Business chambers to fight ‘illegal’ municipal power tariffs

Business chambers to fight ‘illegal’ municipal power tariffs. City Press, 16 January 2022.

A preview of the case led by MC Botha for the Pietermaritzburg and Midlands Chamber of Business, and Nelson Mandela Bay Business Chamber, challenging the municipal electricity tariff calculation methodology which, we argued, unlawfully passes costs of municipal inefficiencies and preventable electricity losses on to consumers.

Original article on CityPress

Municipal power tariffs are sky-high and do not reflect what it costs municipalities to distribute electricity, according to business chambers that want to stop this “illegal” situation. The business chambers of Pietermaritzburg and the KwaZulu-Natal Midlands, as well as that of Nelson Mandela Bay, say consumers are being exploited by being made to pay for wastage at municipalities, such as power theft, which could be prevented.

The chambers of commerce are asking the Pretoria High Court to bar energy regulator Nersa from setting municipal power tariffs again this year by simply establishing a guideline for a percentage increase and price benchmarks for every user group, without taking into account the cost of the service in each municipality. The respondents in the case are Nersa, the SA Local Government Association, Eskom and 175 different municipalities and private power distributors. They have yet to indicate whether they will oppose the case.


The application comes while Nersa is set to hold public hearings this week on Eskom’s application for
an increase of more than 20% in power tariffs. According to Nersa, the price hike could be as high as 40%. Whatever the increase, it will also apply to municipalities’ wholesale purchases from Eskom and is therefore an important element of the tariffs paid by end users.

David Mertens, head of Nelson Mandela Bay Business Chamber’s infrastructure task team, stated in an affidavit supporting the application that power tariffs were required by law to be based on the cost of efficient power supply, plus a reasonable profit margin. This applied to Eskom and all other institutions with licences to supply power.

“However, Nersa – which must approve all power tariffs by law – uses a method for municipal tariffs that bears no relation to the actual cost.”

The regulator uses the previous year’s tariffs as a base and then publishes a guideline for municipalities that indicates the percentage by which average tariffs should be adjusted. At the same time, it provides a price band for every user group, such as households, businesses and industries. If the municipalities concerned remain within this framework, their tariff applications are simply approved. If they do not, they have to explain the deviation, and Nersa then decides whether it is justified.

In July, Nersa indicated that it would continue with this method for the municipal tariffs set for this year, which will come into effect on July 1. Municipalities that wanted the option were allowed to base their applications on a cost study, but those applications had to have been submitted by September. Despite several attempts, the business chambers could not find out from Nersa how many of these applications it had received. They say that Nersa does not even have the necessary information to determine the cost of the service at each municipality and that the little information it does receive is usually riddled with errors.

Peet du Plessis, former president of the Chartered Institute of Government Finance, Audit and Risk Officers, says that smaller municipalities, in particular, have no idea what the electricity service costs them. He believes that only the larger metros – which comprise just 20% of the municipalities that distribute power – have done cost studies. Du Plessis says the movement of consumers towards generating their own power with solar panels and pushing the surplus into the network has changed the situation significantly.

He says:

“You can’t just increase rates incrementally every year.

MC Botha, managing director at corporate law firm Joubert Galpin Searle, which is representing the business chambers, says that if the application is successful, he expects the court to suspend the order for a limited period so that Nersa and the municipalities have a chance to find a new, legal method of tariff determination. Du Plessis says that, without this postponement, there will be chaos regarding municipal budgets. Nersa says its decision on Eskom’s tariffs will be finalised next month. Municipalities still have to approve their draft budgets – which contain the proposed rates for the coming financial year – by the end of March. This will be followed by public hearings before the end of May.

The regulator usually approves the final municipal tariffs in May and June. The business chambers hope the court will rule in late April or early May. No date has yet been set to hear the case. Morné Mostert, head of municipal affairs at AfriForum, says Nersa – as the regulator – has the mandate and authority to address inefficient power distributors individually. For that, cost studies are essential. It is clear from the poor state of power distribution in many municipalities that Nersa is not doing this properly.

The SA Local Government Association told City Press that only 10 of the 166 municipalities that distribute power have completed cost studies. It can take up to two years to complete such a study, while developing a new method for determining rates can take anything from nine to 18 months.

The association is in favour of revising the methodology, provided the court grants the parties sufficient time to do so in an orderly manner. By the time of going to print, Nersa had not responded to City Press’ questions.

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