On Thursday, Eskom ruled in support of a pleading by the Nelson Mandela Bay and Pietermaritzburg Chambers of Commerce, aimed at ensuring that municipalities charge end users only what the law allows for electricity and nothing else.
The High Court of Pretoria heard the question during a virtual hearing. The energy regulator Nersa and the Municipality of Joburg oppose.
The Chambers of Business argue that the methodology used by Nersa to determine municipal rates is unconstitutional and invalid because it is:
- Contrary to the requirements of the Constitution, the Electricity Price Policy (PPE) and the Electricity Regulation Act (ERA); Other
- Not based on how much it costs municipalities to provide the service, as well as a reasonable return.
Over the last decade, Nersa has used a method to provide an indicative percentage increase on average rates each year, as well as a reference rate range for each consumer group, such as residential, commercial or industrial customers.
If the application is accepted, the guidelines approved for the academic year will be set aside. 2022/23, which will inform Nersa’s approval of the electricity tariffs of each municipality. These rates are expected to take effect on July 1st.
However, the applicants acknowledged that this would cause chaos if municipalities were left without valid tariffs and there is too little time to rectify the situation. They therefore ask that this ordinance be suspended for one year to give Nersa the opportunity to develop a valid methodology.
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Attorney Matthew Chaskalson SC for Eskom pointed out that the Constitution, the EPP and the ERA distinguish between electricity tariffs and surcharges, which are essentially municipal taxes that can be levied on tariffs.
Nersa has the task of approving electricity tariffs on the basis of how much it costs a municipality to provide the service as well as a reasonable return. Anything that goes beyond is a surcharge and must be addressed in terms of the law on municipal fiscal powers and functions, which does not confer powers on Nersa.
Chaskalson said that in order to legally determine electricity tariffs, Nersa must not only question the overall cost of the supply, but must also determine the cost of supplying each category of customers in order to consider whether any cross-subsidies are occurring.
This is only allowed if it is transparent and specifically allowed in terms of a cross-grant program, he added.
Chaskalson said the EPP predicted in 2008 that municipal tariffs should shift towards cost reflectivity by a reasonable margin.
However, Nersa has been using the guidelines and benchmark method for more than a decade, even claiming that it is an alternative to a cost-based method.
Chaskalson pointed out that the guideline only provides for a percentage increase on the previous year’s tariffs without first determining the cost of the supply.
The original rates on which it was based included a number of additional items. “If it included 20% of the additional costs, that remained in the rate.”
This, Chaskalson said, is why companies currently pay Eskom 139c per kilowatt hour (kWh), while those same companies, if supplied by Johannesburg’s City Power, would pay 252c / kWh, over 80% more.
He said it’s inconceivable that the electricity supply could cost City Power much more than Eskom costs.
“It can’t be reasonably possible,” he said.
Chaskalson defined the guideline and the reference methodology as unconstitutional as a whole and rejected Nersa’s claim that it investigates the cost of supplying each municipality.
“While Nersa claims to investigate the cost of the supply, it does not provide any evidence to that effect,” he said.
If so, he added, how could it cost City Power 80% more to provide the service than Eskom?
The hearing continues on Friday, when Nersa and the Municipality of Joburg will present their arguments.