Court denies Nersa and Salga appeal: 112 municipalities at risk of refunding users

The High Court in Pretoria on Monday denied electricity regulator Nersa and the municipal association Salga leave to appeal against its earlier judgment precluding Nersa from approving tariff increases in more than 100 municipalities.

This puts at least 112 municipalities at risk of having to refund end users with regards to increased amounts billed since 1 July, the date when the new tariffs are implemented every year.

It is not yet clear if Nersa and Salga will leave the matter there or continue and petition the Supreme Court of Appeal for leave to appeal.

AfriForum court challenge

AfriForum approached the court after Nersa in January this year changed course regarding the method it would use to consider municipal tariff applications for 2024/25.

While Nersa earlier communicated to municipalities that tariff applications must be done on the basis of cost-of-supply studies (CoS), it gave those municipalities that failed to do such studies a way out in January.

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The high court in 2022 already ordered Nersa to stop using its earlier guideline-and-benchmark method and comply with the law and electricity pricing policy that requires tariffs to be based on CoS. It gave Nersa and municipalities a year to adjust, but more than 100 of the 257 still failed to do CoS and Nersa failed to develop a new, compliant methodology.

The court agreed with AfriForum and ordered that Nersa was not authorised to approve any tariff increase unless they were based on a CoS. It further gave municipalities 60 days to submit compliant applications or make representations to court if they needed more time.

In the days before the initial ruling came, Nersa approved all municipal tariff applications. Those without CoS were assessed on the basis of a template provided by Nersa for municipalities to list their costs. Nersa argued that this was substantially compliant.

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Salga agreed with AfriForum’s arguments but objected to the remedy.

It wanted the order to be suspended indefinitely, which would allow municipalities to proceed with the tariff increases, irrespective whether they have done a CoS or not.

Legislative and policy requirements

In dismissing the applications, the court pointed out that the legislative and policy requirement for a CoS has been in place since 2008 and was confirmed in the 2022 high court ruling.

“Nersa’s deviation from the Policy is clear; in fact, Nersa’s tells the Court that in 2024, it moved away from requiring the cost of supply studies as municipalities were not compliant. This case concerns Nersa’s move from a lawful method used in 2023 to an unlawful method in 2024. As a regulator, it cannot deviate from the legislature and executive’s standards because those it has to regulate are not complying with the law.”

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Regarding the remedy, the court argued that Salga failed to support its argument regarding financial hardship and possible bankruptcy should municipalities not be allowed to implement tariff increases.

On the other hand, it was undisputed before court that Nersa’s earlier approval of tariffs without CoS has caused electricity to become unaffordable.

“This Court cannot grant leave to appeal in circumstances where the challenge to the remedy is one premised on a factual case which has not been proven, internally contradicted, disputed and which is, in any event, outweighed by other considerations, including the interests of end-users and upholding the rule of law.”

AfriForum manager for local government affairs Morné Mostert says CoS studies are critical because they provide a clear outline of what municipalities should charge for electricity to deliver the service and maintain networks properly.

“However, municipal power tariff increases were implemented nationwide at 178 licensed electricity distributors on 1 July this year, despite only 66 distributors having conducted cost-of-supply studies.

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“At least 112 municipalities have therefore been charging unlawful rates to millions of consumers for more than a month.”

Mostert says those municipalities must once again charge the electricity rates approved for the 2023/24 financial year.

Nersa ’caused an administrative nightmare’

Applications for tariff increases for 2024/25 will, according to the ruling, be reconsidered if the municipalities concerned submit the necessary cost-of-supply studies within 60 days.

“In the meantime, AfriForum will send an urgent letter to the energy regulator and demand a plan of action regarding the refund of over-recovery to consumers,” says Mostert.

“The organisation will also request a complete list of municipalities that have not yet submitted cost-of-supply studies so that the implementation of the court order can be monitored.

“Nersa has now caused an administrative nightmare due to mismanagement because, although the error can be relatively easily rectified in favour of municipal account holders, it will be much more difficult to rectify the error for consumers of prepaid electricity,” he adds.

“We realise that this judgment will have a significant impact on municipalities’ budgets, but the line has now been drawn in the interest of consumers who have been milked as cash cows for years by inept municipalities.”

He says AfriForum is investigating ways to assist consumers with disputes in this regard.

Moneyweb has sent questions to Nersa and will update this article once it responds.

This article was republished from Moneyweb. Read the original here