NIGERIAN ELECTRICITY REGULATORY COMMISSION Uniform System of Accounts (USOA) for the Nigerian Electricity Supply Industry (NESI) Presented by: Abba Ibrahim Terab Analyst Financial & Accounts Analysis Accra, Ghana Tuesday, 3 rd June 2014

Outline • • • • • • • Background Uniform System of Accounts Development Process Structure of the USoA Principles of USoA Reporting Requirements Conclusion Electricity on Demand 2

Background • NERC is the statutory agency mandated to regulate and monitor the Nigerian Electricity Supply Industry (NESI).

• Individuals and entities intending to engage in the business of electricity generation, transmission, system operations, distribution or trading are required to obtain operating license from the Commission Electricity on Demand 3

Background • The Licenses issued by the Commission include conditions requiring the maintenance of records, the provision of information and the separation of financial records between regulated and non-regulated activities.

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Background • Rate regulated activities are considered to be unique from other general commercial activities due to: a) Regulatory objectives of: • setting ‘just and reasonable rates’ for consumers; • • ensuring the financial viability of suppliers; and protecting the availability and stability of supply Electricity on Demand 5

Background b) Rate balancing requirement for suppliers to either increase the selling price (rate) to recover ‘allowable revenue’, or lower the rate to eliminate ‘excess’ revenue; c) Rate changes usually apply prospectively and are often designed to ‘smooth’ the impact of rate changes for customers over time; d) Some specific assets and liabilities arise where a rate regulation regime exists (regulatory assets & liabilities or regulatory debit & credit balances).

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Uniform System of Accounts  USoA is a regulatory tool designed to provide for: the necessary financial information about the regulated business a) Tariff Determination/Review and other regulatory decisions that requires financial information Electricity on Demand 7

Uniform System of Accounts b) Monitoring of Financial Performance to safeguard against systematic failure c) Avoiding varied interpretations between companies of definitions and reporting requirements d) Improving robustness and consistency of reported data Electricity on Demand 8

Uniform System of Accounts e) Detection of certain anti-competitive behaviour such as cross - subsidisation and undue discrimination f) Comparative competition and monitoring the financial health of the licensed utilities g) Improving transparency in the regulatory process Electricity on Demand 9

Development Process  The Commission in collaboration with the NASB (now FRC) began the process of developing accounting standards for the NESI in 2008.

 Following the adoption of IFRS, emphasis shifted to regulatory reporting framework Electricity on Demand 10

Development Process  Various regulatory reporting frameworks were considered  US’s FERC 2009 version of USoA was adapted  Stakeholders consultation workshops held Electricity on Demand 11

Development Process  Partnership with Michigan Public Service Commission (MPSC) through NARUC/USAID  Reviews undertaken by Consultants’  Industry comprising Working Group representatives GENCOs, TCN, DISCOs and NBET (IWG) from Electricity on Demand 12

Development Process  Exposure to Audit /Accounting Firms, Professional Accounting Bodies and licensed utilities;  Comments received and reviewed.

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Structure of USoA  Definitions and Instructions  Generation  Transmission  Distribution  Trading  Appendix – Regulatory Chart of Accounts Electricity on Demand 14

Structure of USoA  Numbering System – Seven (7) Digit whole numbers based on the following principles: • Specific Sector of Operations in the NESI; • • • Classification of Account Groups in line Financial Reporting format; Sub-grouping of related items/activities for ease of reference; and Listing of Accounts serially in the applicable sub-groups Electricity on Demand 15

Structure of USoA

1000000

1100000 - 1199999 1200000 - 1299999 1300000 - 1399999 1400000 - 1499999 1500000 - 1599999 1600000 - 1699999 1700000 - 1799999 1800000 - 1899999

Generation

Non Current Assets - Generation Current Assets - Generation Current Liability - Generation Non Current Liabilities - Generation Equity Accounts - Generation Income/Revenue Accts - Generation Expenses Accounts - Generation Taxation Accounts - Generation Electricity on Demand 16

Structure of USoA

2000000

2100000 - 2199999 2200000 - 2299999 2300000 - 2399999 2400000 - 2499999 2500000 - 2599999 2600000 - 2699999 2700000 - 2799999 2800000 - 2899999

Transmission

Non Current Assets - Transmission Current Assets - Transmission Current Liability - Transmission Non Current Liabilities - Transmission Equity Accounts - Transmission Income Accounts - Transmission Expenses Accounts - Transmission Taxation Accounts – Transmission Electricity on Demand 17

Structure of USoA

3000000

3100000 - 3199999 3200000 - 3299999 3300000 - 3399999 3400000 - 3499999 3500000 - 3599999 3600000 - 3699999 3700000 - 3799999 3800000 - 3899999

Distribution

Non Current Assets - Distribution Current Assets - Distribution Current Liability - Distribution Non Current Liabilities - Distribution Equity Accounts - Distribution Income/Revenue Accts - Distribution Expenses Accounts - Distribution Taxation Accounts - Distribution Electricity on Demand 18

Structure of USoA 4000000 4100000 - 4199999 4200000 - 4299999 4300000 - 4399999 4400000 - 4499999 4500000 - 4599999 4600000 - 4699999 4700000 - 4799999 4800000 - 4899999 Trading Non Current Assets - Trading Current Assets - Trading Current Liability - Trading Non Current Liabilities - Trading Equity Accounts - Trading Income/Revenue Accounts - Trading Expenses Accounts - Trading Taxation Accounts - Trading Electricity on Demand 19

Principles of USoA • Completeness consistent and reliable information to NERC – To provide • Flexibility – Provide a platform that can change as required Electricity on Demand 20

Principles of USoA • Uniformity - Mostly in accordance with the IFRSs where it does not conflict with regulatory objective • Transparency – Developed jointly by NERC, Licensed Utilities and Consultants Electricity on Demand 21

Reporting Requirements • • All licensed utilities are required to file annually: IFRS based Statements audited Financial • Balance Sheet and Profit and Loss Statement in line with USoA Electricity on Demand 22

Conclusion • USoA enhances transparency about the rate-regulated environment and how it impacts the amounts, timing and certainty of entities’ future cash flows; • Availability of detailed information would enable users to measure correlation between actual and allowed earnings Electricity on Demand 23

Conclusion • Enhances relationship between the regulator and the entities, including entities’ historical allowed by the regulator experience in recovery of costs and earning the return Electricity on Demand 24

Conclusion • Implementation of USoA is one of the surest ways to reduce information asymmetry and to improve the quality of the regulation Electricity on Demand 25

THANK YOU Contact us at: Adamawa Plaza, Plot 1099 First Avenue, Off Shehu Shagari Way, Central Business District, Abuja Website: www.nercng.org

E-mail: [email protected]

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