South Africa’s electricity crisis is usually told as a story of failing power stations, collapsing grids, and unpaid bills. But beneath these visible symptoms lies a deeper, quieter failureone that plays out not in load-shedding schedules but in spreadsheets, regulatory templates, and courtroom battles.
The way municipalities calculate, justify, and approve electricity tariff increases is broken. Not mildly dented. Structurally, systematically, fundamentally broken.
And unless the National Energy Regulator of South Africa (NERSA) resets its approach entirely, paying consumers will continue to be overcharged, municipalities will remain underfunded, and the trust required to fix the system will keep evaporating.
From Benchmarks to Chaos
For years, NERSA relied on simple benchmark models to assess municipal tariff applications. They were crude but predictable. Then the courts intervened, correctly finding that benchmarks could not substitute for proper cost-of-supply (COS) studies. NERSA pivotedor attempted totoward a revenue-requirement (RR) framework.
The execution has been disastrous.
Between 2024 and 2025, NERSA introduced a series of RR templates. Some were ruled unlawful. Others were rolled out without proper consultation. Several contained glaring technical errors. A few were used in practice despite verbal assurances they would not be.
The result is not reform but regulatory fog. Municipalities don’t know what they’re supposed to submit. Consumers don’t know what they’re supposed to pay. And the courts are becoming the de facto electricity regulatoran expensive, inefficient substitute for competent administration.
The 12% Fiction
The most egregious flaw lies in how NERSA’s model treats electricity losses. It assumes technical losses of 12%. In reality, well-maintained municipal networks experience technical losses of around 5%. The remaining 7% is theft, illegal connections, and non-payment.
By categorising the entirety as “technical,” NERSA’s model effectively compels paying consumers to subsidise non-payment and crime. Worse, the model then adds the cost of these assumed losses back into bulk energy costsa double charge hidden inside a spreadsheet error.
This is not a rounding issue. It inflates approved tariffs across dozens of municipalities and places an unjust, regressive burden on compliant households and businesses.
Other Cracks in the Foundation
The loss treatment is symptomatic of a deeper misunderstanding of how revenue-requirement frameworks should function. Elsewhere in the model:
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Capital expenditure is incorrectly included even though depreciation already provides for capital recovery.
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Other revenues are misallocated, distorting the true cost of service.
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Free Basic Electricity (FBE) funding from equitable share is frequently double-counted or misapplied.
The result is a system that simultaneously overcharges consumers and under-recovers legitimate municipal costs. It is the worst of both worlds.
The COS Conundrum
NERSA has recently insisted that municipalities submit full cost-of-supply studies annually. This is neither practical nor legally required. Proper COS studies are complex, expensive exercises. Expecting financially distressed municipalities to commission them every year is fantasy regulation.
The Electricity Pricing Policy is explicit: COS studies are required every five years, or when major structural changes occur. Annual tariff applications should adjust the revenue requirement for inflation, Eskom price changes, and justified operational shiftsnot reinvent the wheel each time.
A credible, workable methodology exists. Developed by Hendrik Barnard of Elexpert, it separates cost allocation (based on audited historical data) from revenue adjustment (based on forward-looking changes). It corrects the treatment of losses, shifts from historic-cost to replacement-cost depreciation, and eliminates the double-counting that plagues the current model.
The Surplus Mirage
Municipalities are permitted to generate a surplus on electricity sales. In practice, few doonce genuine capital replacement requirements are factored in. Most declared “surpluses” are accounting illusions that fail even to cover annual refurbishment needs.
Expecting electricity consumers to fund general municipal rates relief through inflated tariffs is economically inefficient and socially regressive. It punishes the compliant, rewards the connected, and accelerates the decay of the very infrastructure consumers are told they are paying for.
A Vicious Cycle
Flawed tariff regulation does not stay contained in spreadsheets. It shapes business competitiveness, deters investment, and fuels inflation. Unpredictable, unjustified increases breed resistance to payment, worsening non-technical losses. Under-funded networks deteriorate, increasing outages and reliability failures. Higher tariffs, poorer service, declining trusteach reinforces the other.
South Africa does not need another stop-gap template. It needs a regulatory reset.
The Path Forward
NERSA should suspend its current municipal revenue-requirement model immediately. It should initiate a transparent, consultative process involving municipalities, organised business, consumer bodies, and technical experts. The objective should be a single, coherent, legally defensible methodologyconsistently applied, properly understood, and insulated from political or administrative whim.
A webinar is planned to begin this conversation. Invitations will be extended to the full spectrum of stakeholders. Whether the regulator chooses to listen will determine whether this reset proceedsor whether the courts will continue to do NERSA’s job for it.
The stakes are not merely technical. Electricity pricing touches every household, every business, every public service. At a moment when energy is central to economic recovery and social stability, South Africa cannot afford a tariff system that neither regulators nor ratepayers trust. The math is broken. It is time to fix it.
