Nersa guides municipalities to increase electricity tariffs by 15.1%

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Nersa recently published its annual guideline and benchmarks for the increase in municipal electricity tariffs that kick in on July 1. Picture - iStock.

Residents of six municipalities that want consumers to pay even bigger increases in electricity tariffs than the 15.1% that the National Energy Regulator of South Africa (Nersa) deems appropriate will get the opportunity to express their views on the matter on Thursday.

Nersa recently published its annual guideline and benchmarks for the increase in municipal electricity tariffs that kick in on July 1. This has drawn strong criticism from the Association of South African Chambers (ASAC) for its failure to approve wheeling tariffs for municipalities.

Nersa given until 2024
This is the last year the regulator will be allowed to use this methodology, after two court rulings last year found it unlawful. Nersa was given until 2024 to develop and implement a new methodology, based on the cost of supply in each municipality, in line with legislation. It is still to publish such new methodology for public comment.

The publication of the guideline has paved the way for Nersa to process municipal tariff applications individually and it has indicated that public hearings will be held only for those municipalities that apply for increases exceeding the guideline.

Six municipalities, including two metros, have applied for increases that vary between 16% and 21.49%. These are listed in the table below.

Nersa table for Moneyweb story 14 June 2023
Nersa tariffs – source Energy Regulator.

The Swartland Municipality cites reduced sales (due to load shedding) as the reason it needs extraordinary increases. The City of Cape Town and eThekwini Municipality blame lower sales, while eThekwini also says its expenses increased due to the July 2021 riots and April 2022 floods.

Approval of higher increases
Nersa said it would only approve increases above the guideline if applications were accompanied by a cost-of-supply study. The additional revenue must also be ring-fenced for specific projects.

The regulator further repeated its position that it has no mandate to regulate small-scale embedded generations (SSEG) and would therefore not approve such tariffs.

This was strongly disputed during earlier public hearings by electricity pricing consultancy Elexpert. Elexpert argued that Nersa is authorised to regulate basic charges to SSEG customers, which should be based on a cost-of-supply study.

David Mertens, speaking on behalf of ASAC, criticised Nersa for its failure to address the poor state of municipal infrastructure.
“Nersa explicitly ignores the advanced state of deterioration the municipal infrastructure finds itself in. The regulator behaves as if all is okay and no serious interventions in the municipal space are required,” says Mertens.

“Nersa lies and misleads the public by stating that it verifies and checks municipal compliance to licence conditions. Nersa does not do such things and simply lets the rot spread further by allowing incompetent licensees to continue on their path of destruction.”

Municipal abuse
He says Nersa’s policy of denial regarding municipal abuse of the electricity distribution allows municipalities to continue to plunder their distribution infrastructure with complete impunity.

“Nersa, as an electricity regulator, is entirely incompetent to fulfil its constitutional mandate. This has further been confirmed by Nersa losing one court case after the other. These court cases are funded by the South Africa taxpayer.”
He says after Eskom’s court wins when it challenged several tariff determinations by Nersa “we are not aware of one electricity tariff approved by Nersa that meets the requirements of the regulatory framework.”

According to ASAC, action by the minister of mineral resources and energy and parliament against Nersa’s incompetence is long overdue.

“South Africa urgently needs a competent and independent electricity regulator,” he said.

Road to nowhere
Mertens says when it comes to future tariff determinations, Nersa is clearly on a path to nowhere.

“Municipalities, as part of the licence conditions, require ring-fenced audited financial information, but reliable financial information is simply not available in most municipalities,” Mertens said.

“Without financial information, tariffs cannot be determined. The benchmark and guideline increase methodology was used by Nersa exactly because they had no reliable financial information from the municipalities. Any new methodology will not be implementable given that the base information will be missing.

“Nersa simply ignores this fact and consequently ignores its duty to enforce municipalities to comply with the financial licence conditions.”

Mertens says Nersa is ignoring its responsibility when it comes to wheeling tariffs, thereby harming the development of independent power producers (IPPs) and the wheeling market which South Africa badly needs.

“The implementation of wheeling will simply stall in most municipalities and particularly industry and business will be under further pressure given the current state of load shedding. Many opportunities for investment in new generation capacity will go up in smoke,” he says.

This article originally appeared on Moneyweb and was republished with permission.

The Citizen