Electricity consumers in South Africa have had to fund municipal power losses due to crime and mismanagement for years, business chamber boss Melanie Veness has said.

Following a Supreme Court ruling against the National Energy Regulator of South Africa (Nersa), this will no longer be the case.

The Supreme Court of Appeal in Pretoria handed down a ruling last week declaring Nersa’s municipal power tariff determination methodology illegal and invalid.

Veness, the CEO of the Pietermaritzburg and Midlands Chamber of Business, told Rapport and its sister paper City Press that municipalities would no longer be allowed to charge tariffs that fund losses resulting from power and cable theft, and poor maintenance.

Nersa has been setting municipal power tariffs this way for the past decade, and the Supreme Court has given the regulator 12 months to rectify its methodology.

Tariff expert MC Botha was the instructing lawyer for the chambers of commerce that filed the court application.

He explained that the Supreme Court’s decision means consumers will no longer have to pay for inefficient operations of municipalities and other services that have nothing to do with electricity from 1 July 2024.

Nersa’s current methodology involves publishing a yearly guideline to advise municipalities on the percentage by which they may increase their electricity tariffs. It also provides price bands to indicate the rates for different user groups.

Its guideline was based on the percentage by which Eskom increases its rates, municipal inflation rates, wage increase provisions, and other cost items.

However, Nersa approved the tariffs of municipalities that stayed within the recommended price bands without considering their costs to supply power or the efficiency of their operations.

It also failed to consult the public on proposed increases.

The Supreme Court found this methodology contravenes the Electricity Regulation Act, which states that municipalities must set rates to recover their efficient cost of supply, plus a reasonable margin.

Eskom’s 38% electricity tariff hike application

With Nersa’s current municipal tariff determination, consumers could see municipal power prices increase in the 2023/24 financial year on the back of Eskom’s application for a 32% tariff increase.

According to Nersa, Eskom’s calculations don’t paint the full picture, and it is actually asking for an overall price increase of 38%.

It is expected that Nersa will approve a significantly lower tariff hike.

For reference, Eskom applied for a 20.5% increase for the 2022/23 financial year, with Nersa only approving an increase of 9.61%.

The power utility has applied for a 32.06% electricity tariff increase for the 2023/24 financial year, slightly reducing its initial application for a 32.66% hike.

Nersa is currently consulting on Eskom’s Multi-Year Price Determination 5 revenue application for the 2024 and 2025 financial years.

According to the methodology, Eskom must provide updates on any changes in conditions and environments that affect various cost elements of the revenue requirements.

“Changes are made within the cost items as required with an offset in the return on assets,” Eskom said.

Despite the amendments, Eskom said its total revenue as applied for in June 2021 — R335 billion for the 2024 financial year and R365 billion for the 2025 financial year — remained roughly the same.

MyBroadband recently asked municipalities how the proposed increase would affect their customers.

A City of Tshwane spokesperson confirmed that Eskom’s proposed electricity tariff changes would affect the municipality’s residents.

“The proposed changes will indirectly impact the City’s residents as 74-76% of the City’s tariff increases are direct pass-through for bulk purchases from Eskom,” they said.

The spokesperson also said the municipality supports the idea of cost-reflective Eskom tariffs and the proposal to eliminate inclined block tariffs (IBTs).

IBTs divide electricity prices into usage blocks, similar to income tax brackets. The more electricity your household consumes, the more you pay per kilowatt-hour.

“The proposed tariff changes provide for cost-reflective tariffs, which will clearly show what the City is paying from generation to retail levels,” the spokesperson explained.

“The removal of IBT and introduction of [a] flat rate for indigent and lifeline customers is supported as it will assist customers or residents to buy electricity on single rates as opposed to 4 different tariffs (current scenario).”

South Africans pay excessive electricity prices to fund power thieves — business chamber (mybroadband.co.za)