Electricity Firms Decry NERC's New CapEx Rule, Cite Investor Concerns

Electricity Distribution Companies (DisCos) have strongly objected to a recent directive from the Nigerian Electricity Regulatory Commission (NERC), asserting that the order exceeds the commission's designated regulatory authority. They argue that the new rule effectively dictates how private utilities manage their finances.

The contentious Order No. NERC/2026/062, which became effective on July 1, 2026, mandates DisCos to establish specific Capital Expenditure (CapEx) Provision Accounts. A significant portion of their remaining revenue, after settling market invoices and administrative costs, must be deposited into these accounts. While NERC states the measure aims to boost investment in infrastructure, improve service, and foster financial discipline within the Nigerian Electricity Supply Industry (NESI), operators contend it represents an overreach that could jeopardize their financial stability.

Under this new framework, DisCos without outstanding market debts are required to allocate 70 percent of their earned non-administrative operating expenditure to the dedicated CapEx Provision Account, leaving only 30 percent for their operational needs. The NERC order imposes stricter conditions on DisCos with existing market debts: 25 percent of residual revenue must go to the Nigerian Bulk Electricity Trading Plc (NBET), another 25 percent to the Market Operator (MO), 35 percent into the CapEx Provision Account, with a mere 15 percent remaining for the company's operational use.

One utility lamented, “NERC is, in effect, taking control of how DisCos spend their surplus revenue. The Order leaves a DisCo with market debts only 15 per cent of residual revenue for its own operations and even a DisCo without debts retains only 30 per cent. Everything else is either owed to market participants or locked in a NERC-controlled account.”

Furthermore, the order stipulates that funds within the CapEx Provision Account can only be utilized for projects approved under NERC's Performance Improvement Plan (PIP). Before any spending, DisCos must secure a “No Objection” from the commission for eligible projects, obtain another approval before awarding contracts, and receive fresh approval for each payment milestone during project execution.

A Northern Nigerian-based distribution company voiced its frustration, stating, “This Order does not regulate, it manages, it assumes control and takes over the role of the boards of DisCos. There is a fundamental difference. By mandating exactly where a DisCo’s earned revenue must go, in what percentages, into what specific accounts, and with regulatory approval required before a single naira of it can be spent, NERC has stepped out of its regulatory role and into the role of a financial controller of private companies.” The company added, “It is not enforcing rules, it is making operational and financial decisions that belong to the boards and management teams of privately owned companies. The DisCos were privatised. Their revenues are private earnings, not public funds held in trust for NERC. A regulator can say, ‘you must invest X amount in your network,’ that is a performance obligation, which is legitimate regulation. But a regulator that says, ‘we will decide which account your money sits in, and you must ask us for permission before you spend it,’ has crossed from regulation into administration of the business.”

Another DisCo questioned the motive, noting, “Moreover, not only will the new order serve as a deterrent to investors, by attempting to get involved in the award of contracts, NERC is clearly opening the door for rent-seeking, because contractors will simply flood their offices to influence who gets what job in the DisCos. This to us appears more like a power grab by NERC which has been forced to devolve a lot of its powers to state electricity regulatory agencies since the passage of the Electricity Act, 2023. Otherwise, how can this be explained?” DisCos with outstanding upstream obligations have also been instructed to complete reconciliation with NERC.

NERC defended its order by referencing findings from its 2025 market cycle review of how DisCos utilized their earned non-administrative operating expenditure. The commission observed that despite some DisCos struggling with upstream payments, others generated sufficient revenue for administrative costs and recovered significant portions of approved tariff components. The regulator argued that given DisCos' ongoing difficulties in securing external financing, it was essential to ensure available funds were directed towards network upgrades, expansion, and improved electricity supply reliability.

NERC maintains that the directive is backed by Sections 34(1) and 116(2) of the Electricity Act, 2023, which empower it to promote an efficient electricity industry, optimize sector resource utilization, and ensure tariffs support prudent investment. The commission further stated that the order would help enforce capital investment obligations within tariff orders, accelerate feeder rehabilitation, and complement initiatives like the World Bank-funded Distribution Sector Recovery Programme (DISREP) and the Presidential Metering Initiative (PMI).

However, industry operators counter that while regulators can set investment obligations and enforce compliance through license conditions and sanctions, dictating how private companies store and spend their revenues amounts to assuming management roles reserved for company boards. Stakeholders familiar with the situation suggest NERC has become a de facto financial controller by prescribing revenue allocation percentages, designating accounts for funds, and requiring regulatory approval for every capital expenditure.

They contend that DisCos' earnings are private corporate funds, not public resources held in trust for the regulator, drawing a comparison to the Central Bank of Nigeria (CBN). Several power utilities also cautioned that locking away 70 to 85 percent of residual revenues could reduce operational flexibility, hinder emergency response, and make it harder for DisCos to attract commercial financing due to increased regulatory risk.

“Imagine if the Central Bank of Nigeria, rather than setting prudential ratios and capital adequacy requirements for commercial banks, instead directed that 70 per cent of each bank’s net profit must go into a CBN-controlled account, accessible only with CBN approval for CBN-approved purposes. No one would describe that as banking regulation. It would be recognised immediately as the state taking de facto control of private financial institutions without going through the legal process of nationalisation. What NERC has done here is structurally similar. The form is regulatory. The substance is control,” one DisCo elaborated.

According to one of the DisCos, NERC is exceeding its mandate on at least three fronts: “First, NERC substitutes its judgment for the DisCo board’s on how earned revenue should be deployed. That is a governance function, not a regulatory one. Boards of Directors (not regulators) decide how companies allocate their financial resources, subject to their legal obligations. Second, it bypasses the enforcement mechanism that already exists. If a DisCo is not investing sufficiently in its network, NERC has tools available such as licence conditions requiring specific investment levels, performance improvement p