South African towns and cities pushed through dodgy electricity price hikes — now they have a massive problem

The National Energy Regulator of South Africa’s (Nersa) attempt to appeal a ruling regarding tariff hikes implemented in July has failed after being deemed unlawful and invalid.

Municipalities now face the problem of reimbursing residents, having essentially overcharged them for electricity over the past two months.

The regulator said it is currently studying the judgement and is yet to comment.

AfriForum launched legal action in June to prevent Nersa from implementing electricity tariff hikes from July, which it believed was unlawful.

In 2022, the Pretoria High Court ruled that Nersa’s old method for approving municipal electricity tariff adjustments was unlawful because it only considered the previous year’s tariffs and not the supply cost.

However, the Electricity Regulation Act 4 of 2006 prescribed that these adjustments must be based on cost studies determining distributors’ actual cost of providing electricity to their customers.

These are called cost-of-supply studies and must include all relevant factors.

Following the 2022 court ruling, Nersa was instructed to develop a new methodology within one year, but the regulator gave municipalities this responsibility by ordering them to manage and carry out their own cost studies.

The court ruled in favour of AfriForum in June this year, with the regulator appealing the decision.

Following the regulators application for leave to appeal, Nersa went ahead and approved the price hikes of 178 municipalities, which it said were in accordance with the Electricity Regulation Act.

However, only 66 of the 178 licensed municipal distributors that implemented the tariff hikes had cost-of-supply studies to motivate them.

The remaining 112 municipalities did not.

According to AfriForum, this lack of compliance was due to the high costs and logistics involved with cost studies.

Another reason is Eskom’s 12.72% price hike in wholesale electricity. If municipalities could not afford the cost-of-supply necessary to hike their tariff, they would lose money selling electricity to their customers.

On top of that, South African municipalities have accumulated debt with Eskom amounting to more than R78 billion.

Electricity regulation specialist law firm MC Botha Incorporated previously told Rapport that Nersa’s only option was to request the court to allow it to use the old method in 2024.

Rapport had also learnt that this was the internal legal advice Nersa received.

“Nersa has now caused an administrative nightmare due to mismanagement,” AfriForum manager of local government affairs Morné Mostert said.

“Although the error can be relatively easily rectified in favour of municipal account holders, it will be much more difficult to rectify the error for consumers of prepaid electricity.”

AfriForum explained that applications for tariff increases for the 2024/25 financial year will still be considered if the necessary cost-of-supply studies are submitted within 60 days.

Because the price hikes were implemented on 1 July, AfriForum said it would demand a plan of action from Nersa to reimburse the over-recovery from consumers.

The civil rights organisation also said it would monitor the implementation of the court order and keep track of the submitted cost-of-supply studies.

“We realise that this judgment will have a significant impact on municipalities’ budgets, but the line has now been drawn in the interest of consumers who have been milked as cash cows for years by inept municipalities,” argued Mostert.

It’s important to note that the tariff applications approved by the energy regulator will only affect municipal customers’ tariffs.

These adjustments are applied annually in July, while customers who get electricity supplied directly from Eskom receive their annual increase in April each year.