Being a text of Presentation titled ADVOCACY & ACTIVISM IN OUR ENGINEERING DNA Being a Presentation by HR Engr. Otis Anyaeji KtSGG FAEng, Obi Onowu II n’Okija (Traditional Head of Ubahu-Okija), 30th President, The Nigerian Society of Engineers at 2022 October Lecture. Made as Part of the Collection Themed “WISDOM OF THE NIGERIAN SOCIETY OF ENGINEERS On the Occasion of NSE OCTOBER LECTURE On October 7th, 2022
Continued from Part 1 part 2 and Part 3 Part 4 Part 5 Part 6
9.0 THE NIGERIAN SOCIETY OF ENGINEERS ON THE UTILITIES TARIFF COMMISSION”
President Ibrahim B. Babangida GCFR in the 1990 Budget Speech made the following statement on the Tariff System:
“The tariff for electricity was recently reviewed. There is ample evidence that the review had protected the small users by and large, and that the heavier burden was passed to the very large consumers. However, as part of the request by the general public for increased participation in such reviews, government has decided to set up in 1990 a broad-based Utilities Review Commission which will have the responsibility for studying all proposals to raise tariff by various public utilities. The Commission which will consist of professional engineers, accountants, representatives of women societies and trade unions will make recommendations to government on the proposals from such parastatals as NEPA and NITEL.”
In a letter Ref. NSE/CC/01/VOL II/90 dated 31st January, 1990 addressed to the Ministry of Mines, Power and Steel, NSE applauded the above intentions, clearly identifying it as the correct approach in public utility regulation.
At that time, the Society had no doubts at all that when the time comes for the setting up of the Commission, the Engineering profession would be represented as such in the new regulating body.
9.1 BACKGROUND OF PROBLEM
On 3rd April, 1990 the Federal Government announced the establishment of the Utilities Tariff Commission which is constituted as follows:
DGs (Permanent Secretaries) of Budget & Planning, Transport, Communications, Aviation, Petroleum Resources; Representation of the Presidency; Presidents MAN, & NACCIMA; MD NIDB; a university don from ABU, a private businessman, a journalist, an accountant, and representative of the Nigerian Labour Congress, as members. The Minister, Federal Ministry of Mines, Power and Steel was to be the Chairman.
We stated that the Society of Engineers was still surprised that “Engineers” the first on Mr. President’s list in January 1990, of those that the Commission would comprise were, the only fore-mentioned local group not represented in the Commission.
Underscoring the appropriateness of Mr. President’s mention of “Engineers” first on the list of membership of the Commission, it was explained that the entire process of the professional field of ENGINEERING VALUATION has received the larger part of its development in connection with the regulation of public utilities.
9.2 REGULATION AND ENGINEERING VALUATION
It was observed that the main function of UTC is to study all proposals to raise tariffs by various public utilities and make recommendations to government for considerations and approval. In other words, their duty is to recommend the rate base of each public utility which usually is the monetary sum established by the proper regulatory authority as a basis for determining the charges to customers and the “fair return” to the owners of the utility. The Society expected as is the practice in other parts of the world that the limit of authority of the UTC should cover operational procedures, applied by, and compensation for service performed by the utilities. It is very clear that the power possessed directly or indirectly by the UTC to regulate rates charged by a public utility, is not different from power to affect the value of the public utility enterprise.
We took opportunity to explain to the government that the basic tenet of rate regulation is set forth in the following extract of the ruling of the US Supreme Court in the case of Symth vs Ames decided March 7, 1898.
“We hold however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value,
• the original cost of construction,
• the amount expended in permanent improvements,
• the amount and market value of its bonds and stocks,
• the present as compared with the original cost of construction,
• the probable earning capacity of the property under particular rates prescribed by statute,
• and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each case.
We do not say there may not be other matters to be regarded in estimating the value of property what the company is entitled to ask is a fair rate upon the value of that which it employs for the public convenience.
On the other hand what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth.”
It was then explained that the term fair value basis of rate regulation arose from this US Supreme Court decision, popularly termed “the Smyth v. Ames Rule in the rate regulation business.
Government was also informed that this decision naturally had the effect of putting the appraisal Engineer at the centre stage of the rate regulation problem. And from them it became the standard practice for courts of law, rates regulation agencies, public utilities and their customers to rely on the Engineer for the answer to the question.
“WHAT ARE JUST AND REASONABLE RATES WHICH A PUBLIC UTILITY CAN CHARGE ITS CUSTOMERS?”
We conjectured that this practice must have informed Mr. President’s guideline on the composition of the Utilities Tariff Commission, which duly recognizes and pays compliments to the Engineer as the prime professional in the business of public utility rate regulation.
9.3 RATE BASE DETERMINATION FOR PUBLIC UTILITIES
The process for rate base determination was reviewed. The government was informed that commissions and agencies charged with the responsibility of regulating public utilities normally adopt any of the three procedures below:
(a) The original cost (prudent investment)
And, whichever the procedure followed by the commission or agency, the valuation Engineer is the prime professional in the project of establishing of just and reasonable rates for public utilities, his services being required for estimates of:
(i) The original cost of construction
(ii) The proper overhead cost of construction
(iii) The reproduction or replacement cost of property
(iv) The depreciation of property
(v) The average requirement for materials and supplies used in operations
(vi) The intangible property possessed by the utility
(vii) The proper annual depreciation charge
(viii) The average annual expenses of operation.
The attention of the authorities was then drawn the evident truth from the above determinants, that the art of engineering valuation is fundamental to the establishment of the information from which a rate base is set. And that the regulatory agency actually begins its work from where the valuation Engineer leaves off.
We then urged that to properly digest the base information which engineering experts would have prepared for the Commission, it is absolutely necessary to have professional Engineers represented in the Commission as such, as colleagues to experts in regulatory, policy, finance, and management.
9.4 THE STRUCTURE OF GOVERNMENT AGENCIES FOR PUBLIC UTILITY REGULATION
Our hunch was that those in government that midwifed this process did not quite understand how public utility regulation worked.
It then became necessary to state that in the jurisprudence of that time any class of business recognised as being endowed with public interest is considered to be a public utility. The following classes of business were listed within that category:
Electric powr, water, gas, railroad properties, street car lines, bus lines, water transportation, air transportation, telecommunications, radio broadcasting, television, utilization of atomic energy, toll bridges and roads, etc.
These classes were further grouped into ENERGY, WATER, TRANSPORTATION, AND COMMUNICATIONS.
The Society recognised that though in more developed economies where free enterprise and competition extends to all public utilities, each class of utility has its own dedicated regulating agency, such may not immediately be applicable in Nigeria since Energy, Rail, and Telecommunications services are provided on a monopolistic basis. The point was made that the situation on the ground does not call for a monolithic commission that is expected to bestride and spread thin over diverse and diverging businesses. Noting that at any rate a Utilities Tariff Commission is in place now, a way around the situation will be to establish by law four regulatory agencies as follows:
- i) Energy Regulatory Agency
- ii) Water Regulatory Agency
- iii) Transportation Regulatory Agency
- iv) Communications Regulatory Agency
It was suggested that the relationship between the UTC and the regulatory agencies should be purely for monitoring, and that the regulatory agencies would be composed of Engineers, finance, management experts experienced in the appropriate sectors. The argument was made that the work of the agency is quasi-judicial and so neither the public utilities nor their customers need to be represented in the Bench of the court that has jurisdiction over their case. We then requested that opportunity be taken to redress the omission of representation of the Nigerian Society of Engineers, three relevant Federal Ministries, and the Industrial Inspectorate (which has the statutory responsibility for investment valuations for industrial undertakings on behalf of the Federal Government), in the Commission.
9.5 SAMPLERS OF IMPORTANT ENGINEERING VALUATION/RATE BASE DECISION OF COURTS
To buttress the case made by the Society, examples of important engineering valuation/Rate Base decisions of courts were cited. There were,
(i) on a water works valuation case that related to the base upon which the worth of a public service may be estimated.
Brunsivick & Topsham Water District vs Maine Water Company (Maine Supreme Court December 1904).
Based on the decision of this court, it was deduced that apart from the estimation of cost of production or distribution of water being an engineering question before the regulatory agency, the latter also has to settle the question of alternative water supply schemes, which clearly is an engineering matter.
(ii) On a depreciation of Public Utilities case with case title –
Lindheimer et al vs Illinois Bell Telephone Co. (No. 44o), Illinois Bell Telephone Co. vs Lindheimer et al (No. 548) (US Supreme Court April 30, 1934).
Here was a notable decision, written by Mr. Chief Justice Hughes, in which the US Supreme Court set aside an injunction restraining the Illinois Commerce Commission from enforcing a rate reduction order.
The lower court had found that the rates had been unreasonably low during the period 1923 – 1932, but the Supreme Court found otherwise, mainly because the rates of return were based upon annual depreciation allowances sufficient to maintain depreciation reserve balances far in excess of highest estimates of the total accrued depreciation. The discussion of depreciation and then depreciation accounting procedure found in this US Supreme Court decision is often cited in Regulatory Agencies and Courtrooms.
From the decision, it can easily be gleaned that depreciation allowance if not properly estimated, could be excessive leading to the customers of public utility paying more than a fair rate. The bases of the depreciated allowance is the residual service life of the asset, functional obsolescence, technological obsolescence, all of which only the Engineer can establish.
(iii) We also relied on the court decision on the actual legitimate cost of Natural Gas Company property under the case title,
Colorado Interstate Gas Co. vs Federal Power Commission et al (No. 2550), Canadian River Gas Co. vs Same (No. 2551), Colorado – Wyoming Gas Co. vs Same (No. 2561).
(US Circuit, 10th Circuit, May 16, 1944),
to underline the relevance of valuation Engineer/Engineering Valuer in the field under reference. It was highlighted that in deciding this case, the US Circuit Court of Appeals stated that in fixing the “actual legitimate cost” of the property of a natural gas company, such items as capital expenditure previously charged to expense and unproven costs of engineering to affiliates must be excluded. Interest during construction cannot be continued after operation earnings are received and no separate allowance for going value may be made.
We deduced from this statement that both determination of legitimate cost of property of Natural Gas Company, and proving cost of engineering are engineering tasks, precisely cost engineering tasks.
(iv) Of interest was also the decision of the US Supreme Court on reproduction cost of street railway. The case title was
Market Street Railway Co. vs Railroad Commission of California et al (No. 510, 511), (US Supreme Court March 26, 1945).
Here the US Supreme Court stated that to disregard a theoretical reproduction cost of a street railway is not erroneous when it appears that no responsible person would think of reproducing the present plant. Those principles applicable to the determination of the sufficiency of a return do not apply to a company whose financial integrity is hopelessly undermined and which could not attract capital at any possible rate.
We then invited the government to note the lesson from this US Supreme Court decision, that the decision whether a utility plant is to be considered reproduceable or not is based on engineering judgement.
(v) Also cited was the matter on status of the findings under the case title:
Securities and Exchange Commission vs Central – Illinois Securities Corp. et al (No. 226), together with Streeter et al vs Central – Illinois Securities Corp. et al (No. 227) etc.
The US Supreme Court here stated and restated that the findings of a Commission which are based upon judgement and prediction as well as facts are not subject to re-examination by the Court unless they are not supported by substantial evidence or were not arrived at “in accordance with legal standards.” The attention of the Nigerian government was drawn to the implication of this statement as that the requisite “substantial evidence” is mostly engineering information. Also, that legal standards of course imply the standards appropriate and applicable to the discipline upon which judgement and prediction are made, and to which the facts relate.
We then prayed the Presidency in consideration of these issues and facts to,
i) Include representation of professional Engineers in the Utilities Tariff Commission after consultation with the Nigerian Society of Engineers.
ii) Establish by law the following Regulatory Agencies:
a) Energy Regulatory Agency
b) Water Regulatory Agency
c) Transportation Regulatory Agency
d) Communications Regulatory Agency
Our conclusion was that on the basis of the memorandum enough reasons would have been seen to revert to Mr. President’s guideline on the composition of the Utilities Tariff Commission particularly as it affects Engineers.
When the Presidency read this memorandum, the Chief Economic Adviser to President Babangida GCFR, Prof. Ojetunji Aboyade, the eminent development Economist, requested Past President Engr. Teju Oyeleye FNSE to bring me over to his office. On getting there, Prof. said he enjoyed reading the memo. He asked a few questions that were satisfactorily answered, and then assured that the Society’s recommendations would be adopted.
In Mr. President’s 1991 Budget Speech, the creation of Energy, Water, Transportation, and Communications Regulatory Agencies was announced.
UTC was still retained, and Engineers got to be Chairman and members of the Commission before it was rested.
10.0 STATUTORY INSPECTION OF PRESSURE VESSELS & LIFTING
Sometime in 1989, the management of Delta Steel Company realized that their pressure vessels and lifting devices had long fallen due for statutory inspections. The company being familiar with work my professional firm was doing with the company, first on Corrosion Engineering/Sand Blasting, and Valuation of Assets, requested us to provide services on Boiler and Pressure Vessels inspection. As that was going on, we were also requested to provide services on inspection of lifting devices.
While providing these services on extensive array of 1no. steam boiler at the Sodium Silicate Dissolving Station, 16no. pressure vessels in the two modules of the Midrex Direct Reduction plant, our firm was guided by the provisions of the Factories Act Cap 66 the Laws of the Federation of Nigeria & Lagos. Sec. 37 (8) of the Act defines “authorized boiler inspector” as:
“any person (whether or not an officer in the public service of the Federation or any region) who is authorized by the Chief Inspector, by certificate in writing, to carry out examinations of steam boilers in accordance with, and for the purposes of this section and to issue the certificate referred to in subsection (6) of this section;”
There were similar provisions with respect to “steam receiver”, “steam container”, “air receiver”. Our firm tried unsuccessfully to get a professional Engineer that has the appropriate certification from the Chief Inspector of Factories (then Director of Factories). We then approached the most famous name in Engineering Inspection in the country, Engr. Jinadu FNSE to recommend a certified boiler/pressure vessel inspector. He did not know one, and was not aware of any regulatory framework for such certification. One then had to go to the Office of Factories Inspectorate on 147 Broad Street Lagos, to get recommendations from a possible register of certified inspectors. There was none. The then Director of Factories, Dr. Roland Adewoye, explained to me that the Inspectorate was trying to put in place the machinery for examining and certifying competent persons for such inspections. In aid of that, the Inspectorate had appointed Yaba College of Technology as agency for testing competent persons for inspecting boilers and pressure vessels.
While trying to reach out to YABATECH to apply for testing of our staff, the Delta Steel Company approached our firm again, this time requesting us to carry out statutory inspection of their lifting devices. Delta Steel Complex comprises the following factories, Raw Materials Reception & Preparation, Pellet Plant, Direct Reduction Plant x2, Steel Melting Shop, Continuous Casting Plant, Rolling Mill, Lime Plant, Industrial Gases Plant, Engineering Products Complex (Foundry/Pattern Making, Forage Shop, Machine Shop, Electrical/Electronic Shops), Various Utilities.
There are 82no. cranes, crabs, winches, teagles, pulley block, gin wheel etc in the Delta Steel Complex.
As we were pursuing certification in boilers/pressure inspection we received the work order for the statutory inspection of lifting devices machines.
Our firm went back to the Director of Factories to seek for appropriate certification, since Sec. 29 (2), Sec. 30(1) (d), and Sec. 31 (2) require persons who examine/inspect hoists & lifts, chains/ropes & lifting tackles, cranes and other lifting machines, (i.e. chain slings, rope slings, rings, hooks, shackles and swivels) to be approved and certified by the Chief Inspector. The Director informed us that the Inspectorate had not put in place the machinery for examining and certifying persons as competent for inspecting lifting devices. I then proposed to the DoF to appoint the Nigerian Society of Engineers as Testing Agency in the Certification of Competent Persons for Statutory Engineering Inspections of Lifting Devices. The Director said they would consider that. As Secretary General of NSE, I discussed with the President this development.
He agreed that NSE should send a proposal and remarked that even the testing agency status granted to Yaba College of Technology should have come to NSE. One then prepared the proposal and submitted to the Inspectorate. The latter did not respond as promptly as had been expected, and so one had to escalate the matter to the Hon. Minister of Labour, Employment & Productivity. Fortunately, the incumbent Minister was Engr. Bunu Sheriff Musa FNSE. He asked for a copy of the proposal, and said I should leave the matter in his hands. Weeks turned into months, and I kept checking on the Director and the Hon. Minister. The Hon. Minister would each time I came to his office to remind him of the Commission, call the Director asking him the status of the appointment of NSE as agency. On the third occasion, I was at the Hon. Minister’s office to follow up, he asked me to wait a little. He then called the Director and asked him to come to his office.
The Hon. Minister’s office was in the Federal secretariat Ikoyi while the Factories Inspectorate Office was on 147 Broad Street, Lagos Island. The Director was in the Minister’s office within 30 minutes. The Hon. Minister then asked me to come from the sofa to his visitor’s chair, same for the Director. He then addressed the Director as follows:
“Director, I don’t know how long I wil be on this seat. These are my people, and even if I leave here tomorrow, issue that letter as we had agreed to.”
Shivers came down my spine as the Honourable Minister spoke. Those words sounded transcendental to me, and had magical instantaneous effect. The Director asked me to follow him to his office. When we got there, he issued the letter appointing NSE the Testing Agency in the Certification of Competent Persons for Statutory Engineering Inspections for Lifting Devices.
Shortly after I left office as Secretary General in 1992, President NSE, Engr. Dr. F.A. Shonubi FNSE informed me that the Factories Inspectorate had sent names of persons they wanted to be tested for competence in Statutory Inspections for Lifting Devices, and requested that I organize the test.
One then contacted Engr. Jinadu FNSE and co-opted him to the testing team. NSE secured permission from Nigerian Ports Authority for use of their habour lifting devices for the testing. The candidates were tested, and report rendered to the Director of Factories, and thus were the first set of Certified Competent Persons for Statutory Inspection of Lifting Devices, produced for Nigeria.
In Sept. 2021, one was reflecting on the work that was done in getting Nigeria Electricity Management Services Agency Bill passed in the Senate. It occurred to me that the structure of electricity management services in the Electricity Act 1958 is similar to the structure of factories management services in the Factories Act 1958. One observed that the powers of operation of the Act can be said to be assigned to individuals, to wit – the Chief Inspector and the inspectors in each case. There is a lack of systematic statutory implementation framework as the Director of Factories and the inspectors recognised and assigned enormous responsibilities by the Act function within a “Factories Inspectorate”, an organisation not know to the Act.
By a memo referenced COR/EOA-OOU/HMLE/04 dated 28 September, 2021 one drew the attention of HMLE to the fact that the operation of the Act can be said to be statutorily assigned to individuals.
Recalling that from time to time failures of lifting devices, air receivers, pressure vessels, steam boilers do occur with disastrous consequences of loss of lives and physical properties/assets, the urgency of the need for an enforcement agency to take charge of factories safety was obvious.
Citing NEMSA Act as a model, one recommended a long title of an appropriate bill as follows:
“An Act to establish the Nigerian Factories Commission to carry out the functions of enforcement of technical standards and regulations, technical inspection, testing and certification of all categories of factories installations, industrial meters and instruments to ensure manufacture and delivery of safe, reliable products, and guarantee safety of lives and property in Nigerian factories, and for related matters.”
A paradigm shift from the present era where DoF is a sole administrator to a conciliar model, to wit a Commission was recommended.
The HMLE referred me to the Director of Factories to get acquainted with work the Ministry is doing in this direction.
One got the opportunity to gain an overview of an “Occupational Safety and Health Bill, 2021 which seeks to establish a National Council for Occupational Safety and Health. I sought to bring in the Nigerian Institution of Safety Engineers (NISafetyE), the Nigerian Institution of Mechanical Engineers (NIMechE), Nigerian Institution of Electrical & Electronic Engineers (NIEEE), and Nigerian Society of Chemical Engineers (NSChE) to review the Bill. That could not be, as I was told the stakeholders (including technical partners, and sponsors) had validated the Bill as is. It was thus too late to bring in Professional Engineering Institutions.
All the same, I was able to make available my comments on sections of the Bill. For example, on establishment and composition of the Governing Board of the Board of the Council, the point was made that since OSHB is about factories, and factories make up industries, a representative of the Federal Ministry of Industry, Trade and Investment ought to be in the Board.
Because Parts VIII & IX, and the 3rd, 4th, 6th & 7th Schedules have higher contents of Safety Engineering than other aspects of safety, and lifting devices, Boilers, Pressure Vessels, Air Receivers, Piping, Machinery & Equipment are intensively Mechanical Engineering, and to a great extent Electrical Engineering,
I urged that Sec. 7 (1) include,
Nigerian Institution of Safety Engineers (NISafetyE), Nigerian Institution of Mechanical Engineers (NIMechE), Nigerian Institution of Electrical/Electronics Engineers (NIEEE), but was informed such amendment would require revalidation of the draft bill by all stakeholders. Incidentally, the engineering community that should have been represented by the Nigerian Institution of Safety Engineers, did not participate in the bill drafting process as stakeholder.
Reviewing Part VII on Safety of Machinery, Tools, Equipment, Chemicals, one noted that the requirements for approved Codes of Practice, safety in the use of plant, machinery, equipment, robots, prime movers, hoists, lifts, escalators, powered machinery, vessels containing hazardous substances, chains, ropes and lifting tackles, cranes, lifting machines, steam boilers, pressure vessels, refrigeration plant, oil separators, steam receivers, production handling storage/transportation/disposal of chemicals, all point to the need for mechanical/electrical/chemical safety Engineers.
