(Archive photo: Wikipedia)
The Ekurhuleni metro, whose power tariffs for 2024-’25 were declared illegal by the court, has a new application containing a gross error of more than R7 billion after the metro completely miscalculated and overestimated the amount it would pay Eskom for bulk purchases.
This would send power rates skyrocketing.
In addition, the metro wants to illegally charge power tariffs with at least another R1 billion in expenses for debt, fines and interest, according to one of the stakeholders at a recent public hearing held by the energy regulator Nersa.
Ekurhuleni is one of four municipalities whose power tariffs for 2024-25 have been declared illegal by the court and set aside. The others are those of Madibeng, based in Brits, Msunduzi, based in Pietermaritzburg, and Johannesburg.
The court referred the power tariffs back to Nersa so that the tariffs can be re-determined. This must happen before 30 June and can lead to adjustments on all consumers in those municipalities’ accounts.
If the recalculation is not completed before this date, the institutions that brought the court applications will for that period only be responsible for payments on Eskom’s Megaflex tariff, which is significantly lower than the tariffs set aside by the court.
Stakeholders who participated in the public hearing on Ekurhuleni, Madibeng and Msunduzi’s new applications agreed that the applications were so incomplete and riddled with errors, that Nersa will not be able to legally set a tariff.
“If Nersa nevertheless continues, we will have to consider our options. This may include going back to court,” says Melanie Veness, the chief executive of the Pietermaritzburg and Midlands Chamber of Commerce.
The public hearing on Johannesburg’s re-application is planned for later this month.
The issue comes against the background of several court cases which led to the way in which Nersa set municipalities’ power tariffs for years being declared illegal.
Nersa must now follow the law which states that municipal tariffs, like those of Eskom, must be based on the real, efficient cost of power delivery. Consumers cannot therefore be expected to pay for costs due to poor planning, waste, corruption and theft.
In addition to the actual costs, municipalities are also entitled by law to a reasonable return on assets or margin. This is often considered a percentage equivalent to financing costs.
The regulator also has a discretion to lower the yield if it considers the full yield to be unaffordable for consumers.
AfriForum played an important role in this litigation and, among other things, obtained a judgment obliging Nersa to disclose municipalities’ tariff applications and cost studies to the public so that they can meaningfully comment on them during the mandatory public participation processes.
Nersa. (Photo: ActionSA)
Nersa did this for the first time this year in relation to the municipal power tariffs which are due to come into force on 1 July.
However, there are concerns about the quality of the cost studies and the accuracy of the information on which they are based.
With the redetermination of Ekurhuleni’s rates for 2024-25, Nersa already made the documents available to interested parties in February. A representative of MPact, a listed packaging company with premises on Springs, said during the public session that he pointed out the huge error in his written submission to Nersa on 9 March.
Ekurhuleni amended its application accordingly on 18 April, but Nersa never notified those who had already submitted their submissions. They therefore did not have a chance to study the amended application.
This correction reduced the estimated Eskom bill from R32.68 billion to R25.5 billion and the gap that had to be filled with a tariff increase, from 53.9% to 19.1%.
MPact pointed to several other flaws in the application, including the R2.1 billion contribution that the metro’s power department makes to the “shared” costs, without any explanation as to how this relates to the licensed power distribution and the absence of a regulated asset register on the basis of which the return must be calculated.
Steve Jardine, the managing director of RSA Clusters, which represents several manufacturers and was involved in the initial litigation, acknowledged many of the shortcomings and also pointed to the lack of audited financial statements for Ekurhuleni’s electricity service, independent of that of the municipality.
Veness told the Nersa panel that Msunduzi’s application was also riddled with major errors. The income required from rates is completely overestimated and just one of the mistakes will mean the difference between an increase of 30% to make the municipality’s books beat and 13.6% which actually should have been.
In addition, the municipality’s own figures show an over-recovery of 151% of conventional commercial consumers, without any attempt to restructure tariffs so that this can be corrected.
According to David Mertens of the manufacturer Autocast with a plant in Britain, 61% of the power that the Madibeng municipality buys is lost. This drives up the costs enormously. If the percentage is lowered to the permissible level of 12%, and the incorrect rate at which the Eskom purchases were calculated is corrected, the municipality’s expected Eskom bill drops by R107 million.
Madibeng’s over-recovery from industries and manufacturers amounts to 85% and its tariff application does not reflect the outcome of the cost study, he says.
In general, the application is so weak “it cannot form the basis for a legal tariff,” he says.
As far as this year’s municipal tariff applications are concerned, AfriForum expressed its concern about the quality of the cost studies in a letter to Nersa on 21 April. He points out that several municipalities achieved less than 50% for compliance with the directives for cost studies and asks for clarity on how Nersa assesses the studies.
According to Mornè Mostert, the head of municipal affairs at AfriForum, Nersa has acknowledged receipt of the letter, but has not yet responded to it.