NERC's Order On The Delineation Of Discos' Assets And Liabilities

Introduction

Nigeria's Power Sector is undergoing a significant transition following the 2023 constitutional amendment and the enactment of the Electricity Act 2023 (the "Act"), which together enable a two-tier regulatory framework; Federal and State-level regulation. Under the newly introduced framework, a State seeking to assume regulatory control over electricity activities within its territory must enact a State electricity law, establish a State electricity regulatory commission ("SERC"), and formally notify key stakeholders, including the Nigerian Electricity Regulatory Commission ("NERC") and the Distribution Companies ("DisCos") operating in the State. Once notified, DisCos are required to incorporate a State-level subsidiary ("SubCo") within two months and transfer to it, all relevant assets, liabilities, employees, and contractual obligations within that State. As of the date of this article, eleven States had initiated the transition to State-level electricity regulation, with some DisCos already incorporating SubCos. However, due to the lack of clear guidelines for delineating assets and liabilities, many DisCos have faced implementation challenges. To address this gap, NERC issued the Order on the Delineation of Assets and Liabilities of Distribution Licensees (the "Order") on 28 March 2025. This article outlines key highlights of the Order and its potential implications.

Objective of the Order

The major objective of the Order is to ensure a smoother transition by establishing a clear and uniform process for delineating the assets and liabilities of DisCos along State boundaries within their franchise areas, regardless of the transition status of each State.

Delineation of Assets

The Order prescribes the delineation of assets across States on the basis of geographical location, operational location, historical energy consumption and energy share, while also specifying assets to be retained by the DisCo Holding Company ("Hold Co").

1. Geographical Location: Assets delineated on the basis of geographical location include physical infrastructure primarily used for electricity supply, such as substations, transformers, and distribution lines. Gross receivables owed by customers are to be allocated based on their respective origination location.

For electricity lines that span across multiple states, the Order mandates that these lines be prorated based on their physical presence within each State's boundaries. To accurately track energy offtake, inter-boundary meters are required to be installed at State borders. Furthermore, gross receivables owed by customers are to be allocated based on their respective origination location.

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