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The National Energy Regulator of South Africa (NERSA) plays a critical role in regulating the country's energy sector, particularly in setting electricity tariffs. Recent judicial pronouncements have underscored the stringent legal requirements for NERSA's administrative actions, emphasising transparency, rationality, and robust public participation. Decisions by the High Court and Constitutional Court have repeatedly set aside NERSA's tariff determinations and even rejected settlement agreements between NERSA and entities like Eskom, citing failures to adhere to the Promotion of Administrative Justice Act (PAJA) and constitutional principles. This article explores the evolving legal landscape governing NERSA's decisions, highlighting the implications for regulated entities, legal practitioners, and the broader public interest in South Africa's energy future.

The National Energy Regulator of South Africa (NERSA) stands as a pivotal institution in the country's economic and social fabric, tasked with the delicate balance of ensuring a sustainable energy supply while safeguarding consumer interests. Its decisions, particularly those pertaining to electricity tariffs, have far-reaching implications for households, businesses, and the national economy. Consequently, NERSA's administrative actions are frequently subjected to intense scrutiny, both from affected parties and the judiciary. This scrutiny has led to a series of landmark judgments that have profoundly shaped the regulatory landscape, reinforcing the principles of administrative justice and accountability.

Recent court decisions have sent a clear message regarding the high standards of procedural fairness, rationality, and transparency expected from NERSA. These judgments highlight that even in complex regulatory environments, the fundamental rights enshrined in the Constitution and operationalised by the Promotion of Administrative Justice Act 3 of 2000 (PAJA) cannot be circumvented. For legal practitioners, understanding the nuances of these rulings is crucial for advising clients navigating the energy sector, challenging unlawful administrative actions, and ensuring compliance with the evolving regulatory framework.

NERSA is a juristic person established under Section 3 of the National Energy Regulator Act 40 of 2004. Its broad mandate encompasses the regulation of the electricity, piped-gas, and petroleum pipelines industries, as prescribed by the Electricity Regulation Act 4 of 2006, the Gas Act 48 of 2001, and the Petroleum Pipelines Act 60 of 2003, respectively. A core function of NERSA, particularly relevant to the electricity sector, is the setting and approval of tariffs and prices. The Electricity Regulation Act 4 of 2006 outlines the objects of the Act, which include achieving efficient, effective, sustainable, and orderly development of electricity supply infrastructure, safeguarding customer interests, facilitating investment, and promoting a fair balance between stakeholders.

In fulfilling its tariff-setting mandate, NERSA employs a Multi-Year Price Determination (MYPD) methodology, which is a cost-of-service-based approach designed to evaluate price adjustment applications from entities like Eskom. This methodology is intended to enable efficient licensees to recover the full cost of their licensed activities, including a reasonable return, and to provide incentives for efficiency improvements. However, all administrative actions undertaken by NERSA, including tariff determinations, are subject to the strictures of the Promotion of Administrative Justice Act 3 of 2000 (PAJA). PAJA gives effect to Section 33 of the Constitution, which guarantees everyone the right to administrative action that is lawful, reasonable, and procedurally fair, and the right to written reasons for such action. This legislative framework forms the bedrock upon which NERSA's decisions are judged by the courts.

The judiciary has consistently held NERSA to a high standard of administrative justice, particularly concerning its tariff determinations. A seminal case illustrating this is *Eskom Holdings SOC Limited v National Energy Regulator of South Africa and Others* (74870/2019) [2020] ZAGPJHC 168. In this matter, the Gauteng Local Division of the High Court reviewed and set aside NERSA's decision regarding Eskom's allowable revenue and tariffs for the 2019/2022 financial years. The court found that NERSA had misappropriated government equity injections to Eskom, deducting R23 billion from Eskom's allowable revenue for each of the three financial years, leading to an unlawful and irrational decision. This judgment underscored that NERSA must meticulously apply its own approved methodologies and provide rational reasons for its decisions, demonstrating adherence to the principle of legality.

More recently, a significant High Court judgment in December 2025 rejected a proposed R54 billion settlement between Eskom and NERSA concerning a tariff dispute. The settlement, which aimed to correct errors in Eskom's allowable revenue determination, was negotiated behind closed doors, bypassing proper investigations and public participation. The court found this approach to be contrary to public policy, constitutional principles, and the statutory framework governing electricity regulation. It explicitly criticised the attempt to avoid public scrutiny, affirming that electricity tariff decisions affect all South Africans and that transparency and public participation are non-negotiable components of lawful regulation. The matter was remitted back to NERSA for reconsideration, with an emphasis on proper methodology and public input.

This emphasis on public participation and rationality is not new. In *National Energy Regulator of South Africa and Another v PG Group (Pty) Limited and Others* CCT131/18 [2019] ZACC 28, the Constitutional Court dealt with NERSA's determination of maximum gas prices and transmission tariffs. The Court held that NERSA's decision was irrational because it failed to consider mandatory inputs, such as the marginal costs of a monopolist, which are crucial for setting a maximum price that addresses monopolistic market power. These cases collectively highlight that NERSA's decisions must not only be procedurally fair, as required by PAJA, but also substantively rational, based on a proper consideration of all relevant factors and in the public interest. The courts have consistently reinforced that NERSA's independence does not equate to a lack of accountability, and its actions remain subject to judicial review under both PAJA and the principle of legality.

The repeated judicial interventions demonstrate a pattern where NERSA's decisions are challenged on grounds of procedural unfairness, irrationality, and a failure to adhere to its statutory mandate and methodologies. The courts have consistently upheld the public's right to participate in decisions that materially affect them and have rejected attempts to resolve complex tariff disputes through opaque processes. This judicial oversight serves as a crucial check on regulatory power, ensuring that NERSA's actions are aligned with constitutional values and the principles of good governance.

The consistent judicial review of NERSA's tariff determinations and other administrative actions underscores a critical lesson for legal practitioners: the principles of administrative justice are paramount in the South African regulatory landscape. Any decision by a public body, especially one with such significant economic impact as NERSA, must be lawful, reasonable, and procedurally fair. The courts have demonstrated a willingness to intervene where these standards are not met, particularly regarding public participation and the rational application of established methodologies.

Practitioners advising regulated entities or those affected by NERSA's decisions must therefore meticulously scrutinise the procedural aspects of NERSA's processes, the rationality of its reasoning, and its adherence to both its enabling legislation and PAJA. The recent rejection of a 'secret' settlement agreement serves as a stark reminder that attempts to bypass public scrutiny will not withstand judicial challenge. Going forward, NERSA will likely face continued pressure to enhance transparency, ensure robust public engagement, and provide comprehensive, rational justifications for its decisions. Legal professionals should remain vigilant, anticipating further developments in this dynamic area of administrative and energy law.