Transfer of Regulatory Oversight of Electricity Markets to States: What are the Key Deliverables for DisCos?

In compliance with the amended Constitution of the Federal Republic of Nigeria (“CFRN”) and the Electricity Act 2023 (as amended), the Nigerian Electricity Regulatory Commission (“NERC”) recently issued orders to transfer regulatory oversight of the electricity market in some states in Nigeria. The key deliverables arising from these transfer orders are as follows:

1.  Electricity Distribution Companies (“DisCos”) are directed to incorporate a subsidiary (“SubCo”) under the Companies and Allied Matters Act for the assumption of responsibilities for intrastate supply and distribution of electricity in the state from the DisCo. The DisCo shall complete the incorporation of the SubCo within 60 days from the effective date of the Order. The SubCo can be wholly owned by the DisCo as the current Company and Allied Matters Act (“CAMA”) permits a single shareholding.
2. The DisCo SubCo shall apply for and obtain a licence for the intrastate supply and distribution of electricity from the state electricity regulatory agency or commission.
3. The transfer shall not constitute fraud on the creditors of the successor company; and be undertaken by agreement as to the treatment of relevant liabilities, between creditors, the successor company, the additional successor company and, where necessary, NERC, the state electricity regulatory authority and any other applicable 3rd party; and shall not impose a condition on the government of a state to take on any of the liabilities of the successor company or guarantee their repayment.
4. The DisCo shall identify the actual geographic boundaries of the state and carve out its network in the state as a standalone network with the installation of boundary meters at all border points where the network crosses from the state into another state. I believe that the National Boundary Commission is in the best position to identify the geographic boundaries of a state, so it would be best for a DisCo to seek the collaboration of the Commission.
5. The DisCo shall create an Asset Register of all its power infrastructure located within the state.
6. The DisCo shall evaluate and apportion contractual obligations and liabilities attributable to the DisCo’s operations of its subsidiary in the state.
7. The DisCo shall Identify all the applicable trading points for energy offtake for the operations of the DisCo SubCo in the state.
8. The DisCo shall confirm the number of employees that are required to provide service to the state as a standalone public utility. The DisCo shall transfer the identified assets for operations in the state, contractual obligations, liabilities and employees to the SubCo. The expectation is that many DisCos may simply transfer their existing staff in the state to their SubCo. However, as with the privatisation of the Power Holding Company of Nigeria (“PHCN”), not all existing staff may transition to the SubCo as it is expected that the state government may insist on indigene quota and other interest for the SubCo that is operating in their terrain.
9. The DisCo shall confirm to NERC the contractual details for the supply of energy and capacity that shall supply the SubCo in the state, and where reliance shall be made on the national grid or other interstate sources of generation. The SubCo shall seek appropriate authorisation/approval from NERC following the CFRN and the Electricity Act 2023.