Another court challenge, another blow for the regulator.
The High Court in Pretoria on Friday (31 October) rejected energy regulator Nersa’s contention that cost-of-supply (CoS) studies upon which municipal tariff applications are based are confidential and meant exclusively for the regulator’s eyes.
It ordered Nersa to publish such studies, as part of each municipal distributor’s annual tariff application.
This means that consumers who question their municipalities’ high electricity tariffs will from now on be able to see exactly what it costs each municipality to supply electricity. It will include, for example, how much they pay Eskom for bulk purchases, and how much is spent on repairs and maintenance.
Consumers will be able to decide for themselves whether tariffs are unnecessarily high because municipalities are wasting money. They will also have more time to object if it appears that unnecessary ‘fat’ has been built into the electricity tariffs.
This ruling was Nersa’s third court defeat since 2022 on the way it determines municipal electricity tariffs.
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Ruling
Judge Etienne Labuschagne said in his judgment: “How Nersa could unilaterally declare a cost of supply study as confidential is beyond concerning. It did not publish this policy in advance.
“It is a public watchdog that has, due to this private policy, kept the public in the dark about matters that directly concern the public.”
This comes against the background of two settlements that Nersa reached with Eskom earlier this year, also in secret, which will see consumers pay almost R100 billion more for electricity going forward. AfriForum, which brought the latest case on municipal tariffs to court, will also be challenging one of these settlements in court.
Nersa’s determination of municipal electricity tariffs has been problematic for some time.
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The problem …
The law stipulates that electricity suppliers may recover their cost of electricity supply and a reasonable margin from consumers through tariffs. This applies to Eskom and any other electricity distributor.
However, for more than a decade, Nersa merely published a guideline each year indicating the increase municipalities could apply for – and mostly approved applications within that guideline without checking whether municipalities were over-recovering.
Municipalities have often been accused of making huge profits on electricity sales and using it to subsidise other services.
In 2022, the court declared Nersa’s practice unlawful and gave the regulator time to correct it.
Each municipality was required to perform a proper CoS study and base its tariff application on that.
However, many municipalities dragged their feet, and last year Nersa approved several tariff applications without the required studies.
AfriForum again went to court, and those approvals were declared unlawful.
The regulator took the matter to the Supreme Court of Appeal, where the matter has not yet been finalised.
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The latest problem …
This year, for the first time, Nersa published municipalities’ tariff applications on its website – but without the CoS studies. The public was ostensibly given the opportunity to comment, as required by law, but the court has now found that the process was flawed.
For example, Nersa published Mogale City’s application on 19 June and approved it the very next day.
The court also criticised Nersa for deciding on its own that legal requirements to publish such notices in the Government Gazette and in widely circulated newspapers, in at least two national languages, were outdated. It only published them on its website and social-media platforms.
As a result, the public was not properly informed of the opportunity to comment, had too little information to participate meaningfully in the process, and there was not enough time for Nersa to consider such input.
Not the only problem …
But this was not the only problem with Nersa’s process.
Decisions on final tariffs are made far too late each year for municipalities, whose budgets take effect on 1 July. Legally they are only allowed to adjust tariffs on that date.
According to the court, this year Nersa informed some municipalities of their approved electricity tariffs only after that date.
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The solution
The court has now intervened and ordered Nersa to inform municipalities each year by 31 January of Eskom’s bulk-purchase tariffs, since that is the municipalities’ single largest expense.
Nersa must then set a deadline for municipalities to submit their tariff applications by 31 March. If they miss that deadline, they risk receiving no increase at all.
Thereafter, Nersa must publish the applications and related cost studies for public comment, conduct a proper public-participation process, and finalise tariff approvals in time so that municipalities know their approved tariffs by 5 May.
This will give municipalities time to have their budgets, incorporating the correct electricity tariffs, approved before they take effect on 1 July.
Because these timelines will apply to all municipalities and Eskom, they now have until 18 November to respond before the court confirms them.
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New timelines welcomed
Cape Town Mayor Geordin Hill-Lewis welcomed the new timelines.
The City of Cape Town said in a statement it made recommendations to the court for revised Nersa timeframes during the course of the application brought by AfriForum. The court and applicants accepted these submissions, which now underpin the court order.
Hill-Lewis said: “The order also halts Nersa’s chaotic and delinquent handling of municipal tariff applications.”
He said Nersa will now have to inform municipalities of decisions timeously, and publish the reasons immediately.
This article was republished from Moneyweb. Read the original here.
