The National Energy Regulator of South Africa (Nersa) yesterday told Parliament it would appeal to the Supreme Court of Appeal (SCA) against the decision of the High Court judgement in which it lost an application to overturn the decision not to implement the Cost of Supply (CoS) method in determining municipal tariffs for the 2024/25 financial year.
The decision to appeal to the Supreme Court comes after Nersa, along with the South Africa Local Government Authority (Salga), lost a judgement and appeal last month of an action launched by AfriForum seeking to stay the 2024/25 increases based on the CoS.
In a presentation to the Portfolio Committee on Electricity and Energy yesterday, Nersa said it had outlined “the negative consequences of the order on the sustainability of municipalities, disruptions both on social, economic and financial spaces within the Republic”.
Nersa’s acting executive manager for electricity, Velile Mkhize, said the biggest implication of the dismissal was that municipalities who did not provide the CoS studies with their applications will not be able to continue implementing Nersa-approved tariffs, but would have to revert to implementing the 2023/24 tariff, which will impact the sustainability of municipalities as Eskom increases on municipalities has taken effect.
Mkhize said this would expose Eskom to continued bulk supply to municipalities as they may not be able to service the account and would result in disruptions to economic development, social fibre and technical ability to maintain the infrastructure.
“Predicated on the need to sustain the orderly development in the industry, Nersa has resolved to petition the Supreme Court of Appeal. Motivated by our mandate to preserve the orderly development of the electricity industry, Nersa will highlight the incorrect assumptions factored into the judgement and petition the Supreme Court of Appeal,” Mkhize said.
Nersa said it would meanwhile continue to provide assistance necessary for municipalities to do CoS, infrastructure maintenance, recruitment of skilled personnel and provide incentive for the minimisation of both technical and non-technical losses.
Nersa had last year issued a guideline percentage increase and also determined ranges within which tariffs for various customer classes would fall which was then used by municipalities to prepare their tariff applications. This price review methodology was, however, found by the court to be unlawful.
The energy regulator chose to implement the CoS methodology and amended the Cost of Supply Framework, which brought on the latest challenge by AfriForum.
In the new framework, Nersa considered new applications that were accompanied by the CoS where the applications were not accompanied by the CoS, the Cost Breakdown Structure (CBS) approach was used to assess tariff applications.
Using these two approaches, Nersa was able to approve 177 applications, with the exception of one late application from a private distributor.
The regulator said using the new approach based on actual costs to serve customers resulted in different tariff increases for each licensee, in some instances the results of the CoS/CBS resulted in tariffs increasing at very high percentages.
“In such cases, Nersa encouraged the licensees to phase-in the increases over time. In other cases, the average increase would be reasonable but increases to some customer classes would be high with other classes reducing due to elimination of cross-subsidies. In such cases, Nersa encouraged the licensees to phase the elimination of cross-subsidies over time,” it said.
Nersa said challenges experienced in acquiring CoS from municipalities was their shortage of skills and capacity, not having proper asset registers which resulted in struggles to properly allocate costs.
Mkhize said with assistance from Sustainable Energy Africa (SEA), it developed a model based on excel for licensees to use in performing CoS studies but after workshops, one on one training sessions and the SEA performing the CoS on behalf of the municipalities, the rate of submission of CoS studies was very low to an extent that there was a risk of a bulk of municipalities not have approved tariffs.
“As a transitional measure, Nersa adopted the Cost Based Structure to determine tariffs,” Mkhize said.
BUSINESS REPORT