Nersa slammed for capping hikes

2010-03-03 13:14

Cape Town - The National Energy Regulator of South Africa (Nersa) has no authority to shield consumers from the full brunt of electricity price hikes by prescribing a cap on the increases municipalities pass on to domestic consumers, said Minister of Cooperative Government and Traditional Affairs Sicelo Shiceka.

Speaking during a briefing of cabinet's governance and administration cluster in parliament, Shiceka stressed how dependent municipalities have become on the revenue they generate from electricity sales.

Any attempt, he said, to cap the increases they pass on to consumers would have a "fundamental impact" on local government.

"We are not going to leave this lying down. Municipalities cannot be suddenly told that they no longer have the income they had. Nersa has no locus standi on this matter," said Shiceka, adding municipalities will also have to be transparent about how they calculate electricity fees.

While Shiceka has called a "very high-powered" meeting with Nersa to resolve this issue, his comments are at direct odds with those made by his cabinet colleague, Energy Minister Dipuo Peters. She has urged municipalities to heed Nersa's recommendations.

While Nersa approved electricity fee increases of about 25% per year for the next three years, it recommended a much lower cap on the escalation municipalities could charge consumers (15% this year and 16.03% and 16.16% over the following two years).

The regulator also announced a "residential inclining block rate tariff structure" aimed at making bigger electricity users cross-subsidise the low-income domestic consumer.

Services a huge chunk of revenue

The South African Local Government Association's executive director of infrastructure services, Mthobele Kolisa, warned that Nersa may not dictate to municipalities what they can charge consumers for power. Any attempt to do so, said Kolisa, would put the financially embattled local government tier under considerable pressure.

"A model like this take doesn't take the context of municipalities into account, and does not take into account that each one has a very different rates base. There are areas where that price [Nersa's cap and block tariff] will be viable and others where it won't be."

The bottom line is that the embattled tier of local government has become increasingly dependent on profits from water and electricity sales.

In some cases, these services make up more than 45% of their total revenue. While most municipalities increased their electricity tariffs by 34% last year (above the 31% increase Nersa granted Eskom), Kolisa said it was not a straightforward case of municipalities adding their expenses on top of what they pay Eskom for power.

He said each municipality looks at its cost structure - including the surge in labour costs and repair and replacement infrastructure expenses - and then comes up with a weighted average increase for its electricity retail price.

"Municipalities want to keep tariffs low. They're under pressure to do so," said Kolisa, who added Eskom also has a claw-back practice which sees municipalities being charged way more than the Nersa-approved increases each year.