes over fund management will be resolved by the LASERC.
The Lagos Integrated Electricity Policy and Strategic Implementation Plan: The Bill contemplates that the Energy Ministry (in consultation with the LASERC and other relevant stakeholders) will, within six (6) months from the commencement of the Law, prepare and publish the Lagos Integrated Electricity Policy and Strategic Implementation Plan (the "Implementation Plan") which will guide the development of the Lagos Electricity Market.
Once approved by the State Executive Council, the Implementation Plan will outline the market's structure, emphasise energy resource diversification (including fossil-based energy resources as well as nuclear and renewable energy sources) and ensure the delivery of reliable and affordable electricity across Lagos State. With each edition spanning at least a decade and subject to rigorous reviews every five years or such other lesser time-periods which the Energy Ministry may prescribe, in consultation with the LASERC and Lagos ISO.
The Implementation Plan underscores a commitment to long-term sustainability and adaptability in meeting the state's energy needs. The Ministry, in conjunction with the Lagos Independent System Operator (Lagos ISO) and the Commission, will oversee its execution, providing regular updates and annual reports to ensure transparency and accountability in achieving its objectives.
Conclusion
In conclusion, the Bill signifies a proactive step towards addressing longstanding challenges in the Lagos State's electricity sector. By establishing a separate market, enhancing infrastructure, promoting renewable energy adoption, and ensuring consumer protection, the Bill sets a comprehensive framework for a sustainable and competitive electricity landscape in Lagos. As the legislative process unfolds, stakeholders are advised to anticipate significant positive impacts on affordability, reliability, and environmental sustainability, positioning Lagos State at the forefront of innovative energy policy in Nigeria.
Footnotes
1. It is defined in the Bill as "fuel oils, gasoline, diesel, gas oil, kerosene for use as fuel for heating and electricity generation."
2. The Lagos State Electrification Agency
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