Nigeria: NERC Orders DisCos to Reserve 60% of Revenue

Nigeria's 11 electricity distribution companies will have only 40 per cent of certain earned operating revenue for their own operations from February 2027 under a revised NERC order. The other 60 per cent must go into dedicated accounts for capital projects approved by the Nigerian Electricity Regulatory Commission (NERC).

The rule was issued on September 4 through Order No. NERC/2026/062A, signed by NERC Chairman Musiliu Oseni and Vice Chairman Yusuf Ali.

It replaces the commission's June 30 order and sets different payment arrangements for DisCos with and without outstanding debts to the Nigerian Bulk Electricity Trading Plc and the Market Operator.

The decision has drawn resistance from some distributors, who say the new financial controls could restrict their ability to decide how earned revenue is spent.

More revenue reserved for projects

For debt-free DisCos, the new arrangement starts with a 50 per cent allocation to capital expenditure from the August 2026 market cycle until January 2027.

The other 50 per cent can stay in the company's operations account.

That balance will change in February 2027, when 60 per cent must go into the CapEx Provision Account and only 40 per cent will be available for operations.

DisCos with outstanding debts face a different formula.

Between August 2026 and January 2027, their applicable revenue will be divided into four equal parts. Twenty-five per cent each will go to NBET, the Market Operator, the CapEx account and the DisCo's operations account.

From February 2027, NBET and the Market Operator will each receive 25 per cent. Another 30 per cent will go to capital expenditure, leaving 20 per cent for the DisCo's operations.

A DisCo owing only one of the two upstream bodies will send the share meant for the other body into its CapEx account.

The commission's decision came after an open-book review carried out in April 2026. The review examined how DisCos used earned non-administrative operating expenditure during the 2025 market cycle.

NERC found that many DisCos did not recover enough revenue to meet their upstream market obligations. A few companies recovered more than those obligations and were able to recover a significant share of other costs in their revenue requirements.

The new rules require every DisCo to maintain a dedicated CapEx Provision Account for projects under its Performance Improvement Plan.

Utilities resist spending controls

The distributors' main objection is not to regulation itself, but to NERC deciding how part of their earned revenue should be spent.

One operator said, "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."

Another operator said companies that had invested in metering, revenue assurance, customer service and collection efficiency should not face extra restrictions because their income had improved.

"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," the operator said.

The utilities also object to the requirement that money placed in CapEx accounts must be spent on projects approved by NERC.

The commission directs DisCos to "open and maintain a dedicated CapEx Provision account to fund the implementation of approved PIP projects."

It also says all money in the account must be used "solely to finance end-to-end eligible projects subject to the Commission’s approval."

DisCos must identify eligible projects, obtain a NERC 'No Objection', conduct procurement and seek another 'No Objection' before awarding contracts.

Project payments are tied to set milestones, and the companies must submit quarterly progress reports.

One utility said the approval process could create problems when urgent repairs are needed.

"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," the utility said.

The distributors said NERC already has tariff rules, performance monitoring systems and penalties that can be used to enforce investment and service standards.

They also said restricting operating cash could affect network maintenance and working capital, especially for companies facing high maintenance costs and liquidity pressures.

The revised order places more of the distributors' earned revenue under controlled accounts, with the amount reserved for approved capital projects set to rise to 60 per cent for debt-free DisCos from February 2027.