NERC Redirects 50% Of DisCos’ Operating Revenue To Grid Upgrades

By Olumide Johnson

The Nigerian Electricity Regulatory Commission (NERC) has revised the rules governing how electricity distribution companies (DisCos) use operating revenues, directing them to commit a substantial share of earnings to infrastructure investment. The order took effect on September 4 following a review of DisCos’ revenue utilisation during the 2025 market cycle.

DEVELOPMENT

NERC has ordered DisCos to channel 50 percent of their earned non-administrative operating expenditure (Non-Admin OpEx) into capital expenditure (Capex) provision accounts for electricity network upgrades.

The revised order on the ‘utilisation of earned non-admin opex by successor DisCos’, signed by Chairman of NERC, Musiliu Oseni and Vice-President of NERC, Yusuf Ali, requires debt-free DisCos to remit 50 percent of their earned Non-Admin OpEx to the dedicated Capex accounts from August, rising to 60 percent from February 2027.

NERC said that the measure is aimed at “accelerating network upgrades, improving service reliability, and ensuring that available revenues are invested in critical electricity infrastructure projects”.

Under the new framework, DisCos must establish and maintain dedicated Capex provision accounts to finance approved network rehabilitation, reinforcement and expansion projects.

NUMBERS

The immediate requirement is a 50 percent allocation of earned Non-Admin OpEx to Capex, rising to 60 percent from February 2027 for debt-free DisCos.

DisCos with outstanding obligations to Nigerian Bulk Electricity Trading Company (NBET) and the market operator must complete debt reconciliation and submit commission-approved repayment plans within 180 days.

All projects financed through the Capex provision accounts must receive regulatory approval and be reported to NERC quarterly.

SIGNIFICANCE

The directive changes the financial allocation priorities of Nigeria’s distribution utilities by tying a larger share of their operational earnings directly to infrastructure investment.

For investors, lenders and other electricity-market stakeholders, the key issue is whether the new allocation rule will translate into measurable improvements in network capacity, reliability and service quality.

It also introduces a stronger link between DisCo financial performance and regulated capital formation, while the debt-related provisions seek to prevent market liabilities from undermining infrastructure spending.

NEXT MOVE

The immediate watchpoints are DisCos’ compliance with the dedicated Capex account requirement, the volume and quality of projects receiving regulatory approval, and quarterly disclosures on how the funds are deployed.

The sector will also need to show whether the higher Capex allocation produces tangible improvements in distribution infrastructure and service reliability. From February 2027, the increase to 60 percent will provide a further test of whether DisCos can sustain higher infrastructure spending while meeting their market and operating obligations.

OUR LENS

NERC’s directive is more than a spending rule. It is an attempt to change what happens to revenue after it enters the distribution system.

The deeper signal is that the regulator is increasingly treating DisCo revenue as a mechanism for rebuilding the assets on which future electricity supply depends, rather than allowing operating earnings to remain largely absorbed by recurring costs and financial obligations.

The real test, however, will not be the percentage mandated on paper. It will be whether the 50 percent allocation becomes productive capital that expands network capacity, reduces technical losses and improves reliability. The quarterly reporting requirement therefore matters as much as the allocation itself: it creates the regulatory trail through which stakeholders can determine whether higher infrastructure spending is actually producing better electricity service.

Olumide Johnson is a journalist, reporting on energy, business, markets, policy and developments shaping Nigeria’s economy.