Energy regulator Nersa has been despatched again to the drafting board after the High Court in Pretoria declared the methodology it has been utilizing for not less than a decade to find out municipal electricity tariffs illegal and invalid.
Moneyweb earlier reported that the enterprise chambers of Nelson Mandela Bay and Pietermaritzburg approached the courtroom for a declaratory order on this regard. Eskom supported the appliance.
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The courtroom on Thursday dominated in favour of the candidates and ordered Nersa to pay their prices as properly.
According to tariff skilled and instructing legal professional for the chambers MC Botha, the ruling will carry an finish to the observe of municipalities utilizing electricity income to subsidise different companies. It will power Nersa to scrutinise municipal tariffs and solely permit effectively incurred price and make sure that cross-subsidisation between consumer teams is honest and clear.
The courtroom has given Nersa 12 months to rectify the state of affairs, which implies tariffs relevant from 2024/25 can be primarily based on the price of provide, as has been the case for Eskom all alongside.
Methodology weak spot
For not less than the previous 10 years Nersa has decided municipal tariffs on the premise of what’s known as a suggestion and benchmark methodology.
Every 12 months it revealed a suggestion of the share by which municipalities could be suggested to extend their tariffs. In addition, it revealed benchmarks for tariffs relevant to completely different consumer teams akin to households, companies and business.
This would then be utilized to the earlier 12 months’s tariffs with out refence to the precise price of provide.
As lengthy as municipalities stored their will increase throughout the guideline and benchmarks, Nersa typically authorized the tariff functions with out public participation.
This, the courtroom dominated, doesn’t adjust to provisions of the Electricity Regulation Act {that a} licensee (municipalities) have to be allowed to recuperate from tariffs the price of its environment friendly operations in addition to an affordable margin.
In phrases of this methodology Nersa didn’t take into account what an affordable return could be and it didn’t take into account the price of provide, together with the effectivity of each particular person municipality.
It additional failed to find out the price of provide to every consumer group, as it’s required to do earlier than it will probably take into account whether or not any cross-subsidisation is cheap.
Peet du Plessis, former chair of the Chartered Institute of Government Finance Audit and Risk Officers, says the courtroom rightfully declared the benchmarking tariff guideline illegal as a result of it lacks the mandatory enter as to the precise prices of particular person municipalities in rendering the service.
“The judgment is fair in the analysis of the arbitrary approach by Nersa to have a one-size-fits-all approach without taking in[to] consideration the conditions of supply in each municipality,” he says.
“The cost-of-supply studies by municipalities is a must and should be implemented as soon as possible.”
The much-talked-about new methodology
The ruling come shortly after Nersa missed its personal deadline to draft a brand new methodology to find out the tariffs of all licensees, together with Eskom. At a current assembly of the power regulator it was deferred to early subsequent 12 months.
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The proposed new methodology relies on three rules, specifically activity-based costing, type-of-use tariffs and marginal pricing, which based on Eskom will not be regulatory rules in any respect and are wholly inappropriate.
Eskom acknowledged throughout public hearings that this method has by no means been used wherever else on this planet and the Energy Intensive User Group cautioned that it might lead to a pointy enhance in residential tariffs.
Read: Nersa’s plan would see households pay way more, says Eskom
The regulator has additionally repeatedly misplaced courtroom challenges by Eskom concerning a number of tariff determinations.
Nersa spokesperson Charles Hlebela on Thursday mentioned the regulator is presently learning the judgment and can advise on the way in which ahead.
In response to the ruling Eskom mentioned it’s important for electricity costs to municipal clients to be reflective of their precise electricity provide prices.
Hasha Tlhotlhalemaje, Eskom GM for regulation, says Nersa is inspired to base its value changes on the cost-of-supply research. “This is a matter of implementing its frameworks.”
She says adequate time has been allowed for such an implementation. “This will be a parallel process to Eskom tariffs also migrating towards cost reflectivity as Nersa makes decisions.”
