Municipal electricity price hike warning

Afriforum has warned that the National Energy Regulator of South Africa (Nersa) could cause an administrative crisis by allowing over 100 municipalities to increase their electricity tariffs without cost studies.

Nersa announced it approved the 2024/2025 financial year electricity tariff adjustments of 178 electricity distributors on 28 June 2024.

That came just a few days before Eskom started charging 12.74% more for bulk electricity sales to municipalities as part of its annual municipal tariff adjustments, which take effect on 1 July every year.

However, on the same day Nersa confirmed the approvals, the Pretoria High Court ruled that Nersa’s decision to approve roughly 112 of these distributors’ applications without costs studies was unlawful and invalid.

The court ruled that these municipalities needed to maintain their 2023/2024 tariffs because they had not applied for the adjustments in line with the Electricity Regulation Act, which requires that they substantiate the changes with full cost of supply (COS) studies.

Nersa lodged an application to appeal the ruling and argued that this action alone allowed municipalities to proceed with tariff adjustments.

“With the leave to appeal having been filed, the Superior Courts Act, 2013 provides that an application for leave to appeal suspends the operation and execution of a decision, pending the outcome of the application,” Nersa said.

“Consequently, Nersa’s decisions still stand, and distributors can proceed to implement the approved tariffs while the appeal is being processed.”

Afriforum’s local government affairs head Morné Mostert told MyBroadband that although Nersa’s interpretation of the law was correct and the increases could indeed be implemented until the appeal’s outcome is confirmed, the regulator was potentially creating a crisis for those municipalities it believed it was assisting.

Mostert anticipated big problems with municipalities refunding customers if the Supreme Court found in favour of Afriforum.

“You can imagine what would happen if a municipality that already struggles to meet basic requirements in terms of the regulations and law must now go back in their financial systems and credit people for the additional charges,” said Mostert.

Mosters explained although refunds could easily be processed on postpaid accounts, it would be far more complex to repay prepaid customers.

These customers are also more likely to be those with more limited income.

“The greatest impact will be on people that are not affluent,” Mostert said.

Morne Mostert, Afriforum local government affairs head

Little transparency in tariff-setting

Mostert explained that Afriforum’s goal with the legal action was to ensure greater transparency in municipalities’ tariff determinations.

“Unfortunately, there are very few aspects of municipalities’ current behaviour that are reliable,” Mostert said.

“This is why there are public consultation processes for these types of documents.”

“Businesses and households need to look at the figures and see whether the costs are justified.”

Afriforum’s legal team asked Nersa to give an undertaking that it would comply with the court order until the appeal was concluded.

Nersa had not yet responded by Afriforum’s initial deadline of Friday, 5 July 2024.

The organisation said it would bring another application to the High Court to try and force Nersa to prevent municipalities from increasing their tariffs until the appeal was concluded.

Nersa accused of rushing through approvals

There is also concern about whether Nersa had properly considered the tariff adjustments before approval.

Sunday newspaper Rapport has obtained recordings of meetings by the Nersa electricity subcommittee that suggested the approvals were rushed.

It found that the committee had conducted a series of two-hour meetings between 24 to 28 June 2024 in each of which it approved roughly 30 applications.

That meant it spent an average of about four minutes considering the electricity tariff adjustments of each distributor.

Afriforum’s urgent court case came after a previous ruling against Nersa in October 2022, in which the High Court found that the regulator’s approvals of municipal tariff hikes needed to be based on cost of supply studies.

Mostert said Nersa seemed to be on course to abide by the court’s order until November 2023.

On 17 November 2023, it sent a letter to municipalities notifying them that the practical effect of the October 2022 judgment was that all tariff applications from 2024/2025 should be supported by a cost-of-supply study.

However, it seemed to veer in the wrong direction sometime after that.

In a notice sent to municipalities on 29 January 2024, Nersa provided a new template in which municipalities should provide their required increase in electricity revenues based on assumed expense changes, without the requirement of cost studies.

The court found this new mechanism was unlawful, invalid, and of no force and effect.

The court also ordered that municipalities that had not yet provided cost studies be allowed to do so within 60 days from 28 July 2024. Nersa would have one month to consider them for approval.