Tariff hike rejected by major metropolitan municipalities

The high court has ruled that energy regulator Nersa’s methodologies for calculating increases were illegal and invalid.

South African households that get their power supply from municipalities should no longer face unfair hikes in the future.

The court has given Nersa a year to improve its method.

In an interview with the City Press, the business and chambers of commerce that brought the legal action against the regulator stated that municipal power users will not be relieved of having to pay for cable theft, illegal connections, and failing infrastructure that is beyond their control and the sole responsibility of the municipalities.

Previously, needs set a limit on how much municipalities could raise their rates, which were approved unilaterally as long as they remained within that range. The court determined that the method does not take into account how much it cost each municipality to generate power, and there is no public consultation on the prices.

According to the business chambers, the net result of the court decision is that business and households should benefit from a most cost-reflective tariff structure in the future. Municipalities will be barred from charging tariffs to cover power losses caused by poor maintenance and power and cable theft.

Every year, the national power utility applies to the regulator for massive price increase, only to be limited to single-digit increases. Eskom has claimed that its tariffs do not reflect the cost of producing electricity, and that Nersa’s constraints are causing a “backlog” of hikes- a bubble that is about to burst.

Eskom has applied for a 32% tariff increase in 2023, which, when combined with court-ordered backlogs, could results in price increases of more than 38%.

This proposed tariff increase has been rejected by major municipalities, civil action groups, and even Nersa insiders, who argue that consumers cannot afford the increase and should not bear the brunt of Eskom’s inefficiencies.

Peter Attard Montalto, Intellidex analyst, said, the country has simply exhausted its electricity pricing options.

He stated that Eskom’s cost-reflective tariffs are 40% to 45% higher than current levels, and the power utility is working to get there as soon as possible to address revenue shortfalls, rising debt, and operational needs.

Eskom’s original plan was to spread this out over several years, but he said this has been thwarted by Nersa, which has previously prevented more significant increase.

However, court cases over the past years have shown that Nersa acted illegally in preventing Eskom from recovering funds, so this significant historic ‘backlog’ of increases is now being increases all at once.

“For Eskom, there really is no choice – either it recoups the costs through tariffs, or it recoups through bailouts,” the analyst said. 

“You can have a zero percent increase, but then Eskom needs a bailout of R80 billion. Clearly, that is not viable.”

“We’re running out of options here, and unfortunately, despite it being very challenging, we’re going to need a very large tariff increase.”

Nersa  has until the end of the year to decide whether to grant Eskom’s request for an increase.

Main Image: Cape Business News