Nersa proposes a 7.47% increase in municipal tariffs

In a discussion paper published on its website, energy regulator Nersa proposes an average increase of 7.47% in municipal electricity tariffs from July 1.

For the coming year, it proposes continuing to use the historical method for setting tariffs by providing guidance to municipalities on the percentage increase to be implemented in relation to existing tariffs, as well as tariff references for different categories of customers.

Moneyweb previously reported that Nersa faced two legal challenges regarding this methodology.

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A request by a number of heavy users in Madibeng to overturn Nersa’s approval of the municipality’s industrial tariffs over the past few years was postponed indefinitely in the Pretoria High Court on March 24 after the court ruled heard arguments on some technical points.

Meanwhile, the Nelson Mandela Bay and Pietermaritzburg Chambers of Commerce are challenging Nersa’s decision last year to use the same methodology to set municipal rates.

Both challenges are largely based on the assertion that Nersa does not base these rates on effective cost plus a reasonable margin, as required by law.

Nersa opposes both requests.

At a recent meeting of Nersa’s electricity sub-committee, Nomfundo Maseti, one of the regulator’s most senior members, acknowledged that the practice was not in accordance with the law.

Nomfundo Maseti, one of the members of the electricity sub-committee of Nersa. Image: Moneyweb

She faulted Nersa officials for failing to set timelines for moving to compliance.

In a carefully crafted sentence, the working paper concedes that the current benchmark guideline and methodology “does not explicitly show the relationship between the incumbent’s cost structures and its rates.”

He explains that Nersa would have preferred to use what he calls cost-based activity and marginal cost. This would be an extension of the new tariff methodology it wanted to use to determine Eskom’s tariffs for the current financial year.

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Eskom, however, obtained a court order on the grounds that the methodology was not yet ready and was granted a one-year reprieve.

In accordance with the court ruling, Nersa says she cannot use this methodology yet. It also needs data from municipalities to follow this path and therefore develops such data models for future use.

This, says Nersa, is part of a full-fledged methodology that will be ready by the end of April, when it is released for comment.

Nersa also discusses the possible use of Eskom’s retail tariffs as a benchmark for municipalities. This is in line with a proposal made by the regulator two years ago, saying it could use Eskom’s cost where municipalities have failed to submit supply cost studies.

At the time, this was welcomed by some chambers of commerce, but Nersa eventually reverted to the guidelines and benchmarks methodology.

It now states that Eskom’s tariffs are only indicative of Eskom’s cost and therefore not a suitable benchmark for municipalities.

Nersa states that the municipalities have not submitted compliant studies on the cost of supply despite the efforts made by Nersa and other institutions to help them in this regard.

The regulator expects to receive more compliant studies in the coming financial year and indicates that it will implement an effort towards appropriate supply cost data alongside the guideline and benchmark methodology.

She points out that the planned adoption of a new methodology in the next fiscal year will not eliminate the need for proper studies on the cost of supply.

To calculate the municipal guideline, Nersa uses the following financial indicators:

Source: Nersa

During the subcommittee meeting, Maseti also questioned why municipalities are allowed to suffer up to 12% electricity losses when the benchmark is 10%.

The chairman of the meeting, a full-time member of electricity regulator Nhlanhla Gumede, questioned the inability of municipalities to collect windfall revenues and insisted that consumers should not pay for poor perception.

According to the performance indicators, collection rates as low as 85% are however acceptable.

Nersa then calculates the guideline as follows:

Source: Nersa

He further seeks comments on the tariffs he has developed for small-scale integrated generators, primarily rooftop solar PV, using the proposed guideline increase and Eskom’s Megaflex tariff less 20%.

Stakeholders are asked to submit written comments by April 22 and Nersa hopes to finalize the guideline and benchmarks by May 11. Due to time pressure, there will be no public hearings on the matter.

Subsequently, the municipalities must file their rate applications. Applications that exceed the guideline will go to a public hearing on June 8 and Nersa hopes to finalize all municipal rate determinations by June 15 for July 1 implementation.

About Ian Crawford

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