Electricity prices are untenable, especially for the poor, and the methodology for calculating them is under review, energy and electricity minister Kgosientsho Ramokgopa says.
Ramokgopa appeared in parliament on Wednesday with a top team from the National Energy Regulator of SA (Nersa) who had been asked by the energy and electricity committee to explain how it arrived at the determination of municipal tariffs, which have caused outrage.
Nersa determined a tariff increase of 12.4% to be applied to Eskom’s bulk supply to municipalities for 2024/25.
Ramokgopa stressed to MPs that Nersa was not to blame for high tariff increases as it worked within the government’s electricity pricing policy framework, which was under review.
Current electricity prices were “untenable” even though SA’s average electricity price per kWh was lower than that of major Western countries, he said, and the pricing policy was outdated.
Ramokgopa said the poor were disproportionately affected by the “runaway” tariff increases affecting the middle class. The tariff increases were undermining people’s quality of life and eroding industry competitiveness.
The policy question was how to cushion the poor, which required a nuanced and differentiated approach. This could involve increasing the quantum of free basic electricity from 50kwh, ensuring that it reached all those who qualified, as well as placing a ceiling on tariff increases for the poor.
Of the 10-million people who qualified for free basic electricity, only 2-million received it. Expanding access to the benefit was not a question of money, Ramokgopa said, but one of addressing inefficiencies in local government and Eskom.
Ramokgopa also noted that the carbon tax was a significant element of the tariff increases. This could possibly be imposed much later, which would remove three to five percentage points from the proposed tariff increases.
That we have delayed in the on-board of independent power producers has an implication for pricing as we must rely on coal
— Kgosientsho Ramokgopa, energy and electricity minister
A further two to three percentage points of the proposed tariff increase could be shaved off if municipal debt to Eskom of about R78bn was addressed.
A further reduction could be achieved by the speedy and aggressive rollout of renewable energy to reduce the reliance on coal, he said.
“That we have delayed in the on-board of independent power producers has an implication for pricing as we must rely on coal,” Ramokgopa said.
Nersa CEO Nomalanga Sithole told MPs that the Pretoria high court’s decision in favour of AfriForum’s application regarding tariff increases had huge, negative implications for the industry. Nersa believed the decision was incorrect.
Nersa’s application for leave to appeal the judgment was refused, so it has appealed to the Supreme Court of Appeal for the go-ahead to lodge an appeal.
AfriForum manager for local government affairs Morné Mostert said in a statement the organisation had not been informed about Nersa’s plan to seek leave to appeal. He said AfriForum would consult its legal team about possibly obtaining an order to ensure the high court’s decision was implemented, amid a possible appeal period.
“AfriForum has not yet received any documentation that suspends the legal force of the high court order and therefore we will continue to encourage consumers to stand up against the illegal and invalid increases that Nersa seems to want to implement at all costs,” Mostert said.
AfriForum successfully challenged Nersa’s determination of municipal tariff increases in July on the grounds that not all municipalities had provided it with their cost-of-supply (COS) calculations, which are required in terms of Nersa’s methodology for the calculation.
The court found Nersa’s decision to consider municipal applications for electricity tariff increases without the COS studies was unlawful and invalid. It ruled that municipalities that did not supply these studies would have to continue charging electricity tariffs based on the existing rates for the 2023/24 fiscal year.
AfriForum has calculated that since July nearly 40% (112) of the 178 municipalities that have licences — some of SA’s 257 municipalities are combined under a single licence — had enforced unlawful tariff hikes that were not based on COS studies.
Nersa acting executive manager for electricity regulator Welile Mkhize explained the difficulties in getting COS calculations from municipalities, some of which lacked the skills for the complex exercise.
Adding to the obstacles, the studies were not budgeted for and some municipalities did not have proper asset registers, and so struggled to allocate costs. Only 76 municipalities were able to submit proper COS studies. Nersa had attempted to assist municipalities.
He stressed that COS studies were important to determine the tariff that each municipality could charge as costs differed between them.
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