City Power tariffs approved by Nersa unlawful, court rules

The High Court Gauteng division on Friday ruled that energy regulator Nersa’s decision to approve Johannesburg’s City Power’s electricity tariffs for 2019/20 was irrational, irregular, and unlawful, and set it aside.

This comes barely a month after the high court found the methodology Nersa has been using to set municipal tariffs countrywide for at least a decade is unlawful and ordered that it be set aside.

The court gave Nersa a year to develop a new methodology in compliance with the relevant legislation.

The non-profit Casting, Forging and Machining Cluster of South Africa (CFMC) and four individual businesses succeeded with this latest application against Nersa, City Power and City of Joburg on the basis that Nersa failed to assess City Power’s cost of supply when it determined the tariffs.

Nersa not only failed to determine the overall cost of supply, but also the cost of supply to each consumer category – such as households, business or industry – and was therefore not in a position to assure, as is required, that any cross-subsidies between consumer groups are transparent and reasonable.

The court pointed out that all licensees were supposed to have done cost-of-supply studies as far back as 2013, and thereafter at least every five years or when there were structural changes in their business.

Not only was there no cost-of-supply study before Nersa when it made the determination, because City Power failed to submit one, but the D-form that Nersa requires from licensees such as City Power was outdated.

Nersa did not use the form with information pertaining to City Power’s operations in the previous year – it used the D-form relating to 2017/18.

Parties ordered to settle their dispute

The court ordered that the applicants and City Power get together to settle their dispute regarding the 2019/20 tariffs by mutual agreement.

Should the parties fail to reach an agreement within 30 days, the matter is referred back to Nersa to redetermine the tariffs for that year.

The applicants have been paying their electricity bills only at the level of the equivalent tariffs Eskom’s direct customers are paying.

If they end up owing City Power, they must pay the utility “forthwith”, the court ordered.

Similarly, if City Power owes the applicants money, it must credit their accounts “forthwith”.

The applicants earlier told the court in its founding papers: “The applicants’ calculations reveal that on average, at the Industrial MV (TOU) [time-of-use] level, the City Power tariff is 41% higher than the equivalent Eskom Direct Tariff.”

City Power however denied this.

The ruling has no retrospective effect and equally has no application to subsequent tariffs. It is also limited to the applicants before the court.

Nersa’s methods …

Nersa has been using what is referred to as the guideline and benchmark methodology to set municipal tariffs. This differs vastly from the way it determines Eskom’s tariffs, although the legislative framework for all licensees is the same.

Eskom’s tariffs are determined, as required by the Electricity Regulation Act, on the basis that an efficient licensee is allowed to recover its cost as well as a reasonable return on its capital.

However, Nersa used the average cost of supply of all municipalities determined many years ago, and has merely published a guideline every year of the percentage increase municipalities were advised to apply for. In addition it supplied a set of benchmark tariffs for different categories of customers.

Municipalities were only required to justify their tariff increases if they applied for more than that which the guideline provided for.

In the case of City Power, the utility in fact applied early in the year for a smaller increase of 12.2%.

When the guideline was published at a higher level (13.07%), City Power amended its application to get the bigger increase without any effort to justify the additional burden on consumers.

In addition, Nersa did not even have a benchmark for all the customer categories included in City Power’s set of tariffs. It nevertheless approved City Power’s tariffs without any credible information about the cost of supply before it.

MC Botha – an attorney and tariff expert who represented the applicants in both the City Power application and the successful application against Nersa’s municipal tariff methodology – noted that the direct impact of this ruling is limited to the applicants.

The wider impact on other disputes in other municipalities relating to specific tariffs, still needs to be considered.

Applicants’ goal

CFMC MD Steve Jardine said the cluster is trying to improve the trading conditions for industry.

Foundries use more electricity than the average businesses and this ruling will have a positive impact on manufacturers doing business within municipal distribution areas.

“These are mostly small businesses and the impact of electricity tariffs on them is huge,” says Jardine.

He also points out that this ruling shows that small businesses can make a difference if they stand together.

“It should result in better regulation and force Nersa and municipalities to rethink tariff increases in future. Their conduct so far has clearly been found wanting.”

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