Municipal tariff excessive, unlawful, says Eskom in support of business chambers

Eskom on Thursday came out in support of a court application by the business chambers of Nelson Mandela Bay and Pietermaritzburg, aimed at ensuring that municipalities charge end-users only what the law permits for electricity and nothing more.

The Pretoria High Court heard the application during a virtual hearing. Energy regulator Nersa and the City of Joburg are opposing it.

The business chambers contend that the methodology Nersa uses to determine municipal tariffs is unconstitutional and invalid because it is:

• Contrary to what the Constitution, the Electricity Pricing Policy (EPP) and the Electricity Regulation Act (ERA) require; and
• Not based on what it costs municipalities to supply the service as well as a reasonable return.

Nersa has for the last decade been using a method of providing a guideline percentage increase on average tariffs every year as well as a benchmark tariff range for every consumer group, for example residential, business or industrial customers.

If the application succeeds, the guideline approved for 2022/23, which will inform Nersa’s approval of each municipality’s electricity tariffs, will be set aside. These tariffs are supposed to take effect on 1 July.

The applicants however acknowledged that it would lead to chaos if municipalities are left without valid tariffs and there is too little time to rectify the situation. They therefore ask that such an order be suspended for a year to give Nersa the opportunity to develop a valid methodology.

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Advocate Matthew Chaskalson SC for Eskom emphasised that the Constitution, the EPP and ERA distinguish between electricity tariffs and surcharges, which are essentially municipal taxes that may be levied upon tariffs.

Nersa is mandated to approve electricity tariffs on the basis of what it costs a municipality to provide the service as well as a reasonable return. Anything over and above that is a surcharge and must be dealt with in terms of the Municipal Fiscal Powers and Functions Act, which gives no powers to Nersa.

Chaskalson said that to lawfully determine electricity tariffs, Nersa does not only have to interrogate the overall cost of supply, it also has to determine the cost to supply each category of customers to be able to consider whether any cross-subsidisation is taking place.

That is only allowed if transparent and specifically permitted in terms of a cross-subsidisation programme, he added.

Chaskalson said the EPP provided in 2008 that municipal tariffs should move towards cost-reflectivity with a reasonable margin.

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However, Nersa has for more than a decade been using the guideline and benchmark method, even stating that it is an alternative to a cost-based method.

Chaskalson pointed out that the guideline provides for only a percentage increase on the previous year’s tariffs without first determining the cost of supply.

Additional costs

The original tariffs it was based on included a number of additional items. “If it included 20% of additional costs, that remained in the tariff.”

That, Chaskalson said, is why businesses currently pay Eskom 139c per kilowatt hour (kWh), while those same businesses, if supplied by Johannesburg’s City Power, would pay 252c/kWh – more than 80% more.

He said it is inconceivable that it could cost City Power so much more to supply electricity than it costs Eskom.

“It cannot be reasonably possible,” he said.

Chaskalson called the guideline and benchmark methodology as a whole unconstitutional and rejected Nersa’s contention that it does investigate the cost of supply of each municipality.

“Even though Nersa says it investigates the cost of supply, it does not provide any evidence to that effect,” he said.

If it did, he added, how could it cost City Power 80% more to provide the service than it costs Eskom?

The hearing continues on Friday, when Nersa and the City of Joburg will present their arguments.

This article first appeared on Moneyweb and was republished with permission. Read the originals article here.