Tariff increase: Court orders municipalities to pay back money

The High Court in Pretoria last Monday denied the National Energy Regulator of South Africa (Nersa) and the South African Local Government Association (Salga) leave to appeal against its July judgment precluding Nersa from approving tariff increases in more than 100 municipalities.

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

Court orders tariffs to be based on cost-of-supply studies

In 2022 the court ordered Nersa to refrain from its earlier guideline-and-benchmark method and comply with the law and electricity pricing policy that requires tariffs to be based on cost-of-supply studies (CoS).

The court allowed Nersa and municipalities a year to comply but more than 100 of the 257 municipalities still failed to submit their CoS and Nersa failed to develop a new compliant methodology.

AfriForum approached the court and the court agreed with AfriForum and found that Nersa was not authorised to approve any tariff increases 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.

Tariffs determined without cost-of-supply studies

Before the initial ruling came in July, Nersa approved all municipal tariff applications after those without CoS were assessed based on a template provided by Nersa who argued that this was substantially compliant.

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

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, but 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,” the order stated.

AfriForum to assist consumers with disputes

AfriForum manager for local government affairs, Morné Mostert is quoted to have said that 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.

“At least 112 municipalities have been charging unlawful rates to millions of consumers for more than a month and those municipalities must once again charge the electricity rates approved for the 2023/24 financial year,” Mostert said.

He added that in the meantime, AfriForum will send an urgent letter to the energy regulator and demand a plan of action regarding the refunding of over-recovery to consumers.

Mostert said that AfriForum is investigating ways to assist consumers with disputes in this regard.

It was not yet clear if Nersa and Salga will accept the ruling or continue and petition the Supreme Court of Appeal for leave to appeal as a last resort.