Council profiteering?

IN COURT: ACCUSATIONS OF HUGE PROFITS ON ELECTRICITY SALES

Outcome to have bearing on tariff determinations countrywide.

The High Court in Pretoria will this week hear an application by several intensive energy users in the North West municipality of Madibeng that may have far-reaching implications for municipal tariff determination countrywide.

They allege that Madibeng is unlawfully making huge profits on electricity sales. They are asking the court to review and set aside energy regulator Nersa’s approval of Madibeng’s tariffs for 2013/14, 2014/15 and all subsequent years; on the basis that Nersa’s decision was unconstitutional, unlawful, irrational and that Nersa acted beyond its mandate (ultra vires) when taking the decision.

If the application succeeds, electricity users elsewhere may also challenge the tariffs their municipalities charge for electricity sales.

Nersa and the Madibeng municipality are both opposing the application.

This comes against the backdrop of another pending application in which the Nelson Mandela Bay Business Chamber (and the Pietermaritzburg and Midlands Chamber of Business) are challenging the methodology Nersa relies on to determine municipal tariffs.

Nersa is finalising a discussion document about the guideline for municipal tariffs that will apply from 1 July. Nersa’s practice is to publish a guideline annually for the percentage increase in municipal tariffs, compared with the previous year, as well as benchmark tariffs for every consumer group. Each municipality still has to apply for its own tariffs and is only allowed to charge the tariff Nersa approves.

Madibeng’s disputed tariffs were also set in accordance with this practice. The Madibeng applicants, however, argue that this practice does not comply with the Electricity Regulation Act which provides for tariffs to be cost-reflective. An efficient licensee, in this case the municipality, is entitled to recover from tariffs its cost of supply and a reasonable margin.

According to the intensive users Nersa’s decisions were not cost-based and it is impossible to calculate a reasonable return without knowing what the efficient cost is. They argue that Nersa is allowing the municipality to impose a surcharge without being authorised to do so. A municipal surcharge may only be imposed in compliance with the Municipal Fiscal Powers and Functions Act, which does not authorise Nersa to approve surcharges.

The applicants are asking the court to set the decisions aside. They propose that in the absence of a proper study to determine the cost of supply in Madibeng, Nersa use the cost-of-supply data that Eskom bases its electricity distribution tariffs on.

They also allege that Nersa’s tariff determinations were procedurally unfair, because the regulator does not require any public participation.

Applications from municipalities that are within the guideline, and in line with the benchmark on three different tariffs, are simply approved without any public participation.

They further argue that Nersa failed to apply a prudency test that took into account that the municipality’s electricity

losses were sky-high – 41.5% against a benchmark of 10% in 2011/12. Nersa disputes the decisions were taken unlawfully.

Nersa says the applicants misunderstand the legal regime, and accuses them of taking the law into their own hands by underpaying

the electricity bills for years after reaching an agreement to that effect with Madibeng. The applicants obtained an interdict earlier to prevent Madibeng from disconnecting their power supply pending the finalisation of this application.