Industrial users challenge City Power tariffs in court

The High Court in Pretoria will from Monday (1 August) hear an application by the non-profit Casting, Forging and Machining Cluster of South Africa and four of its members to have energy regulator Nersa’s approval of City Power’s tariffs for 2019/2020 reviewed and set aside.

The applicants represent energy-intensive users who operate within the licensed distribution area of the City of Joburg’s electrical utility City Power.

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Nersa, City Power and the City of Joburg are all opposing the application which will be argued over four consecutive days.

The applicants contend that Nersa did not have enough information to ensure a tariff that reflects the efficient cost of power supply plus a reasonable margin, as required by law.

They want Nersa’s decision to be reviewed, declared unlawful and irrational and set aside. If successful, they want the court to remit the decision to Nersa for reconsideration and ask that the order be suspended to prevent any disruption.

This application comes after the same court heard an application in June by the business chambers of Nelson Mandela Bay and Pietermaritzburg challenging the methodology Nersa uses to set municipal tariffs. Eskom supported the application while Nersa and the City of Joburg opposed it.

No ruling has been made in that case yet.

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The decision the intensive users are now attacking in court was based on the same controversial methodology that provides for Nersa to set an annual guideline increase and benchmarks for different user categories.

In the meantime, Nersa is developing a new tariff methodology that will apply to Eskom and all other licensees, including municipalities.

It published a consultation paper at the end of June and invited written comments during July. Nersa will be holding public hearings in August and has set 30 September as the deadline to finalise the methodology in the hope that it may be used to determine Eskom’s tariffs for 2024/2025.

During a recent workshop Nersa’s full-time member for electricity Nhlanhla Gumede would not say when Nersa wants to implement the methodology at municipal level, save to say that there is no time to waste, since the current methodology is no longer appropriate. He also indicated that it may be implemented in a phased manner.

Public interest

In their challenge to the City Power tariffs the applicants say they act on behalf of their members, but also in the public interest as other residents of Joburg are subjected to the same tariffs and Nersa uses the same tariff methodology to set electricity tariffs in all municipalities in South Africa.

They argue that Nersa needs accurate information from City Power to determine what the cost of supply is. City Power however failed to supply such information to Nersa and Nersa did not take any steps to obtain it, according to the applicants.

It is therefore impossible for Nersa to determine what a reasonable return will be, they argue.

They say the guideline increase is not based on the cost of supply in Johannesburg, but on data from other municipalities that were gathered a decade ago.

Read: Johannesburg needs $1.6bn for power supply, mayor says

According to the record of decision, there was no information regarding the cost of supply for different customer categories before Nersa – and the regulator as well as City Power have admitted as much, the applicants state.

They say the approved tariffs were substantially higher than the Nersa benchmark, with no justification from the record. They were therefore irrationally higher than those in comparable municipalities.

According to Nersa, the City Power tariff decision was fair, transparent, and lawful.

The regulator says it took into account all the relevant information and applied its mind in line with the prescribed legislation. It describes the list of information that municipalities are required to provide, and which informs tariff decisions.

According to the energy regulator, the Electricity Regulation Act does not prescribe any methodology and its decision cannot be set aside on the basis of a specific methodology. Nersa must balance different interests and considers several factors, including cost of supply.

Nersa denies a contention by the applicants that business customers would pay between 54% and 80% of the municipality tariff if supplied in one of three other comparable metros.

Industrial customers, they say, would pay between 67% and 74% of the municipality tariff in those metros.

‘Wrong decision’ being challenged

Nersa says the comparison is however flawed.

The City of Joburg and City Power make a technical argument that the applicants are challenging the wrong decision. While they are challenging the tariff determination in form, they are in substance challenging the guideline and benchmark methodology.

This, the say, is fatal to the application.

They furthermore argue that the applicants are mistaken in their belief that Nersa is restricted by legislation to follow a cots-based methodology.

Anyway, the benchmark methodology is “largely” cost-based and therefore “substantially” compliant with legislation, they argue.

They deny that Nersa’s benchmarking is irrational.

According to City of Joburg and City Power the setting aside of the tariffs is far-reaching and without any basis. They say the tariff decision does not permit City Power to recover a higher rate than would have been approved had Nersa followed a strictly cost-based approach. Therefore a reversal of tariffs or reimbursement of tariffs already charged and paid is not justified.

The matter will be heard virtually.

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