The City has “unlawfully” been overcharging Cape Town residents higher electricity tariffs than Nersa’s approved percentage for at least two years, in breach of its distribution licence condition.
This is according to Energy Minister Gwede Mantashe, in a parliamentary response to questions by GOOD Party MP and secretary-general Brett Herron.
Herron’s questions come as the City implemented a 9.6% tariff increase for 2022/23 compared to the 7.47% increase approved by the National Energy Regulator of South Africa (Nersa), and for 2023/24 it implemented a 17.6% hike compared to the approved 15.1%.
Herron also said the City had for the past two years been “quietly litigating, at ratepayers’ expense, against Nersa for court permission to ignore the nationally regulated tariff”.
“The amount of money that the City is overcharging residents amounts to hundreds of millions of rand. Defending itself in a rare statement on the subject last year, the City suggested that complying with Nersa’s tariff for 2023/24 would create a R500 million shortfall,” said Herron.
He said that should the City lose its court challenge against Nersa, “this money would have to be refunded to consumers, on top of the previous year’s over-charges”.
In his questions to the minister, Herron asked what the status was of the court application to review Nersa’s decision for the 2022/23 municipal financial year and electricity tariffs for the 2023/24 municipal financial year.
He further wanted to know whether the City had obtained an interim decision from Nersa and/or a high court order, which permitted them to charge a tariff hike in excess of the Nersa decisions for each municipal financial year, pending the final determination of their review.
Mantashe said: “Currently the City and Nersa are in court dealing with tariff matters of 2022/23 and 2023/24.
The two matters are at a judicial management stage before a judge and the outcome of the two matters will address the effect of the conduct of the City on customers and what remedies should be implemented to correct the wrongs that have been done and the period within which such remedies should be implemented.”
He added that there was no court interim order received by the City which allowed it to charge a tariff in excess of Nersa’s approved tariffs.
“The City of Cape Town Metro’s unilateral implementation of unapproved tariff is unlawful and in breach of its distribution licence condition.
“As per Nersa’s procedures in the case of non-compliance with licence conditions, Nersa requested a meeting with the City of Cape Town Metro. However, the request was turned down by the City, stating that they have lodged a review case on this matter with the high court. Nersa is the respondent in the case.
“It was Nersa’s considered view that since the matter was before the courts, it was prudent to await the outcome of the court proceedings before proceeding with its processes,” the minister said.
The City, meanwhile, defended its actions and said that it was recovering its expenses.
Mayco member for energy Beverley van Reenen said: “The existing legal methodology in tariff setting makes provision for tariff setting that covers the cost of providing the service to ensure that entities do not go bankrupt – if the cost of providing the service outweighs the income received pay for the service provision.
“The City looks at affordability for customers against a backdrop of what income is required to cover the costs of service provision, without jeopardising service delivery. It is a revenue-neutral service (thus no profit is planned for on the sales of electricity services). The highest and ever-increasing cost driver is Eskom’s tariff setting and the fact that the City spends about 67% of its electricity income to buy power from Eskom.
“The City must recover the costs of providing the service without jeopardising investment in maintenance and repairs. It needs to protect the electrical grid and protect service delivery, and the City’s tariff setting is lawful. The City wishes to emphasise that its electricity tariff is lawfully approved by council in terms of the Municipal Finance Management Act. “The City has further taken Nersa’s 22/23 and 23/24 tariff decisions on judicial review.
“These processes are ongoing. It must also be noted that two high court judgments have ruled Nersa’s methodology to be unlawful.
“Nersa must, in terms of the Electricity Regulation Act, enable the City to recover the costs of running an electricity service.
“At Nersa’s recommendation the City’s energy service would run a shortfall of more than R500m in the 2023/24 financial year, placing service delivery and the ending load shedding programme at severe risk.”
On accumulating hundreds of millions of rand in profits from overcharging customers for electricity, Van Reenen said: “This is false.”
Stop COCT’s Sandra Dickson said: “Nersa and the current system of tariff setting simply do not work for residents and households. It leaves huge opportunity for municipalities like the City of Cape Town to set exploitive tariffs and increases.”
Cape Times