Protecting Electricity Consumers From Exploitation | Independent Newspapers Limited
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Protecting Electricity Consumers From Exploitation

Posted: Sep 11, 2015 at 12:02 am   /   by   /   comments (0)

Stories by Judith Eshemitan,


The Nigerian media has come a long way as a critical platform for projecting the plight and exploitation of the Nigerian electricity consumers, by the Electricity Distribution Companies (DISCOS). This has spurred the recent intervention by the Senate, to protect the consumers of electricity in the country against what is described as exploitation by the DISCOS.

The media has made the legislative call on the electricity regulator to intervene a cause cerebrum for the Nigerian Bar Association (NBA).

The body of lawyers appears to be acting to type in taking over the business of consumer protection from the Senate as further evidence of the patriotism of Nigerian lawyers.

Dr Sam Amadi, Chairman, Nigerian Electricity Regulatory Commission (NERC), who is also a lawyer has given his view on the context of service delivery impacts on the responses lawyers ought to give to concerns about consumer protection.

According to the NERC boss, the issue of consumers’ protection is incomplete without clearly outlining the features of the context of service delivery; and lawyers function in three main capacities as regards consumer protection. The fourth capacity is akin to the first that it does not merit separate consideration.

He said: “The first capacity is lawyers as regulators. As regulators, they either function as decision-makers or as analysts engaged in casework in a regulatory organisation. The second capacity is lawyers acting as advocates and litigators on behalf of aggrieved consumers. The third capacity is lawyers who sit as judges or administrative tribunals to provide redress to aggrieved consumers.

“There are common ethical responsibilities that apply to all the categories. But also depending on their capacity, lawyers functioning in different capacities have different obligations in the protection of customers”.

Lawyers And Consumer Protection

On the need for lawyers to protect consumers, Amadi said: “In a perfect market, there would be no need to protect consumers as the forces of demand and supply would fix the right price and ensure that the right quality of service is delivered. But there is a little issue here, consumers are not that rational. Their decisions may not set off the movement towards equilibrium price and the right quality as perfect market theory expects. There is also power asymmetry.

“Producers of substandard products or firms that fix inefficient prices may veto the decisions of millions of disparate and unorganised consumers simply because they are more powerful. Just as we have power asymmetry there is also information asymmetry. They are related, but different in a sense.

“For a perfect market to work, consumers and producers must have access to real time information about the workings of the market. If consumers lack important information they would not be able to respond rationally to the actions of producers. Of course, lack of information leads to lack of power to change the game”.

The NERC boss further stated that imperfection also exist in the sense that consumers are disparate and may have little incentive to cooperate and this in turn leads to ‘collective action problem’.

He said that the production or consumption of a good may create unintended consequences that could be negative and such ‘externality’ means that the price of the product is not efficient, because it has not internalised this extra cost. These imperfections constitute ‘market failure’.

He said: “All these imperfections justify interventions on behalf of consumers. In fact, it is partly because of these imperfections that we design regulatory regimes in some service sectors.

“In Nigeria, we have established regulatory regimes for electricity and telecommunication. If the theories of perfect market and perfect rationality are as stated, there would be no justification to establish NERC, and the National Communications Commission (NCC), to regulate supply of electricity and telecommunication services. Their mandates are in the main to protect consumers of these services”.

Responsibility Of Regulatory Bodies

Amadi further stressed the responsibility of these regulatory bodies. He said: “From the point of view of economic theory, consumer protection is justified because markets malfunction radically. And when they malfunction they hurt consumers gravely. A political justification for consumer protection flows from the economic justification. Because market malfunctions, usually to the advantage of producers, there is need for preferential treatment for consumers in order to recreate a balance of power.

“The state establishes institutions to protect consumers because producers tend to exploit consumers because of the imperfections in the markets. The whole point is to remove the asymmetry of power and restore equal and fair bargain.

“Legislatures establish regulatory agencies and empower them to intervene in the market to restore balance of power between producers and consumers. And once the law establishes the regulatory regimes, the role of the court in the protection of consumers is triggered. As long as the political authority has made the decision to cure the imperfections of the market through the establishment of a regulatory regime backed up by law, judges and lawyers have become the prime Donnas of that regulated market.

“So, the legal theory of consumer protection is that because of the inequality in the market, the

legislator has mandated the regulator to intervene in deserving cases to protect the consumers”.


In the Nigerian electricity market, the National Assembly established the NERC to regulate the entire electricity sector. Section 70 of the Electric Power Sector Reform (EPSR) Act 2005 mandates NERC to develop, together with licensees, customer service standards and ‘information to be provided for consumers, and the manners of its dissemination.

Section 32 also mandates NERC to ensure that adequate supply of electricity is available to consumers,  ensure that prices charged by licensees are fair to consumers and are sufficient to allow the licensees to finance their activities and to allow for reasonable earning for efficient operations.

“It is also to ensure safety, security, reliability and quality of service in the production and delivery of electricity to consumers and  ensure that regulation is fair and balanced for licensees, consumers and other stakeholders.

How lawyers respond to concerns about protection of electricity consumers in Nigeria depends on  the policy, regulatory and litigation landscape of the regulated electricity market they operate.

Speaking on the role of the Lawyer as regulator, the NERC boss said that Lawyers working as regulators are the first protector of the consumers. The EPSR Act is unmistakable that NERC has clear responsibility to make rules and regulations that protect  consumers and these rules and regulations cover mainly three aspects of service delivery.

“It deals with the quantity and quality of electricity supplied to consumers. The regulator should ensure that consumers have access to adequate and reliable electricity as much as possible. This is technical regulation.

“The regulator also has responsibility to ensure that the prices that consumers pay for electricity services are ‘fair and reasonable’. This is economic regulation. The regulator also has the responsibility to ensure that electricity is supplied in a safe and secured condition. This is social regulation.

“In managing these responsibilities lawyers-as-regulators ought to understand the real nature of the imperfections of the market they are to regulate. “In the Nigerian electricity market, NERC sets standards of technical operation. The Grid Code, the Distribution Code and the Metering Code set technical standards for efficient and effective management of the transmission and distribution grids,” he said.

Benchmarks and Key Performance Indicators

Amadi further disclosed that in order to achieve the quality of service required, NERC has set benchmarks and Key Performance Indicators (KPIs), that each service provider must meet, and the competence to set measurable and enforcement KPIs is a clear indication of the capability of NERC to achieve agency mandate on quality of service.

He noted that: “The responsibility of lawyer-as-regulator with regards to technical regulation is to design clear and lucid benchmarks and KPIs with effective monitoring and enforcement mechanisms. The regulatory tools and frameworks should be such that incentivises efficiency and discourages race to the bottom in terms of technical efficiency”.

The second component of regulation as stated by Amadi is economic regulation, which imposes other responsibilities on the lawyer-as-regulator. This is because the strongest protection for consumers is protecting them from excessive pricing.

The fundamental premise of classic economic theory is that in a perfectively competitive market, the prevailing price is the right price. Regulation is an attempt to simulate the ideal conditions of a competitive market. The prices of electricity services should be so regulated such that consumers pay only reasonable prices appropriate for the services they receive.

“The Act guarantees every operator fair returns. Fair returns cover costs of operations plus appropriate return on investment. But the catch is that the only costs that a regulator can rightly pass to consumers are costs that are prudently and efficiently incurred.

“It is because of the principle of prudency and efficiency that NERC disallowed distribution companies, DISCOs, from passing collection losses to consumers, this resulted in the lowering of tariff. I have been personally abused for taking this bold decision and many critics have accused me of introducing regulatory instability.

“But the bold decision we took as a Commission to refuse passing collection losses to consumers as higher tariff is in line with the responsibility imposed by the Act on NERC not to allow inefficient costs to be passed to consumers.

“What NERC decided was that thenceforth, any DISCO that wants to pass its collection losses to the consumers must prove that those losses are beyond its reasonable efficiency. This is a clear intervention to protect consumers,” he said.

According to the Chairman, a very low tariff that is not cost reflective does not protect consumers enough, ironic though but true. Investment decisions on power project will be based largely on the assurance that the proposed investment will be recovered through tariff.

“If the tariff does not guarantee the recovery of cost there will be no investment. Without appropriate investment we cannot guarantee customer access to adequate and reliable electricity,” he concluded.