S.Africa: Court battle over South Africa’s illegally high electricity prices
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Two of South Africa’s major business chambers allege that municipalities are making excessive profits from electricity tariffs by charging their customers much more than it costs to provide power.
The Pietermaritzburg & Natal Midlands Business Chamber (PMCB) and Nelson Mandela Bay Business Chamber have taken on the National Energy Regulator of South Africa (Nersa) over its approach to municipal tariffs.
Both business chambers said the excessive tariffs are illegal.
They also stated that Nersa’s guideline and benchmarking methodology were to blame for the exorbitant prices.
The chambers contend that electricity tariffs must be based on the cost of delivering electricity in addition to a reasonable profit margin.
That would be enough to fund municipalities’ electricity maintenance costs.
“With Eskom’s tariffs having increased by around 180% in real terms over the last 15 years, municipal tariffs have to be limited to efficiently incurred costs,” PMCB CEO Melanie Veness told The Witness.
But Veness said that electricity income was not spent exclusively on this service and was instead used to cross-subsidise other municipal functions.
“If tariffs are approved without the efficiency of the costs being interrogated, there is no real incentive for municipalities to spend electricity income on infrastructure or to address theft, waste, fraud and corruption in the electricity system,” Veness said.
The business chambers said the current approach led to tariff differentials between electricity distributors in South Africa as high as 60%.
As it stands, Eskom applies for an adjustment to the electricity price with Nersa based on how much it estimates it will cost to generate electricity and distribute it to its customers, in addition to unexpected costs incurred over previous financial periods.
Eskom’s customers include municipalities that resell and distribute electricity to residents and businesses.
Nersa uses tariffs from the previous year to guide municipalities on how much they can increase their electricity prices.
If their planned tariff increases fall within Nersa’s guidelines, they can implement it without further scrutiny by Nersa.
If the increases deviate from the guidelines, they must be motivated by a cost analysis.
One of the big problems is that most municipalities don’t know how much it costs them to provide electricity.
Former president of the Chartered Institute of Government Finance Audit and Risk Officers, Peet du Plessis, told Rapport that no more than 20% of the country’s municipalities that resell electricity had performed cost studies.
No short-term relief
The business chambers participated in year-long consultations on the issue with Nersa, but the regulator has refused to review their methodology without a legal challenge.
They are now hoping for a ruling on the matter by late April or early May.
However, if the court found in their favour, it is expected to suspend the decision for a period to give Nersa and municipalities ample opportunity to develop a new methodology.
The case has no bearing on Eskom’s electricity tariff increase, which Nersa will announce in February following public consultations. The utility has asked for a 20.5% increase from 1 April 2022.
The Association of South African Chambers (Asac), which consists of multiple business chambers, including the two involved in the case against Nersa, have also slated this increase.
They have claimed that South Africans cannot suffer under heavy tariff increases due to the consequential costs of Eskom’s failures at the Medupi and Kusile power stations and the load-shedding and load curtailment this has caused.
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