NERSA Finalises Decision on Breede Valley Municipality's Electricity Tariffs

The National Energy Regulator of South Africa (NERSA) has, by June 30, 2026, finalised its decision regarding Breede Valley Municipality's electricity tariffs for the 2026/27 financial year, effective from July 1, 2026. This decision forms part of NERSA's annual regulatory mandate under the Electricity Regulation Act 4 of 2006, ensuring that municipal tariffs are cost-reflective, transparent, and fair to both the distributor and end-users. The approval process for this cycle was notably influenced by recent High Court judgments, which underscored the imperative for municipalities to submit comprehensive Cost of Supply (COS) studies to justify proposed tariff adjustments. This development marks a critical step towards enhancing financial sustainability and regulatory compliance within the municipal electricity distribution sector.

The National Energy Regulator of South Africa (NERSA) has concluded its review and approval of electricity tariff applications for all licensed municipal distributors, including the Breede Valley Municipality, for the 2026/27 financial year. This significant regulatory milestone, culminating in decisions communicated by June 30, 2026, paves the way for new electricity tariffs to take effect across the country from July 1, 2026. The process underscores NERSA's pivotal role as the custodian and enforcer of the national electricity regulatory framework, as mandated by the Electricity Regulation Act 4 of 2006.

This year's tariff approval cycle was particularly noteworthy due to stringent timelines imposed by High Court orders, which emphasised the necessity for municipalities to substantiate their tariff proposals with robust Cost of Supply (COS) studies. The decisions reached by NERSA aim to strike a delicate balance between enabling municipalities to recover the efficient costs of electricity distribution, investing in infrastructure, and safeguarding the interests of electricity customers and end-users. For legal practitioners, understanding the nuances of these approvals is crucial for advising municipal clients on compliance and for representing large consumers affected by the new tariff structures.

The regulation of electricity tariffs in South Africa operates within a dual framework, involving both NERSA and municipalities. NERSA's mandate to regulate prices and tariffs is explicitly set out in Section 4(ii) of the Electricity Regulation Act 4 of 2006 (ERA). This legislative framework requires that no licensee may charge a customer any tariff other than that determined or approved by the Regulator as part of its licensing conditions.

Historically, NERSA employed a guideline and benchmark methodology for municipal tariffs. However, this approach was declared unlawful and invalid by the High Court in October 2022, which directed NERSA to adopt a cost-of-supply based methodology for tariffs applicable from the 2024/25 financial year. This judicial intervention necessitated a fundamental shift in how municipalities prepare and justify their tariff applications, requiring detailed COS studies to ensure that tariffs are truly cost-reflective and prevent cross-subsidisation of other municipal services. The Municipal Finance Management Act 56 of 2003 (MFMA) further governs the financial affairs of municipalities, including their budgeting processes and the approval of tariffs, which must align with NERSA's determinations.

The 2026/27 municipal electricity tariff approval process was characterised by heightened judicial oversight and a strict adherence to revised timelines. Following High Court orders issued in February and May 2026, NERSA was required to finalise municipal tariff decisions by May 11, 2026, with an extension granted until May 30, 2026, for a limited number of outstanding applications. NERSA confirmed on June 1, 2026, that it had completed the evaluation and approval process for all 176 licensed municipal and private electricity distributors for the upcoming financial year.

A central aspect of this year's approvals, including that for Breede Valley Municipality, was the mandatory submission of Cost of Supply (COS) studies. This requirement, stemming from the 2022 High Court ruling, aims to ensure that approved tariffs accurately reflect the efficient costs incurred by municipalities in distributing electricity, thereby promoting transparency and financial sustainability. While compliance with COS studies improved significantly in the 2025/26 cycle, NERSA has consistently emphasised that failure to provide these studies would result in applications being considered as guideline increases or even rejected.

Breede Valley Municipality, a licensed electricity distributor, has historically demonstrated sound financial management, as evidenced by its annual financial statements for the year ended June 30, 2024. The municipality was also noted in earlier NERSA publications regarding approved tariffs and was among those that submitted the required cost studies for the 2024/2025 tariffs, indicating a proactive approach to regulatory compliance. The approval of its tariffs for 2026/27, therefore, reflects NERSA's assessment of the municipality's adherence to the ERA, the MFMA, and the specific requirements for cost-reflective tariffs. The approved tariffs will also incorporate the National Free Basic Electricity (NFBE) rate, which NERSA set at 238.60 cents per kilowatt-hour (c/kWh) for the 2026/27 municipal financial year, effective July 1, 2026, to ensure access to essential services for indigent households.

The implications of these approvals are far-reaching. For municipalities, they dictate the revenue streams for electricity services, impacting their ability to maintain infrastructure, manage debt, and ensure service delivery. For consumers, the approved tariffs directly affect their electricity costs, with increases ranging from 7.5% to 14% across different municipalities for the 2026/27 financial year, following NERSA's approval of an average 9.01% increase for bulk electricity purchased from Eskom. The shift to COS-based tariffs, while promoting fairness, also places a greater burden on municipalities to accurately account for their distribution costs and on NERSA to rigorously scrutinise these submissions.

The finalisation of Breede Valley Municipality's electricity tariffs for the 2026/27 financial year by NERSA on June 30, 2026, represents the culmination of a rigorous regulatory process. This process, shaped by recent judicial pronouncements, reinforces the importance of cost-reflective tariffs and robust financial substantiation through Cost of Supply studies. For legal practitioners advising municipalities, ensuring ongoing compliance with NERSA's evolving methodologies and timelines, particularly regarding COS studies and public participation requirements, remains paramount. The approved tariffs will directly impact municipal revenue generation and their capacity for infrastructure investment, while simultaneously affecting the affordability of electricity for end-users.

Looking ahead, practitioners should monitor NERSA's continued enforcement of the COS methodology and any further refinements to the regulatory framework. The emphasis on transparent, justifiable tariffs is likely to persist, potentially leading to increased scrutiny of municipal financial practices and greater accountability in electricity service delivery. Clients, both municipal and corporate, must be prepared for a regulatory environment that demands meticulous financial planning and a clear understanding of the legal obligations governing electricity pricing in South Africa.