NERC Tightens DisCos’ Spending Controls Despite Industry Pushback

The Nigerian Electricity Regulatory Commission (NERC) has enforced a revised framework that progressively restricts the amount of surplus operational revenue Electricity Distribution Companies (DisCos) can deploy at their discretion, despite strong objections from the utilities.

The commission ordered the 11 DisCos to begin channelling a fixed share of their earned Non-Admin Operating Expenditure (OpEx) into a dedicated account for network expansion and rehabilitation, according to a regulatory Order seen by LEADERSHIP.

Under the new arrangement, debt-free DisCos will retain 50 per cent of their earned non-administrative Operating Expenditure (OpEx) for operational needs between August 2026 and January 2027, with the balance transferred into dedicated Capital Expenditure (CapEx) Provision Accounts.

The new Order No: NERC/2026/062A, titled “Revised Order on Successor Distribution Companies’ Utilisation of Earned Non Administrative Operating Expenditure”, dated September 4, effectively reviewed and replaced the earlier Order No: NERC/2026/062 issued by the commission on June 30, 2026. The document, signed by NERC’s chairman, Musiliu Oseni, and vice chair, Yusuf Ali, indicated that from February 2027 the operational share will fall to 40 per cent, with 60 per cent of the earned non-administrative OpEx required to be channelled into CapEx accounts for approved investments.

However, the development has further raised opposition from some DisCos, which have argued that the commission is moving beyond regulation of performance and service standards into the financial and operational management of privately owned companies.

LEADERSHIP checks showed that although the revised order provided some immediate relief compared with the original framework, it retained NERC’s central requirement that a significant portion of revenues earned above administrative operating expenditure and current upstream market obligations must be ring-fenced for capital investment.

Under the order, DisCos are required to open and maintain a dedicated CapEx Provision account to fund approved projects under the Performance Improvement Plan (PIP).

The order sets out a graduated formula for how DisCos’ revenue is to be applied after they have settled current upstream market invoices and remitted their Admin OpEx for the relevant market cycle. From the August 2026 market cycle to January 2027, a DisCo without outstanding market debts is to remit 50 per cent of the applicable revenue to the CapEx Provision account and retain the balance in its operations account. A DisCo with outstanding debts to the Nigerian Bulk Electricity Trading Plc (NBET) or the Market Operator (MO) is to apply the revenue in four equal shares of 25 per cent each to NBET, the MO, the CapEx account and its operations account.

From February 2027, the order raises the CapEx remittance obligation. DisCos without market debts will be required to remit 60 per cent of the applicable revenue to the CapEx account, retaining 40 per cent for operations, while indebted DisCos will remit 25 per cent each to NBET and the MO, 30 per cent to the CapEx account and 20 per cent to operations.

Where a DisCo owes only one of the two upstream entities, the order specifies that the share ordinarily due to the other shall instead be remitted to the CapEx Provision account.

According to the document, the commission arrived at the framework after an open-book review, conducted in April 2026, of DisCos’ utilisation of earned Non-Admin OpEx for the 2025 market cycle. The review found that while many DisCos failed to recover sufficient revenue to meet their upstream market obligations, a few recovered revenue in excess of those obligations, allowing them to recover a significant share of other cost components in their revenue requirement.

Recall that many DisCos, particularly the better-performing ones had kicked against the development contending that the regulator is effectively imposing tighter financial controls on companies that have invested in reducing losses, improving metering, strengthening revenue assurance and increasing collection efficiency.

On the current Order utilities who didn’t ant to be named argued that improved commercial performance should give companies greater financial flexibility rather than trigger additional restrictions on how their legitimately earned revenues can be deployed.

“We understand NERC’s responsibility to regulate the industry, but regulation should not extend to determining the day-to-day operational expenditure of privately owned companies or prescribing how efficiently earned revenues must be deployed,” one of the operators said.

According to the DisCos, the regulatory framework could undermine the commercial incentives that are required to attract private capital into the distribution segment, particularly as the companies continue to face substantial investment requirements, liquidity pressures and high network maintenance costs.

Another operator argued that companies which had improved their financial and operational performance should not be treated as though they had committed a regulatory breach simply because they generated revenues in excess of immediate market obligations.

“The companies that have invested in improving metering, revenue assurance, customer service and collection efficiency should not be subjected to additional restrictions simply because their efforts have resulted in higher revenues,” another operator said.

The DisCos also questioned the extent to which NERC should determine the internal allocation of funds generated by private companies, insisting that the commission’s responsibility was to regulate outcomes rather than take over corporate financial decisions.

“NERC has the statutory responsibility to set standards, monitor compliance and protect consumers. That’s not under contention at all. But that mandate cannot reasonably mean that the regulator should determine the internal spending priorities of companies that are expected to operate commercially and remain financially sustainable,” an industry source said.

The utilities maintained that NERC already possesses several regulatory tools through which it can compel investment and sanction poor performance without imposing what they described as a detailed spending regime.

They pointed to existing tariff and performance monitoring mechanisms, including the ability of the regulator to disallow expenditure that does not meet regulatory requirements, impose penalties and hold companies accountable for agreed investment and service delivery targets.

The DisCos also drew comparisons with other major economic regulators, arguing that institutions such as the Nigerian Communications Commission (NCC) and the Central Bank of Nigeria (CBN) establish operational, prudential and performance requirements for entities under their supervision without routinely determining how every privately generated naira is allocated internally.

In the same vein, the utilities said they are particularly opposed to the requirement that funds transferred into the CapEx Provision Accounts cannot be deployed according to the companies’ own immediate investment priorities, but must be applied to projects approved by NERC under their PIPs.

This is because the commission has directed all DisCos to “open and maintain a dedicated CapEx Provision account to fund the implementation of approved PIP projects.” It further stated that “all funds accrued in the dedicated CapEx Provision account” must be used “solely to finance end-to-end eligible projects subject to the Commission’s approval.”

Under the framework, the DisCos are expected to identify and prepare eligible projects, obtain a ‘No Objection’ from NERC, undertake procurement and subsequently return to the commission for a further ‘No Objection’ to Award Contract.

Project disbursements are also tied to specified milestones and conditions, while the companies are required to submit quarterly progress reports on implementation.

But the DisCos said they feared that the multiple approval requirements could slow down investment decisions and make it more difficult for them to respond quickly to network faults, emergencies and changing commercial priorities.

“Now, if I have to fix anything within my franchise, I will need to revert to NERC. This is not done anywhere. This poses extra strain on the operations of the DisCos,” one utility noted.

In all, while the new framework could result in more funds being committed to infrastructure and potentially improve service delivery, the DisCos contended that restricting operational cash flows could weaken their ability to maintain existing networks and manage working capital.

According to the DisCos, regulatory accountability should focus on whether companies meet agreed performance and investment targets, rather than prescribing in detail how private companies should deploy revenues after meeting their market obligations.