NERC: New DisCos OpEx CapEx Rules Mandate Infrastructure Investment

• NERC has enforced a new framework restricting DisCos' discretionary use of operational revenue, mandating a portion for capital expenditure.
• The revised Order No: NERC/2026/062A, dated September 4, replaces an earlier directive and details a graduated allocation system for OpEx and CapEx.
• From August 2026 to January 2027, debt-free DisCos retain 50% of non-administrative OpEx for operations, with 50% for CapEx; from February 2027, this shifts to 40% for operations and 60% for CapEx.
• Indebted DisCos face different allocation percentages, with specific portions directed to NBET, MO, CapEx, and operations, varying by period.
• DisCos have opposed the new rules, arguing NERC is overreaching into their financial management, while NERC justifies the framework based on a review of DisCos' 2025 OpEx utilization.

The Nigerian Electricity Regulatory Commission has implemented a revised policy that limits the discretionary use of excess operational funds by Electricity Distribution Companies.

The Nigerian Electricity Regulatory Commission (NERC) has introduced a revised framework that significantly tightens controls over how Electricity Distribution Companies (DisCos) utilize their operational revenue. Despite considerable pushback from the utilities, NERC mandated that the 11 DisCos must now allocate a specific portion of their non-administrative operating expenditure (OpEx) into a designated account for infrastructure development and network rehabilitation. This directive, outlined in Order No: NERC/2026/062A, titled "Revised Order on Successor Distribution Companies' Utilisation of Earned Non Administrative Operating Expenditure," effectively replaces an earlier order, NERC/2026/062, issued on June 30, 2026.

Signed by NERC's chairman, Musiliu Oseni, and vice chair, Yusuf Ali, the updated regulation, dated September 4, stipulates a phased reduction in the operational funds DisCos can retain. Initially, between August 2026 and January 2027, debt-free DisCos will be permitted to keep 50 percent of their earned non-administrative OpEx for day-to-day operations. The remaining 50 percent must be transferred into dedicated Capital Expenditure (CapEx) Provision Accounts, earmarked for approved investments. This new approach marks a significant shift in the NERC DisCos OpEx CapEx rules, aiming to ensure more structured investment in the electricity network.

The regulatory framework introduces a graduated system for revenue application, contingent on a DisCo's financial standing regarding upstream market obligations. After settling current market invoices and remitting administrative OpEx for a given market cycle, the remaining revenue is subject to the new allocation rules. For DisCos without outstanding debts to the Nigerian Bulk Electricity Trading Plc (NBET) or the Market Operator (MO), the initial phase (August 2026 to January 2027) requires 50 percent of applicable revenue to be remitted to the CapEx Provision account, with the balance retained for operational needs.

From February 2027 onwards, the CapEx remittance obligation increases. Debt-free DisCos will then be required to channel 60 percent of their applicable revenue into the CapEx account, leaving 40 percent for operations. For DisCos with outstanding debts to NBET or MO, the allocation is more complex: between August 2026 and January 2027, revenue is split into four equal shares of 25 percent each for NBET, MO, the CapEx account, and operations. From February 2027, indebted DisCos must remit 25 percent each to NBET and MO, 30 percent to the CapEx account, and 20 percent for operations. Notably, if a DisCo owes only one of the two upstream entities, the share that would have gone to the other entity is instead directed to the CapEx Provision account, further emphasizing the focus on capital investment under these NERC DisCos OpEx CapEx rules. These dedicated CapEx Provision accounts are specifically for funding approved projects under the Performance Improvement Plan (PIP).

The implementation of these stringent NERC DisCos OpEx CapEx rules has met with considerable resistance from several DisCos. These companies contend that the commission is overstepping its traditional role of regulating performance and service standards, venturing instead into the direct financial and operational management of privately owned enterprises. While the revised order offers some immediate concessions compared to its initial draft, it fundamentally maintains NERC's core requirement that a substantial portion of revenues, beyond administrative operating expenditure and current upstream market obligations, must be reserved for capital investment.

NERC's decision to introduce this framework was informed by an open-book review conducted in April 2026. This review scrutinized DisCos' utilization of earned non-administrative OpEx during the 2025 market cycle. The findings revealed a disparity: while many DisCos struggled to generate sufficient revenue to meet their upstream market commitments, a select few managed to recover revenue exceeding these obligations. This allowed the better-performing DisCos to cover a significant share of other cost components within their revenue requirements, a situation that had previously drawn opposition from these more efficient operators against earlier regulatory proposals.

Source: Original reporting via LEADERSHIP