Municipalities’ exclusive reticulation right confirmed.
The City of Tshwane won a court battle against Eskom and energy regulator Nersa on Monday, potentially securing an additional R125 million per month in revenue for the cash-strapped metro.
This follows a ruling by Judge Anthony Millar in the High Court in Pretoria, setting aside a decision by Nersa that granted Eskom the right to distribute electricity to the new Mooikloof Mega City in the east of Pretoria.
Mooikloof Mega City is a ‘smart city’ development being led by JSE-listed Balwin Properties. It was launched in 2020 by President Cyril Ramaphosa as one of 62 Strategic Integrated Projects (SIPs).
At the time, the project was valued at R84 billion, with 50 000 sectional-title units planned in its first phase. It includes, among others, the Greenkloof and Mooikloof Eco-Estate developments.
Dispute origins
The dispute over the lucrative electricity distribution business began in March 2022, when the metro, to its surprise, discovered that Eskom had submitted an application to Nersa about a year earlier to amend its electricity distribution licence so it could serve the smart city.
The smart city was to be developed, among other properties, on the farm Rietfontein 375-JR, and Eskom requested that the farm be included in its licensed distribution area.
However, the farm had already been included in Tshwane’s distribution area since 2011, and, under the regulatory framework, licensed distribution areas may not overlap.
The area was largely undeveloped, and Eskom supplied electricity to the few farms in the area because Tshwane did not, at that stage, have the necessary infrastructure to serve them.
Tshwane’s licence
Tshwane’s licence specifically stated:
“Customers receiving electricity from Eskom or any other licensed electricity distributor on the commencement date of this licence are excluded from this licence.”
Tshwane objected to Eskom’s application before Nersa and emphasised that the farm formed part of the area covered by its distribution licence.
The metro was never approached to grant Eskom permission to operate within its area, nor was it asked to amend its own licence by transferring the area to Eskom.
The metro further indicated that its existing and planned new infrastructure was sufficient to perform its electricity distribution function there.
Tshwane pointed out to Nersa that electricity distribution is, under the Constitution, an exclusive municipal function and expressed concern about the revenue it would stand to lose should Eskom be granted the right to distribute electricity there.
The loss was estimated at R125 million per month.
No valid counterargument
During a December 2022 meeting of Nersa’s electricity subcommittee, which makes recommendations to the regulator for a final decision, it was acknowledged that Eskom had no valid counterargument to Tshwane’s claim to an exclusive constitutional right to distribute electricity, but the issue was left unresolved.
At a meeting of the same committee in February 2023, members repeatedly raised the fact that the same farm where Eskom now wanted to distribute electricity was already included in Tshwane’s licensed area and would first have to be removed from that licence before it could be assigned to Eskom.
This was never done. At another regulator meeting in February, Nersa gave Eskom the green light.
Constitution unequivocal
In court, Nersa and Eskom argued that Tshwane had misinterpreted the Constitution and that electricity distribution is not the exclusive domain of municipalities.
The court responded as follows: “This contention is rejected. The Constitution unequivocally confers executive authority and jurisdiction over electricity reticulation on Tshwane.”
Judge Millar continued: “Nersa ought not to have approved Eskom’s licence amendment without either addressing whether or not this was permissible in the absence of an amendment to Tshwane’s licence and also the constitutional position of Tshwane. This was fundamental to the consideration of whether to approve Eskom’s application. This is the nub of the review and why it must succeed.”
Takeover by stealth
The ruling comes against the backdrop of Eskom’s increasing involvement in electricity distribution in municipalities that owe it billions of rand for bulk electricity purchases.
It recently emerged that Eskom could take over electricity distribution in up to 30 municipalities, albeit as an agent of the municipality, while the municipality retains its distribution licence.
However, the South African Local Government Association has described the arrangement as a takeover by stealth and expressed concern that it undermines municipalities’ exclusive right to distribute electricity – a right affirmed in this court judgment.
This article was republished from Moneyweb. Read the original here.