Updated Decision and Reasons for Decision - Tariff Application for the 2026/27 Financial Year by City of Ekurhuleni Metropolitan Municipality 24 May 2026

The National Energy Regulator of South Africa (NERSA) issued its Updated Decision and Reasons for Decision on 24 May 2026, approving the City of Ekurhuleni Metropolitan Municipality's electricity tariff application for the 2026/27 financial year. This decision, following a complex regulatory process influenced by recent High Court judgments, allows Ekurhuleni to implement new tariffs from 1 July 2026. NERSA's approval was contingent on the municipality addressing concerns regarding its Cost of Supply (COS) study, high energy losses, and financial deficits, requiring ongoing reporting on efficiency improvements. The ruling underscores NERSA's critical role in balancing municipal financial sustainability with consumer interests, within a framework increasingly shaped by judicial oversight and the imperative for transparent, cost-reflective tariff setting.

The National Energy Regulator of South Africa (NERSA) delivered a significant regulatory pronouncement on 24 May 2026, with the release of its Updated Decision and Reasons for Decision concerning the City of Ekurhuleni Metropolitan Municipality's electricity tariff application for the 2026/27 financial year. This decision marks a crucial juncture for both the municipality, which relies heavily on electricity revenue for its budget, and the millions of residents and businesses within its jurisdiction who will be impacted by the revised tariffs. The approval, effective from 1 July 2026, is a culmination of a rigorous assessment process, public participation, and adherence to judicially mandated timelines. [5, 14, 17, 22]

This development is particularly pertinent for legal practitioners advising municipalities, energy companies, and consumer bodies. It highlights the intricate interplay between the Electricity Regulation Act, 2006, the Municipal Finance Management Act, 2003, and the evolving landscape of administrative law as shaped by recent High Court interventions. The decision not only dictates the financial parameters for Ekurhuleni's electricity services but also sets precedents and reinforces the regulatory expectations for other licensed distributors across South Africa, particularly concerning transparency, cost reflectivity, and operational efficiency. [4, 6, 16, 24]

The article will delve into the statutory and doctrinal underpinnings of NERSA's authority, the procedural complexities leading to this decision, and the specific conditions imposed on the City of Ekurhuleni. It will further analyse the broader implications for municipal financial planning, consumer protection, and the ongoing judicial oversight of tariff-setting processes, offering insights for legal professionals navigating this dynamic regulatory environment.

NERSA, established under the National Energy Regulator Act, 2004 (Act No. 40 of 2004), serves as the custodian and enforcer of the national electricity regulatory framework as outlined in the Electricity Regulation Act, 2006 (Act No. 4 of 2006) (ERA). [6, 10, 22] A core mandate of NERSA under the ERA is to regulate the reticulation of electricity by municipalities, ensuring that tariffs are fair, transparent, and enable an efficient licensee to recover the full cost of its licensed activities, including a reasonable return or margin. [10, 29] Section 15(2) of the ERA explicitly prohibits any licensee, including municipalities, from charging tariffs other than those determined or approved by NERSA. [16, 21, 29]

Complementing the ERA is the Local Government: Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA), which governs municipal budgeting, financial management, and accountability. [4, 8, 15, 19] The MFMA requires municipal councils to approve their annual budgets, which include proposed tariffs, rates, and service charges, before 1 July of each financial year. [4, 16] This statutory deadline creates a critical link between NERSA's tariff approval process and municipal financial planning, as electricity revenue forms a substantial portion of municipal income. Historically, delays in NERSA's approvals have led to significant challenges for municipalities in adopting their budgets timeously and implementing approved tariffs. [16]

Recent judicial interventions have further shaped the regulatory landscape. A High Court judgment on 4 December 2025, in the case of AfriForum NPC v National Energy Regulator of South Africa and Others (Case No. 2025/137620), found NERSA's public participation process for the 2025/26 municipal tariff approvals to be unlawful. [5, 16] This ruling led to revised timelines for the 2026/27 financial year, mandating municipalities to submit applications by 31 March 2026 and NERSA to finalise decisions by 11 May 2026, ensuring meaningful public participation in line with the Promotion of Administrative Justice Act, 2000. [13, 17, 18] However, the City of Ekurhuleni, along with other municipalities, obtained court-granted deviations from these strict timelines, allowing for a later submission and decision date for their 2026/27 tariff applications. [5, 22, 28]

NERSA's decision on the City of Ekurhuleni's 2026/27 electricity tariff application, issued on 24 May 2026, is a direct application of its mandate under the ERA and its established tariff methodologies, albeit within the context of the recently revised court-ordered timelines. The Regulator Executive Committee (REC) considered Ekurhuleni's application, which was submitted following a court-granted deviation from the standard deadlines, with the decision date specifically set for 22 May 2026. [5, 22] The approval of tariff increases was based on the municipality's Cost of Supply (COS) study, a critical component NERSA requires to ensure tariffs are cost-reflective and justifiable. [5, 14, 23, 24]

The decision highlights several key considerations for NERSA. Firstly, the approved tariff increases for Ekurhuleni, averaging 9.01%, are aligned with Eskom's approved Retail Tariff and Structural Adjustment (ERTSA) increase for municipalities, effective from 1 July 2026. [17, 28, 30] This alignment is a standard practice, as bulk electricity costs constitute a significant portion of municipal distribution costs. Secondly, NERSA's decision explicitly noted that Ekurhuleni's electricity business had operated at a deficit in previous financial years and exhibited energy losses (15.54% in 2024/25) above the prudent levels generally applied by the regulator. [5, 27] This indicates a deterioration in financial performance and suggests that previous revenues were insufficient to fully recover the cost of supplying electricity. [5]

In response to these concerns, NERSA imposed specific conditions on Ekurhuleni. The municipality is required to submit a report accounting for all costs noted in its COS study by 31 January 2027 for independent verification, and quarterly progress reports on efficiency improvement measures to reduce high energy losses and deficits by 30 September 2026. [5] These conditions underscore NERSA's commitment to promoting efficiency and financial sustainability within municipal electricity undertakings, moving beyond mere approval to active monitoring and enforcement. The emphasis on COS studies and efficiency improvements reflects NERSA's broader regulatory approach, which encourages municipalities to develop time-of-use and seasonal tariffs and to provide plant condition and maintenance reports. [23]

However, the decision has not been without scrutiny. Industrial users, represented by the Casting, Forging and Machining Cluster of South Africa (CFMC), have raised concerns about alleged errors and inflated figures in Ekurhuleni's previous tariff applications, claiming these issues also underpin the 2026/27 tariffs. [26] Such challenges highlight the ongoing tension between municipal revenue needs, consumer affordability, and the accuracy of underlying financial data. The Freedom Front Plus also rejected Ekurhuleni's proposed 2026/27 budget, citing unrealistic assumptions and the uncertainty surrounding electricity revenue due to high losses. [27] These criticisms underscore the importance of NERSA's verification and monitoring conditions to ensure the integrity and fairness of the approved tariffs.

The NERSA decision regarding the City of Ekurhuleni's electricity tariffs for the 2026/27 financial year serves as a critical reminder of the complex regulatory environment governing municipal service delivery in South Africa. For legal practitioners, this case highlights the imperative of meticulous compliance with both the Electricity Regulation Act and the Municipal Finance Management Act, particularly concerning the preparation and submission of tariff applications supported by robust Cost of Supply studies. The ongoing judicial oversight, which has led to stringent timelines and an emphasis on public participation, necessitates a proactive and transparent approach from municipalities and their legal advisors to avoid procedural pitfalls and potential legal challenges. [16, 17]

Practitioners should closely monitor Ekurhuleni's adherence to the conditions imposed by NERSA, particularly the reporting requirements on cost accounting and efficiency improvements. These conditions signal a heightened regulatory focus on operational performance and financial prudence, which may become standard practice for other municipalities. Furthermore, the concerns raised by industrial users regarding data integrity underscore the need for thorough due diligence in tariff applications. Legal professionals advising consumers should be aware of the avenues for challenging tariffs and the importance of engaging in public participation processes to ensure that approved tariffs are not only legally compliant but also fair and justifiable. The evolving landscape demands continuous vigilance and a deep understanding of both energy regulation and municipal finance to effectively navigate the interests of all stakeholders.