The regulatory governance of retail electricity tariff setting in South Africa

Abstract

AbstractThe rapid increase in South African electricity prices in the past eight years has been overseen by a proactive, policy‐oriented regulator, National Energy Regulator of South Africa (NERSA). Regulatory governance theory proposes that regulation is most effective when the roles of different organizations are clearly defined. While the laws establishing the regulator comply with this requirement, effectiveness of regulation is challenged by a weak ministry, overlapping spheres of regulatory influence and competing goals among the parties involved. It is hypothesized that this impacts the outcomes of the regulatory institution. Using an institutional analysis and development methodology, the interactions between the regulator, the energy ministry, municipal electricity distributors and National Treasury are investigated. Attempts to change the institutional rules have largely been unsuccessful because of the threat they posed to the constitutional and financial interests of municipalities. The regulator, with support from National Treasury, has been largely successful in ensuring compliance by municipalities to its administrative processes and its prescribed tariff escalation rates. It has been less successful at ensuring standardization of business tariffs across electricity distributors. The regulator's tariff objectives have prioritized protection of the poor rather than economic development. The major pro‐poor initiative of the regulator is the inclining block tariff (IBT) which has effectively subsidized electricity consumption of low usage households. This occurred at the expense of municipal revenues, rather than other consumers.