Big trouble for electricity price hikes in South Africa

Energy regulator Nersa has warned municipalities that their tariff increase applications for 2025 need to be supported and accompanied by a cost of supply study, or else no adjustments will be granted.

This follows a bruising court loss in 2024, where the courts found that Nersa had approved tariff increases at over 100 municipalities in the country where no study was conducted.

On 1 July 2024, 178 licensed electricity distributors nationwide implemented the 2024/25 municipal power tariff increases as is the norm.

However, only 66 distributors conducted cost-of-supply studies.

Submitting cost-of-supply studies is a required component of municipalities’ applications for tariff hikes as prescribed by the Electricity Regulation Act (ERA).

A cost of supply study is conducted to assign all the costs required to service customers across all customer classes in a fair and equitable manner.

In effect, it allows municipalities to set rates that allow them to provide the services required by customers while recovering the costs incurred.

Without the study, rates are determined by guesses and estimates and may not reflect the municipality’s actual needs.

Suspecting unjustified increases, civil group Afriforum took the matter to court, arguing that the price increases were invalid without the cost of supply study—a matter which it won.

The courts found that approving municipal hikes in levy prices without a cost-of-supply (COS) study ran afoul of the ERA and was thus unlawful, and the 2024 increases without the study were invalid.

This meant that at least 112 municipalities had charged unlawful rates to millions of consumers since the 1 July 2024 change.

Nersa appealed the main ruling and lost, taking the matter to the Supreme Court of Appeal.

In the interim, Afriforum attempted to reverse the 2024 price hikes and force municipalities to reimburse affected households.

In December 2024, Nersa succeeded in preventing Afriforum from doing so, pending the outcome of the appeal. The matter is ongoing.

For the 2025 increases, however, Nersa is looking to avoid the same happening again.

2025 municipal price hikes

Nersa recently approved the Eskom Retail Tariffs and Structural Adjustment (ERTSA) for 2025, which see prices increase by 12.74% from 1 April 2025 for Eskom direct customers.

The regulator also approved the municipal tariff increase, which will see prices for municipal customers increase by at least 11.32% from 1 July 2025.

The Nersa-approved municipal rate sets the goalpost for increases at municipalities across South Africa, but the final rates can vary once city and municipal councils factor in their own budgetary needs.

This requires that each municipal distributor apply for their respective tariff hikes with Nersa, including the justifications for any deviations.

For example, the City of Johannesburg recently passed its proposed tariff hikes in council, which would see electricity prices hiked by around 12.5%—higher than the Nersa-approved rate.

However, Nersa has stressed that all municipal distributors need to include the cost of supply study in their applications. Otherwise, increases will not be granted—and time is running out to get this done.

“All tariff applications are required to be supported by a cost of supply study. Failure to comply with this requirement will result in no adjustment to electricity tariffs for FY2025/26,” Nersa said.

“Tariff applications that are supported by cost of supply studies should be submitted to Nersa by 30 April 2025. This will facilitate processing and approval in time for the 1 July 2025 implementation date.”

Failure to apply to Nersa for approval of the tariffs is a breach of licence conditions and a violation of the provisions of the ERA.

Section 15 of the ERA prevents any licensee from charging a tariff that is not approved by the regulator.