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It is currently considering the applications of about 172 municipal distributors, and if approved, these will take effect on 1 July 2025.
Most municipalities have applied for double-digit increases and in several cases up to three times SA’s inflation rate. Picture: Moneyweb
The process energy regulator Nersa is following to determine electricity tariffs for municipal supply areas is procedurally unfair, and meaningful public participation is impossible without access to crucial cost-of-supply (CoS) studies.
This is the view expressed by the South African Property Owner’s Association (Sapoa) in its submission to Nersa regarding the electricity tariff applications for 2025/26.
Nersa is currently considering the applications of about 172 municipal distributors. If approved, these will take effect on 1 July 2025.
On 12 June, at the third energy regulator meeting of its kind, it dealt with 45 applications.
Municipal electricity tariff determination has been in turmoil for some time with several individual municipalities’ tariffs having been reviewed in court and set aside.
Last year, the High Court granted an application by AfriForum to review the methodology used by Nersa for more than a decade. It was found to be unlawful and set aside. Nersa however lodged an appeal which was heard, but the ruling is still pending.
The City of Cape Town also challenged Nersa’s determination of its tariffs for two consecutive years. That matter has also been argued in court with the outcome pending.
Following the controversy, Nersa this year for the first time required municipalities to do a formal CoS study and use the results as the basis for its tariff application.
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In the past, the regulator simply published a guideline stating the recommended percentage increase and benchmarks for each category of customer – for example residential, commercial or industrial. Only municipalities applying for increases that would exceed the guideline, were subjected to public hearings.
In a clear effort to comply with the law, Nersa this year for the first time published all the municipal tariff applications on its website and invited comments from the public.
Most municipalities applied for double-digit increases, with many indicating that their CoS studies indicate under-recovery.
Limpopo’s Blouberg Local Municipality, for example, indicated that it needs an increase of 192% over the next three years to make ends meet.
Its CoS study suggested an increase of 43% this year, with 20% and 13% increases in the following two years, respectively. Acknowledging that consumers will not be able to afford that, it tempered the proposed tariff increase for this year to 15.26%.
Stellenbosch, asking for 9.95% more, said in its application its CoS requires a “very high increase” and eThekwini, asking for an increase of 12.72%, says its CoS requires a 20% increase.
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Above inflation tariff requests
Sapoa in its comments objected to the high increases, saying that the proposed municipal electricity tariff increases “are significantly higher than the inflation rate, with some municipalities requesting increases nearly triple the annual inflation rate” (such as City of Johannesburg at 12.74%, against a 2024 average inflation rate of 4.4%).
“This is deemed unsustainable for commercial properties and their tenants.”
Sapoa says its Operating Costs Report for January to June 2024 showed that variable recoveries (water, electricity, property rates) increased by 11.2% year-on-year, while basic rentals increased by only 1.6%.
“Electricity costs are the single biggest contributor to overall operating costs, accounting for 29%, and municipal charges [rates, electricity, water] comprise 59.2% of total operating costs,” it adds.
It says operating costs are increasing faster than landlords’ gross income, leading to less disposable income for property owners. “Industrial properties are particularly hard hit, with operating costs increasing by 13.7% year-on-year.”
The organisation points out that a substantial number of municipalities did not make their CoS studies available as part of their applications published on the Nersa website, even though Nersa must consider these studies when determining the tariffs.
As an example, it names the Buffalo City metro (East London) and Cape Town.
Sapoa cautions that commercial lease agreements typically pass utility costs, including electricity, to tenants. “When occupancy costs exceed approximately 25% of a tenant’s monthly turnover, particularly in retail, it can lead to financial hardship, lease non-renewals, or demands for lower rentals, ultimately affecting landlords’ ability to keep buildings occupied,” it says.
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Financial mismanagement
Sapoa highlights the damning findings of the Auditor General on financial mismanagement, huge water and electricity losses, and weak revenue collections in many municipalities.
“Metropolitan municipalities experienced an average of 18% electricity losses, estimated at R14.52 billion, largely due to inadequate infrastructure maintenance and illegal connections. Merely increasing tariffs without addressing these underlying problems will not resolve municipalities’ funding issues,” the organisation says.
In addition, Sapoa argues that the public participation process Nersa is following is procedurally unfair.
“Nersa published tariff applications for 172 municipalities within a short timeframe [less than six weeks]. The complexity and variation in tariff components across municipalities make detailed comments extremely difficult,” it says.
By the deadline for comments, many municipalities’ applications were still outstanding, according to Sapoa.
The organisation suggests that Nersa does not grant any municipal tariff applications “until a meaningful public participation process is completed, allowing sufficient time for detailed evaluation and public hearings”.
Sapoa called for electricity tariff increases to be limited to “no more than 5%”, if public hearings are deemed unnecessary. It says this increase level “is still well above the current and projected inflation rate”.
This article was republished from Moneyweb. Read the original here.
