Nersa Provides Guidelines for a 15.1% Increase in Municipal Electricity Tariffs

Residents in six municipalities will have the chance to weigh in on proposed electricity tariff increases that exceed the 15.1% recommended by the National Energy Regulator of South Africa (Nersa) on Thursday. NERSA recently released its annual guidelines and benchmarks for municipal electricity tariff increases, which are set to take effect on July 1. However, the Association of South African Chambers (ASAC) has chastised Nersa for failing to approve municipal wheeling tariffs. This is the last year that Nersa can use this methodology before it is declared illegal by two court rulings in 2022. In accordance with legislation, NERSA has until 2024 to develop and implement a new cost-based methodology for each municipality. This new methodology has yet to be published for public comment by the regulator.

Following the publication of the guideline, Nersa will be able to process individual municipal tariff applications, and public hearings will be held only for municipalities seeking increases above the recommended guideline. Six municipalities, including two metropolitan areas, have requested increases ranging from 16% to 21.49%. These municipalities are listed in the table below.

Swartland Municipality justifies its request for an extraordinary increase by citing decreased sales due to load shedding. The City of Cape Town and eThekwini Municipality both attribute their tariff hike proposals to lower sales, with eThekwini also citing increased expenses from the July 2021 riots and April 2022 floods.

Nersa stated that increases above the guideline would only be approved if accompanied by a cost-of-supply study and the extra revenue was allocated to specific projects. The regulator also stated that it does not have the authority to regulate small-scale embedded generation (SSEG) tariffs and thus will not approve them. Elexpert, an electricity pricing consultancy, strongly opposed this position during previous public hearings. Based on a cost-of-supply study, an expert argued that Nersa has the authority to regulate basic charges for SSEG customers.

Speaking on behalf of ASAC, David Mertens chastised NERSA for failing to address the state of municipal infrastructure. Mertens contended that Nersa ignores the deteriorating state of municipal infrastructure and acts as if no serious interventions are required. He accused Nersa of deceiving the public by claiming to verify and monitor municipal compliance with licence conditions when, in reality, it allows incompetent licensees to continue causing damage.

According to Mertens, Nersa’s denial policy regarding municipal abuse of electricity distribution infrastructure allows municipalities to freely exploit their distribution systems without consequences. He also claimed that Nersa is completely incapable of carrying out its constitutional mandate as an electricity regulator, as evidenced by the numerous court cases it has lost. South African taxpayers pay for these court cases. ASAC believes that action by the Minister of Mineral Resources and Energy and Parliament to address Nersa’s incompetence is long overdue, emphasising the urgent need for South Africa to have a competent and independent electricity regulator

Mertens claimed that NERSA’s approach to future tariff determinations is leading the regulator astray. Municipalities are required to provide ring-fenced audited financial information as part of their licence conditions. However, most municipalities lack access to such reliable financial data. Tariffs cannot be determined accurately without this critical financial data. Mertens contended that Nersa resorted to the benchmark and guideline increase methodology precisely because it lacked reliable financial information from municipalities. As a result, any new methodology developed by Nersa would be ineffective because the necessary base information would be missing. Mertens accused Nersa of failing to enforce compliance with the financial licence conditions imposed on municipalities.

Mertens also chastised Nersa for failing to fulfil its responsibility regarding wheeling tariffs, which has a negative impact on the development of independent power producers (IPPs) and the wheeling market. He argued that the implementation of wheeling will stall in most municipalities, exacerbating the challenges faced by industries and businesses already stressed by load shedding. Failure to address these issues will result in missed opportunities for new generation capacity investment.

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