Landmark Ruling: South African Municipalities Must Base Electricity Tariffs on Cost of Supply Studies

In an unequivocal verdict delivered on August 19, 2024, the Gauteng Division of the High Court in Pretoria has denied the National Energy Regulator of South Africa (NERSA) and the South African Local Government Association (SALGA) leave to appeal against a prior judgment declaring the regulator's electricity tariff increase methodology as unlawful. This decision has substantial implications for consumers and municipalities alike, reinforcing consumer protection against arbitrary and unfounded price hikes in electricity tariffs.

Demarcating a new era in energy tariff regulation, the Court, presided over by Acting Judge DE VOS, has maintained that moving forward, all electricity tariff increases must be strictly based on a cost of supply study. This judgment spawns from an urgent application brought by Afriforum NPC. The application underscores the persistent plight of end-users who have suffered from tariffs that have become increasingly unaffordable due to NERSA's approval of tariff increases not founded on the actual cost of electricity supply.

Previous methodologies employed by NERSA permitted increases without a cost of supply study, fostering a climate where consumers were overpaying for electricity—a practice that has now been formally rebuked by the Court. It's a victory for transparency and accountability, effectively pushing municipalities to conduct diligent cost supply studies before applying for tariff increases.

In defending its methodology, NERSA failed to provide a pursuable case that could override the explicit mandates by the Electricity Regulation Act and the standing Electricity Pricing Policy, which require a cost of supply study for tariff increments. The Court reaffirmed that deviation from such standard practices due to municipality non-compliance is unacceptable, voicing a clear message that regulatory standards cannot be neglected. As a result, NERSA's current appeal against the invalidation of its 2024 methodology has been soundly dismissed.

SALGA sought appeal solely against the consequential relief that affected municipalities. Arguing potential financial challenges and the threat of inability to pay Eskom for bulk electricity supply, SALGA proposed that municipalities be allowed to continue with the unlawful tariff methodology. However, the Court was not persuaded, given that municipalities had been overcharging for an extended period and SALGA failed to present a compelling, factual case for suspension of the judgment. It was deemed neither just nor equitable to suspend the operation of invalidity based on unverified claims.

The Court's firm stance has therefore culminated in a clear mandate to municipalities: comply with legal obligations by conducting accurate studies to determine cost-based tariffs, thereby casting a protective net for the end-users against overpricing.

The upshot of this judgment is a paradigm shift in electricity tariff determination practices. Municipalities have been granted 60 days to conduct their studies and apply for justified increases. Any further leniency would result in a continuation of overcharges to consumers and disincentivize compliance with legal obligations.

In sum, the High Court's decision emphatically underscores the judiciary's unwavering commitment to uphold the rule of law over budgetary constraints, ensuring that regulatory frameworks are not compromised at the expense of consumers. It sets a precedent of strict adherence to established policies, not only furthering consumer protection but also establishing a benchmark for regulatory compliance.