The national energy regulator (Nersa) is seeking legal opinion on how to stop Buffalo City in the Eastern Cape from increasing electricity tariffs by an average 8.5%, instead of the approved 7.39%.
Buffalo City has confirmed to Moneyweb that it notified Nersa in writing of its plans to implement the higher increase from July 1 this year as approved by the metro’s elected council and in defiance of the regulator’s decision to limit the increase to the guideline of 7.39%.
The council says the difference between the 7.39% and 8.5% will be ring-fenced for its capital infrastructure programme.
Nersa limited the increase after earlier complaints from the business community that the high cost of electricity is detrimental to business. Buffalo City is home to the Mercedes-Benz plant where its new C-Class model is being manufactured and many related industries.
The decision by Buffalo City is unprecedented in recent years and may pave the way for other municipalities to do the same if Nersa doesn’t act decisively.
All electricity distributors, including municipalities, Eskom and some private distributors are compelled to submit their tariffs annually and are only allowed to implement Nersa-approved tariffs.
The regulator typically assesses among other things the applicant’s electricity losses, financial position, expenditure on repairs and maintenance as well as the affordability of the proposed tariffs. It is reluctant to grant any increase above the guideline it sets, unless the applicant can show good reason and has proven prudency in previous years.
If an increase above the guideline is approved, Nersa typically determines that it has to be ring-fenced for the purpose it was granted for and monitors whether it is indeed done. If not, the amount is clawed back in the next financial year.
Recently about 13 municipalities applied for increases above the guideline to be implemented from July 1 and were invited to make representations at public hearings on why they need the extra money. Moneyweb earlier reported that the City of Tshwane for example was only granted 7.39% instead of the 8% its council approved and 9.2% it applied for at Nersa. This left the city with a deficit of R150 million in its budget, but the Nersa decision was accepted and implemented.
At a recent meeting of Nersa’s electricity sub-committee it was decided to get legal opinion on the possibility of getting a court order to stop Buffalo City from implementing the unauthorised tariffs until such time that the dispute could be resolved ,either by a tribunal constituted by Nersa in terms of the Electricity Act or by approaching court directly.
Buffalo City’s approach was considered “combative” and it was clear that Nersa would not stand for it.
Les Holbrook, executive director of the Border-Kei Chamber of Business (BKCOB) told Moneyweb the organisation wrote to Nersa to object to any increase over and above the guideline. “Last year they got 10% (which was above the guideline), but did not apply the extra revenue as they promised, on infrastructure maintenance.”
He said Buffalo City is becoming the most expensive metro in the country and its tariffs are way above that of Port Elizabeth, which is often used as a benchmark.
Buffalo City spokesperson Thandy Matebese told Moneyweb the business community was consulted on the tariff increase during the integrated development plan consultation process, but Holbrook says there was no consultation.
Holbrook said the tariffs will have a huge impact on business. Electricity tariffs are not the only ones to be increased. A local manufacturer has recently written to the BKCOC complaining about a 23% increase in an affluent charge, that he said may force him to close his doors.
Buffalo City should focus on recovering its outstanding debtors that is at a very high level, Holbrook said.
He welcomed Nersa’s move to act and especially to stop the unlawful implementation of the higher tariffs. He said end-users will otherwise be compelled to pay whatever Buffalo City charges, because “they are very quick to cut supply.”