Municipal electricity consumers may become more vulnerable to increasing power charges should proposed changes be made to legislation.
South African power customers have been experiencing crippling rises in electricity costs, exacerbated by the increases municipal authorities charge over and above the tariff increases granted to Eskom.
Changes have been mooted to the laws governing South Africa’s electricity supply industry, with the introduction of the Electricity Regulation Second Amendment Bill (ERA) and the National Energy Regulator Amendment (Nersa) Bill. A third Bill establishing an Independent Systems and Market Operator is due to go before Parliament in the first quarter of this year.
The changes envisaged in these Bills could have a profound effect on the scope for liberalisation of the South African power-generation sector for the benefit of South African consumers and the way this sector will be regulated, according to Shamilah Grimwood, a partner at law firm White & Case LLP.
A key feature of the ERA Bill is the shift of many powers currently belonging to the National Energy Regulator of South Africa to the energy minister, she said, in a submission on the Bills.
Notably, these include many of its existing functions as a technical and economic regulator and a regulator of access to the supply market.
Among the changes proposed in the ERA Bill is an amendment to the definition of an electricity tariff to exclude any ‘surcharge, tax, levy or duty imposed by a municipality in terms of section 229 of the Constitution”.
Under the current Energy Regulation Act, Nersa can regulate what additional electricity charges municipalities may levy on custo-mers. But under the Constitution electricity reticulation is a competence of municipalities, creating a legislative conflict.
According to Grimwood, the change could leave municipal customers vulnerable.
‘The policy decision, as reflected in the ERA Bill, to remove this conflict in favour of municipalities will effectively mean that municipalities may continue to load their electricity supply prices with additional levies or surcharges without oversight by Nersa,” noted Grimwood.
‘In my view this will exacerbate the very wide discrepancy that exists between municipalities in terms of quality and pricing of electricity services.”
At Nersa public hearings on the applications for tariff increases by municipalities last year, industrial and commercial users complained that municipal electricity charges were harming their businesses.
According to the Energy Intensive Users Group, the mark-ups in some municipalities for heavy users were between 26% and 100%.
But the energy department said the changes would bring the Act in line with other legislation.
While the Constitution gave local government authority over electricity reticulation, national government could regulate electricity reti-culation, as per section 156(1) of the Constitution, according to Thandiwe Maimane, the spokesperson for the department. Hence the development of the Electricity Regulation Act.
But surcharges, taxes, levies or any other duties fall outside of the provision of electricity reticulation.
In addition, treasury is responsible for all forms of tax, including surcharges imposed by local government on services, she said, which it regulates through the Municipal Fiscal Power and Functions Act.
‘It was imperative to remove references to taxes, surcharges or any charge that is not related to the provision of electricity as a service to avoid conflict with the Municipal Fiscal Powers and Functions Act,” said Maimane.
‘It is important for the department to focus on its core function of regulating the electricity business and allow treasury to deal with issues pertaining to taxes.”
Grimwood raised a number of additional concerns relating particularly to the ERA Bill that could lead to, among other things, less transparency regarding key decisions affecting the electricity industry and greater political influence over who will participate in the power-generation sector and how participation will occur.
But the department dismissed concerns that the changes would have such a profound effect.
Changes to section 34 of the Bill propose that when making any determination for new generation capacity, the energy minister may disregard the integrated resource plan (IRP) ‘where, in the opinion of the minister, it is appropriate to do so”.
The IRP is the country’s rolling 20-year map governing the planned additions to the country’s electricity capacity. ‘We submit that this unlimited discretion is too broad and undermines the broadly consultative process by which the IRP is to be established and updated,” Grimwood said in the submission.
But the department argued that the amendments did not give the minister any additional powers that she did not already have under section 10 of the current Act.
While this provision has been done away with in the Bill, a new section has been inserted to provide a link between the regulator and the minister in terms of the deviation from the IRP. Any decision to permit new generation capacity had to be made with the concurrence of the regulator, said Maimane.
Concern that decisions would be made with less transparency or that there was the potential for abuse were ‘absurd”, she said.
In addition, the deviation was intended to allow the procurement of power outside of the IRP in the case of a national emergency.
‘We all know that the IRP takes longer to develop. In certain instances, there might be a need to procure power or allow Eskom to build urgently while updating the IRP accordingly,” she said.