Electricity distribution companies have opposed a new directive by the Nigerian Electricity Regulatory Commission requiring them to create dedicated capital expenditure provision accounts, describing the measure as an unprecedented interference in the management of privately owned utilities.

The DisCos warned that the directive could undermine private investment in Nigeria’s power sector by giving regulators greater control over how distribution companies allocate and utilise their revenues, according to The PUNCH.

According to a statement, the opposition followed the implementation of Order No. NERC/2026/062, which took effect on July 1, 2026. The order requires electricity distribution companies to establish dedicated capital expenditure provision accounts into which a substantial portion of their residual revenues must be deposited after meeting upstream market obligations and administrative operating expenses.

While NERC said the directive was intended to boost investment in distribution infrastructure, enhance service delivery and strengthen financial discipline, the DisCos argued that it effectively gives the regulator control over how they allocate and spend their revenues.

Under the order, DisCos without outstanding market debts are required to remit 70 per cent of their residual revenue, after allowable administrative operating expenses, into a dedicated CapEx Provision Account, retaining the remaining 30 per cent.

For DisCos with outstanding market debts, the order requires that 25 per cent of the residual revenue be paid to the Nigerian Bulk Electricity Trading Plc to settle outstanding obligations, another 25 per cent be remitted to the Market Operator, and 35 per cent be deposited into the CapEx Provision Account, leaving the companies with only 15 per cent of the residual revenue for their operations.

It was gathered that where a DisCo is indebted to either the Nigerian Bulk Electricity Trading Plc or the Market Operator, but not both, the portion of the residual revenue that would have been paid to the other institution is instead required to be transferred into the dedicated CapEx Provision Account.

A utility company said the order effectively gives NERC control over how electricity distribution companies allocate and deploy their surplus revenue.

“NERC is, in effect, taking control of how DisCos spend their surplus revenue. The order leaves a DisCo with market debts of 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,” the utility stated anonymously.

According to the statement, the order also provides that funds in the CapEx Provision Account may only be used for projects approved under NERC’s Performance Improvement Plan. Before any expenditure can be made, DisCos must obtain a “No Objection” from the commission for eligible projects, secure further approval before awarding contracts, and obtain fresh approval before each payment milestone during project execution.

Another electricity distribution company described the directive as an encroachment on the responsibilities of company boards, arguing that it effectively transfers key investment and spending decisions to the regulator.

“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.

“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 a 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,” the utility said.

Another DisCo alleged that the directive could discourage investment and create opportunities for rent-seeking.

“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?” the company stated.

The order also directs DisCos with outstanding upstream obligations to complete reconciliation with the Nigerian Bulk Electricity Trading Plc and the Market Operator within 180 days and agree on debt repayment plans, subject to NERC’s approval.

NERC defended the directive, stating that its review of the DisCos’ utilisation of earned non-administrative operating expenditure during the 2025 market cycle showed that although several operators struggled to meet upstream payment obligations, some generated enough revenue to cover administrative expenses and recover substantial portions of other approved tariff components.

The commission said the directive was necessary to ensure that available resources are channelled into network rehabilitation, expansion and improved electricity supply. It added that the order derives its authority from Sections 34(1) and 116(2) of the Electricity Act, 2023.

However, stakeholders argued that while regulators have the authority to impose investment obligations and enforce compliance through licence conditions and sanctions, directing how privately owned companies set aside and spend their revenues amounts to assuming management responsibilities that properly belong to company boards.

Stakeholders warned that requiring DisCos to lock away between 70 per cent and 85 per cent of their residual revenues in dedicated accounts could reduce operational flexibility, weaken emergency response capabilities and make it more difficult for the companies to secure commercial financing.