For years, Nigerians living under chronic blackouts have been told that their electricity distribution companies (DisCos) simply don’t collect enough revenue to fix the grid. However, the country’s electricity regulator has revealed a contradictory discovery.
Recent regulatory directives from the Nigerian Electricity Regulatory Commission (NERC) paint a far more complex picture, uncovering through an open-book audit this year that certain power distributors were actually recovering excess revenue beyond their actual operational needs.
This discovery has led NERC to order the country’s DisCos to channel a fixed share of their revenue into dedicated infrastructure accounts, after a Commission review found that some operators earned more than they needed to cover costs while others struggled to meet basic obligations.
The directive, contained in Order No. NERC/2026/062A and titled ‘Revised Order on Successor Distribution Companies’ Utilisation of Earned Non-Admin Operating Expenditure,’ took effect on September 4, 2026. It was signed by Musiliu O. Oseni and Yusuf O. Ali, NERC chairman and vice chairman, respectively.
Review uncovers uneven revenue recovery
According to the Order, NERC undertook an open-book review in April 2026 of how DisCos utilised earned Non-Admin OpEx, revenue covering fixed and variable operating costs, depreciation and returns on invested capital, for the 2025 market cycle.
‘The review revealed that although many DisCos did not recover sufficient revenues to meet their upstream market obligations, a few of the DisCos recovered revenues which exceeded their upstream market obligations,’ the Order stated, adding that this allowed the latter group ‘to recover significant portions of other revenue requirement building block components.’
The Order also noted that ‘recent measurable improvements’ in reducing Aggregate Technical, Commercial and Collection losses had, in some cases, enabled DisCos to fully cover their Admin OpEx ‘while also earning a significant portion of other revenue requirement building block components.’
NERC did not disclose the identities of the DisCos involved or the naira value of the surplus recovered.
The review was conducted under Section 28(b) of the Regulations on Procedure for Electricity Tariff Reviews 2024, which empowers the Commission to ‘conduct an open-book review (based on available records and data) for the determination of prudent costs, revenue recovery and tariffs of a licensed network provider/operator as may be deemed necessary by the Commission.’
New revenue-split formula takes effect
Effective from the August 2026 market cycle, DisCos’ revenue, after settlement of upstream invoices and remittance of Admin OpEx, must be allocated according to a formula set out in the Order.
DisCos without outstanding market debts must remit 50 percent of the relevant revenue to a dedicated CapEx Provision account and 50 percent to their Operations account between August 2026 and January 2027, rising to a 60/40 split from February 2027.
DisCos with outstanding debts to the Nigerian Bulk Electricity Trading Plc (NBET) or the Market Operator (MO) must pay 25 percent to each before splitting the remainder, 25 percent to CapEx and 25 percent to Operations initially, moving to 30 percent and 20 percent respectively from February 2027.
The Order mandates that all DisCos ‘open and maintain a dedicated CapEx Provision account to fund the implementation of approved PIP projects.’
Approval process for CapEx spending
Funds in the CapEx account cannot be spent unilaterally. The Order sets out a five-step procedure requiring DisCos to identify and prepare ‘eligible end-to-end projects along state boundaries,’ obtain a ‘No Objection’ from NERC, secure a further ‘No Objection to Award Contract’ before procurement, execute work according to approved disbursement milestones, and submit quarterly progress reports ‘no later than 15 days after the end of each quarter.’
DisCos with outstanding upstream settlement obligations to NBET and the MO have 180 days from the issuance of the initial Order to ‘finalise their reconciliation’ and agree a payment plan, subject to the Commission’s approval.
Not the first such mandate
The new formula follows earlier directives requiring DisCos to deploy revenue toward network upgrades. The Order notes that ‘pursuant to the provisions of MYTO 2024 for DisCos, which became effective in January 2024, and the monthly Supplementary Orders issued thereafter, DisCos are mandated to utilise their approved revenue requirements to ensure continuous service improvement, undertake network maintenance, repairs and expansion as required.’
That mandate, by the Commission’s own account, did not prevent the uneven revenue recovery its April 2026 review uncovered.
The Order also preserves NERC’s authority to revisit allowances after the fact, stating that CapEx provisions and other allowances ‘are subject to retroactive reviews by the Commission to ensure compliance with extant instruments and to facilitate regulatory claw-back where necessary.’
Objectives cited
NERC listed four objectives for the Order: enforcing DisCos’ compliance with capital investment obligations in their tariff Orders; accelerating ‘end-to-end feeder-based rehabilitation’ across DisCos; supporting reliable power supply through ‘reinforcement and expansion of the distribution systems’; and using DisCo funds to augment ongoing sector CapEx interventions, including the World Bank’s Distribution Sector Recovery Program (DISREP) and the Presidential Metering Initiative (PMI).
The Order is grounded in Sections 34(1) and 116(2) of the Electricity Act 2023, which mandate the Commission to ensure efficient resource utilisation in the sector and require DisCos to recover only efficient costs while earning a reasonable return on invested capital.
The Commission said the Order applies to all Successor DisCos and ‘is without prejudice to any regulatory instruments for monitoring revenue utilisation that may be issued by a state regulator to her respective licensee.’