Nersa Faces Court Challenge Over Delayed Municipal Tariff Methodology

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The National Energy Regulator of South Africa (Nersa) finds itself embroiled in a legal quagmire as it struggles to develop a new methodology for municipal tariff increases within the given timeframe. The looming deadline of July 1, 2024, for implementation has prompted concerns over the legality of approving municipal tariff applications without a clear legal basis.

Attorney MC Botha, specializing in electricity regulation and tariffs, predicts that Nersa may need to return to court to seek an extension beyond the 12-month period initially allotted for developing the new methodology. Failure to secure an extension could leave Nersa vulnerable to legal challenges from stakeholders, potentially resulting in decisions being set aside.

The current predicament stems from a High Court ruling in October 2022, which deemed Nersa’s long-standing method for determining municipal electricity tariffs unlawful. This method, utilized for over a decade, involved publishing annual guidelines for municipalities, indicating permissible percentage increases without recalculating the base tariff according to cost and efficiency, contrary to the Electricity Regulation Act.

Leon Claassen, an analyst at Ratings Afrika, warns that proceeding without a lawful basis could exacerbate the financial woes of local authorities, already burdened with collective debts exceeding R70 billion to Eskom. Municipal tariffs, often higher than Eskom’s, lack efficiency, leading to expectations of tariff reductions with a recalibration to reflect actual costs.

The legal dispute extends beyond the courtroom, with the City of Cape Town contesting Nersa’s decisions on tariff increases. Councillor Beverley van Reenen highlights the significant financial implications, emphasizing the need for a fair resolution to safeguard service delivery and address the ongoing issue of load shedding.

In response to the regulatory turmoil, Nersa has shifted its approach, requiring municipalities to base their tariff applications on cost studies rather than relying on outdated guidelines. However, Nhlanhla Gumede, Nersa’s full-time regulator member for electricity, acknowledges that few municipalities have complied with this directive.

Amidst these challenges, initiatives like The Business Exchange offer a reprieve for affected companies, providing workspaces equipped to handle electricity issues seamlessly. Unlike traditional workspaces lacking backup solutions, these modern setups ensure uninterrupted operations even during electricity disruptions.

As Nersa grapples with legal complexities and municipalities navigate the transition to cost-based tariffs, the broader implications for South Africa’s energy landscape remain uncertain, underscoring the urgent need for effective regulatory frameworks and sustainable solutions.

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