The High Court ruling that only municipalities that provided a Cost-of-Supply (CoS) study may implement electricity hikes on July 1 could backfire badly on consumers.
While energy regulator Nersa is appealing the High Court judgment, should CoS studies be implemented (as ruled in all municipalities), it could well lead to massive hikes in the cost of electricity.
As indicated in the Courier in May, Endumeni’s electricity increase of 12.7% came into effect on Monday. On the same date, Eskom increased the cost of their bulk purchases to municipalities by 12.7%.
MoneyWeb quoted energy specialist Hendrik Barnard, who said that up to 70% of the 178 municipal electricity distributors may find that their tariffs are too low if they conduct a proper CoS study.
During the meeting of Nersa’s executive committee last month, which was open to the public, several municipalities indicated that, based on CoS studies, their tariffs are not cost-reflective.
For instance, Phalaborwa Local Municipality in Limpopo would need to implement a 61% increase to cover the cost of the service and a reasonable margin, which is the legislated prescript. It is not clear what the case would be in Endumeni.
Nersa, in each case, instructed the municipalities to submit implementation plans to move towards cost-reflectivity, which would probably mean a phasing in over several years.
The ruling came after an urgent application by AfriForum to declare the method for determining municipal tariffs (that Nersa set out in a notice to municipalities in January) unlawful and invalid, and to compel the regulator to base approvals on CoS studies
It was found that only 66 municipalities provided CoS studies, as instructed by Nersa.
The balance of more than 100 municipal electricity distributors licensed by Nersa will accordingly not be allowed to implement tariff increases on July 1, although their budgets are based on the increased tariffs.
Nersa has indicated their wish to appeal against the ruling but this is yet to be confirmed.
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