Ramokgopa suspends top Eskom watchdog

Electricity and Energy Minister Kgosientsho Ramokgopa has suspended full-time member of the National Energy Regulator of South Africa (Nersa), Nhlanhla Gumede.

His suspension comes just months after he spoke out against the regulator and its approach to Eskom’s electricity tariff hikes.

According to a Business Live report, Department of Electricity and Energy spokesperson Tsakane Khambane confirmed the suspension on Monday, 18 November 2024.

Tsakane said the suspension was pending the outcome of an independent enquiry, and Ramokgopa is looking for a nominee for an acting appointment to the regulator while Gumede is suspended.

Gumede, head of electricity regulation at Nersa, has long been trying to drastically change how electricity tariffs are set in South Africa.

In August 2024, he spoke out against the regulator and its approach to Eskom price hikes, saying Nersa’s methodology was inappropriate.

He said this was due to a misinterpretation of the Electricity Regulation Act (ERA), which resulted in the energy regulator approving tariff hikes of 653% from 2007 to 2022.

In comparison, inflation only rose 129% over the same period.

The state-owned power utility’s annual price hikes have been approved to regulate its revenue according to the 1987 Eskom Act. Gumede said the act was annulled by the 2001 Eskom Conversion Act and the 2006 ERA.

He added that the ERA aims to balance Eskom’s interests with consumers and the electricity supply industry.

This means Nersa must regulate Eskom activities like trading, transmission, distribution, and generation instead of Eskom’s revenue.

Gumede believes the regulator has not been doing this.

This prompted Nersa to issue a statement distancing itself from Gumede’s claims, which were published in a Sunday Times article.

“Nersa distances from the contents and views expressed by Mr Gumede as they do not represent the Energy Regulator’s interpretations and decisions in the performance of its mandate relating to regulating the electricity industry,” it said.

“The Eskom revenue application Nersa received is currently undergoing internal compliance evaluation. Once all compliance requirements are met, Nersa shall process the application in accordance with constitutional and statutory requirements.”

Ramokgopa himself has called for an urgent review of Nersa’s methodology, saying it can’t regulate tariff-related issues, which are becoming increasingly complex due to the liberalisation of the electricity market.

The minister believes reviewing the methodology will improve its ability to address affordability and efficiency. The outdated methodology has led to major administrative headaches recently.

In August 2024, the energy regulator tried and failed to appeal a ruling regarding municipal tariff hikes implemented in July 2024 after they were deemed unlawful and invalid.

AfriForum launched legal action against the regulator in June to try to prevent it from implementing the electricity price hikes. The court ruled in favour of AfriForum.

It based its legal challenge on a 2022 Pretoria High Court ruling that Nersa’s old methodology was unlawful as it only considered tariffs the year prior and not the cost-of-supply.

The 2006 ERA stipulates that these adjustments must be based on cost-of-supply studies that include all relevant factors associated with municipalities providing electricity to their customers.

Nersa was instructed to establish a new methodology within one year. However, it pushed the responsibility to municipalities by ordering them to conduct their own cost-of-supply studies.

AfriForum said many of the applications Nersa received for 2024/25 did not include the required cost-of-supply studies, leading to its legal action against the regulator.

After the court ruled in AfriForum’s favour, Nersa applied for leave to appeal and went ahead and approved price hikes for 178 municipalities.

Its failed appeal created a big problem for municipalities, which now face the challenge of reimbursing residents after overcharging them for two months.