{"id":850699,"date":"2026-02-12T08:43:41","date_gmt":"2026-02-12T06:43:41","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=850699"},"modified":"2026-02-12T08:43:47","modified_gmt":"2026-02-12T06:43:47","slug":"painful-reality-check-for-anyone-paying-for-electricity-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business-opinion\/850699\/painful-reality-check-for-anyone-paying-for-electricity-in-south-africa\/","title":{"rendered":"Painful reality check for anyone paying for electricity in South Africa"},"content":{"rendered":"\n

Flawed electricity pricing policy and tariff regulation are deepening South Africa\u2019s municipal electricity crisis, with experts arguing that the current tariff methodology is fundamentally broken.<\/p>\n\n\n\n

So broken that it allows municipalities to recover the costs of non-payment from legitimate consumers<\/strong> who diligently pay their electricity bills, overcharging them to cover those who refuse to pay.<\/p>\n\n\n\n

Worse still, energy expert Chris Yelland says that recent regulatory practices risk accelerating financial stress on paying consumers while simultaneously undermining the sustainability of municipal electricity services.<\/p>\n\n\n\n

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South Africa\u2019s municipal electricity crisis is often reduced to a familiar list of symptoms: failing infrastructure, high losses, weak billing systems, political interference, and a culture of non-payment.<\/p>\n\n\n\n

While all of these are real, they obscure a deeper and more structural problem that sits at the heart of the system \u2013 the way municipal electricity price increases are calculated, approved, and regulated. <\/p>\n\n\n\n

At the centre of this lies the annual electricity tariff determination process overseen by the National Energy Regulator of South Africa (NERSA). <\/p>\n\n\n\n

What should be a transparent, economically rational and legally sound mechanism has instead evolved into a deeply contested process, increasingly challenged in court, poorly understood by stakeholders, and widely mistrusted by consumers and municipalities.<\/p>\n\n\n\n

A technically sound and industry-credible alternative exists \u2013 but it requires NERSA to rethink its approach from first principles.<\/p>\n\n\n\n

Municipalities that distribute electricity are required to apply annually to NERSA for approval of tariff increases. <\/p>\n\n\n\n

In theory, this process is governed by an Electricity Pricing Policy (EPP), which requires municipalities to periodically undertake cost-of-supply (COS) studies and to justify tariffs based on prudent costs, efficient operations and transparent cross-subsidies.<\/p>\n\n\n\n

In practice, however, the system has drifted far from these principles. Over the past decade, repeated court cases against NERSA on municipal electricity tariffs have highlighted deep flaws in both process and substance. <\/p>\n\n\n\n

These legal challenges are not an inconvenience \u2013 they are a signal that the regulatory framework no longer enjoys legitimacy across the sector.<\/p>\n\n\n\n

The core problem is not that tariffs are increasing \u2013 Eskom\u2019s bulk supply costs and broader inflationary pressures make municipal increases unavoidable. <\/p>\n\n\n\n

The problem is that the methodology used to determine those increases is opaque, inconsistent and technically unsound, exposing consumers and municipalities to significant risk.<\/p>\n\n\n\n

A model that overcharges consumers<\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

Historically, NERSA relied on relatively simple benchmark-based models to assess municipal tariff applications. <\/p>\n\n\n\n

These models used assumed cost ratios, benchmark increases for major cost categories, and limited prudency checks. While far from perfect, the approach at least provided a degree of predictability.<\/p>\n\n\n\n

That approach collapsed after successful court challenges, which found that benchmark methodologies could not replace a properly conducted cost-of-supply study for each distributor.<\/p>\n\n\n\n

In response, NERSA attempted to shift towards a revenue-requirement (RR)-based framework. Unfortunately, this transition has been poorly executed.<\/p>\n\n\n\n

Between 2024 and 2025, NERSA introduced a series of revenue-requirement templates, some of which were later ruled unlawful, others introduced without proper consultation, some full of technical errors, and some used in practice despite verbal assurances to the contrary.<\/p>\n\n\n\n

The result has been regulatory confusion, inconsistent decisions, and widespread uncertainty within the municipal electricity sector.<\/p>\n\n\n\n

The most troubling aspect of NERSA\u2019s current approach is not administrative confusion, but substantive error.<\/p>\n\n\n\n

One example is the treatment of electricity losses. <\/p>\n\n\n\n

NERSA\u2019s current model assumes technical losses of 12%, a figure that bears little resemblance to engineering reality in most municipal networks. <\/p>\n\n\n\n

In practice, true technical losses are closer to 5%, with the balance being non-technical losses such as theft and non-payment. <\/p>\n\n\n\n

This 12% is effectively a new benchmark which has not been established through any consultative processes required by the Electricity Regulation Act (ERA).<\/p>\n\n\n\n

By misclassifying non-technical losses as technical losses, the model effectively allows municipalities to recover the cost of electricity theft and non-payment from paying consumers. <\/strong><\/p>\n\n\n\n

Worse still, the model then adds the cost of these assumed technical losses back into bulk energy costs, resulting in double-charging. <\/p>\n\n\n\n

This is not a marginal technical issue \u2013 it directly inflates approved tariffs and places an unjust burden on compliant customers. Similar flaws appear elsewhere in the model. <\/p>\n\n\n\n

Capital expenditure is incorrectly included in revenue-requirement calculations, even though depreciation already provides for capital recovery. <\/p>\n\n\n\n

Other revenues are incorrectly deducted, internal electricity sales are mishandled, and equitable-share funding for Free Basic Electricity (FBE) is frequently misallocated.<\/p>\n\n\n\n

Taken together, these errors point to a fundamental misunderstanding of how a revenue-requirement framework should function. <\/p>\n\n\n\n

The result is a system that simultaneously overcharges consumers and under-recovers legitimate municipal electricity costs.<\/p>\n\n\n\n

A workable alternative<\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

NERSA has recently insisted that municipalities submit cost-of-supply studies annually. This is neither practical nor legally required. Proper COS studies are complex, expensive, and time-consuming. <\/p>\n\n\n\n

Expecting municipalities \u2013 many already financially distressed \u2013 to complete them every year is unrealistic.<\/p>\n\n\n\n

The Electricity Pricing Policy is clear: COS studies are required every five years, or when major structural changes occur. <\/p>\n\n\n\n

Their purpose is threefold: to determine the overall revenue requirement, to allocate costs fairly across tariff categories, and to design tariffs that reflect economic and policy objectives.<\/p>\n\n\n\n

Annual tariff applications should not attempt to redo this work. <\/p>\n\n\n\n

Instead, they should build on the most recent COS study, adjusting the revenue requirement for inflation, Eskom price changes, and justified operational shifts. <\/p>\n\n\n\n

This underscores the need for a new revenue requirement method and template. <\/p>\n\n\n\n

A more credible and defensible approach exists, and it is outlined in detail in the proposed methodology developed by Hendrik Barnard of Elexpert.<\/p>\n\n\n\n

At its core, the proposed framework separates cost allocation from revenue adjustment. Cost allocation is based on historic actuals from audited trial balances, not forward-looking budgets that are frequently cut mid-year. <\/p>\n\n\n\n

Revenue requirements, by contrast, are adjusted for known future changes, including Eskom tariff increases and inflation.<\/p>\n\n\n\n

Crucially, the methodology corrects the treatment of losses by recognising that excessive non-technical losses should not be recovered from paying consumers.<\/p>\n\n\n\n

Instead of reducing bulk energy costs, the model adjusts revenue to reflect realistic loss thresholds, improving transparency and fairness.<\/p>\n\n\n\n

The framework also replaces historic-cost depreciation with current replacement-cost (CRC) depreciation. <\/p>\n\n\n\n

This ensures that tariffs provide adequately for the refurbishment and replacement of ageing electricity infrastructure \u2013 one of the most critical challenges facing municipalities today.<\/p>\n\n\n\n

Why this matters beyond electricity<\/h2>\n\n\n\n
\"\"<\/a>
Chris Yelland<\/figcaption><\/figure>\n\n\n\n

One of the most contentious issues in municipal electricity tariffs is the question of surplus.<\/p>\n\n\n\n

The Electricity Pricing Policy allows for a Municipal Surplus on Electricity (MSOE), but in practice, few municipalities generate a true surplus once capital requirements are considered.<\/p>\n\n\n\n

Most municipal electricity \u201csurpluses\u201d are illusory, failing even to cover annual refurbishment needs.<\/p>\n\n\n\n

Expecting electricity consumers to fund general municipal rates relief through inflated tariffs is both economically inefficient and socially regressive.<\/p>\n\n\n\n

The implications of flawed municipal electricity tariff regulation extend far beyond the electricity sector itself.<\/p>\n\n\n\n

Electricity prices shape business competitiveness, investment decisions, inflation and employment.<\/p>\n\n\n\n

Unpredictable and unjustified tariff increases undermine industrial planning, weaken municipal credibility, and fuel resistance to payment, further worsening non-technical losses.<\/p>\n\n\n\n

At the same time, underfunded networks accelerate infrastructure decay, increasing outages and reliability risks. <\/p>\n\n\n\n

The result is a vicious cycle in which higher tariffs, poorer service and declining trust reinforce one another.<\/p>\n\n\n\n

South Africa does not need another stopgap template or incremental tweak. It needs a regulatory reset.<\/p>\n\n\n\n

NERSA should suspend the use of its current municipal revenue-requirement model and initiate a transparent, consultative process involving municipalities, organised business, consumer bodies and technical experts. <\/p>\n\n\n\n

The objective should be a single, coherent, legally defensible methodology that is consistently applied across the sector.<\/p>\n\n\n\n

The alternative is more litigation, deeper mistrust, and a continued erosion of municipal electricity sustainability. <\/p>\n\n\n\n

At a time when electricity is central to economic recovery, energy transition and social stability, that is a risk South Africa can ill afford.<\/p>\n\n\n\n

\n\n\n\n

By Chris Yelland, EE Business Intelligence, and Hendrik Barnard, Elexpert. This article follows an earlier article by Chris Yelland and Paul Vermeulen<\/strong><\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Flawed electricity pricing policy and tariff regulation are deepening South Africa\u2019s municipal electricity crisis, with experts arguing that the current tariff methodology is fundamentally broken.<\/p>\n","protected":false},"author":36,"featured_media":850702,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[5504,1164,2006],"class_list":["post-850699","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-opinion","tag-chris-yelland","tag-eskom","tag-nersa"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/850699","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=850699"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/850699\/revisions"}],"predecessor-version":[{"id":850705,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/850699\/revisions\/850705"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/850702"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=850699"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=850699"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=850699"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}