Facts of the case

In 2011, NERSA granted the City of Tshwane an electricity distribution license for the Rietfontein Farm in terms of the Electricity Regulation Act (ERA). The license excluded some individual ESKOM supplied areas (‘legacy customers’) which were excluded from the City’s license. Much of the remainder of the Farm was undeveloped.

Ten years later, a large development on the Rietfontein Farm (Mooikloof MegaCity) with significant electricity revenue potential, was on the cards. ESKOM rushed to apply for a license to supply Mooikloof with electricity. Despite the City of Tshwane’s objection that the City already held the license for it, NERSA approved it and the City of Tshwane’s right to supply electricity was removed in favour of ESKOM. The City stood to lose R125 million per month in electricity revenue to ESKOM. NERSA did not heed questions from its own subcommittee as to whether it was correct to displace the City’s license. After intergovernmental dispute resolution failed, the matter went to Court.

Arguments in Court

In Court, the City relied on the 2011 license and on its constitutional authority to reticulate electricity to argue that NERSA’s decision was illegal. NERSA defended its decision by claiming that the Farm was a ‘greenfield’ area, namely an area that is undeveloped and outside the ambit of any license. It could therefore be included in ESKOM’s license. The Court ruled this was factually incorrect because the Farm was subject to the 2011 license granted to the City and thus not ‘greenfield’. The Court held that NERSA was wrong to extend ESKOM’s license beyond the ‘legacy customers’.

The findings of the Court

The Court emphasised that –

• municipalities have the executive authority and the right to reticulate electricity within their areas of jurisdiction (s 156(1)(a) read with Schedule 4B of the Constitution);
• they have the constitutional duty to provide basic services;
• the ERA gives effect to those constitutional duties by setting the requirements for licensing; and
• NERSA has the power to regulate the licensees which would otherwise enjoy a monopoly on power.

Comment

The facts of this case reveal ESKOM’s eagerness to move further into the electricity reticulation space, especially where there are ‘easy’ customers such as large commercial developments. Evidently, ESKOM, and even NERSA, are not deterred by the Constitution, which provides that municipalities, and not ESKOM, have the constitutional authority to reticulate electricity. In this matter, ESKOM and NERSA found a steadfast City of Tshwane in its way, as well as a High Court which articulated the constitutional position as follows:

“Nersa and Eskom argued that electricity supply does not fall within the exclusive jurisdiction of municipalities and that Tshwane’s interpretation of section 156(1)(a)[ of the Constitution is incorrect. This contention is rejected. The Constitution unequivocally confers executive authority and jurisdiction over electricity reticulation on Tshwane. ERA expressly recognises and gives effect to this constitutional position. 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.”

Another important aspect of this judgment is the following question: is it even constitutional that the ERA subjects a municipality’s constitutional right to supply electricity to a license issued by NERSA? Is it not an unconstitutional infringement on a municipality’s constitutional authority? On the other hand, it can be argued that a municipality’s constitutional authority to reticulate electricity is not unlimited (see s 155(7) of the Constitution). The ERA regulates that constitutional authority by setting a framework for licensing of municipalities as electricity providers.

The constitutionality of the licensing scheme under ERA was not questioned in this court case. The City of Tshwane also did not need to raise it because, in their haste to take R125 Million in monthly revenue from the City, ESKOM and NERSA violated the ERA and the NERSA rules. However, it is an important question, as the national government contemplates new ways to regulate municipal services. The question is particularly important given the national government’s move towards applying the same system to water services. There is no doubt that the question will be debated as part of the implementation of the revised White Paper on Local Government.

By Jaap de Visser