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[2018] ZAFSHC 22
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Free State Goldfields Chamber of Business v The Matjhabeng Local Municipality and Another (720/2017) [2018] ZAFSHC 22 (8 February 2018)
IN THE HIGH COURT OF SOUTH
AFRICA,
FREE STATE DIVISION,
BLOEMFONTEIN
CASE NO : 720/2017
In
the matter between:
FREE
STATE GOLDFIELDS CHAMBER OF BUSINESS
Applicant
and
THE
MATJHABENG LOCAL MUNICIPALITY
1
st
Respondent
THE
NATIONAL ENERGY REGULATOR
2
nd
Respondent
HEARD
ON
:
4 DECEMBER 2017
CORAM:
JORDAAN, ADJP
ET
MURRAY, AJ
JUDGMENT
BY
:
MURRAY, AJ
DELIVERED
ON
:
8 FEBRUARY 2018
[1]
The
Free State Goldfields Chamber of Business (the Applicant) instituted
a review application in terms of Uniform Rule 53 against
the National
Energy Regulator of South Africa ("NERSA")(the Second
Respondent) and the Matjhabeng Local Municipality
("Matjhabeng")(the
First Respondent) regarding the approval and implementation of the
2016/2017 electricity tariff increases.
Matjhabeng opposed the
application.
[2]
Mr
Grabler appeared for the Business Chamber and Mr Edeling, assisted by
Ms de Kock, represented NERSA and Matjhabeng.
[3]
The Applicant applied for:
(a)
NERSA's
approval of Matjhabeng's application for the
time
of use
electricity supply tariff
increases for the 2016/2017 financial year to be reviewed,
alternatively to be declared unlawful, and
set aside;
(b)
Matjhabeng's
decision to implement the approved
time
of
use
tariff increases for the 2016/2017
financial year to be reviewed, alternatively to be declared unlawful,
and set aside; and
(c)
Matjhabeng
to be ordered to revert to the
time
of
use
tariffs approved and implemented for
the 2015/2016 financial year together with a 7.64% increase; and to
use that
time
of
use
basis
in its application to NERSA for tariff increases for the 2017/2018
financial year.
[4]
An
application for condonation by the First Respondent for the late
filing of its Notice to Oppose and the late filing of its opposing
affidavits was granted prior to argument on the merits being heard
and the First Respondent was ordered to pay the costs thereof.
The
Statutory Framework:
[5]
In
a nutshell the relevant statutory background to the dispute is that
Matjhabeng buys electricity in bulk from ESKOM and re-sells
it to
clients at an increased rate. It does so in terms of the Municipal
Finance Management Act, Act 56
I
2003
(“the MFMA”) which requires proper budgeting prior to any
new fiscal year; in terms of the Municipal Systems
Act, Act 32 /
2000 (“the MSA”); and in terms of the Electricity
Regulations Act, Act 4 / 2006, which regulates the
resale of
electricity acquired from a bulk supplier in terms of a “tariff”.
[6]
NERSA
determines, on an annual basis, a benchmark or guideline for tariff
increases for both ESKOM and the municipalities. Matjhabeng,
as a
municipality, must seek NERSA's approval of its proposed electricity
tariffs and the structure thereof, as well as of any
proposed
increase above the approved or recommended NERSA guideline, prior to
the approval of each annual Budget.
[7]
In
terms of the MFMA Matjhabeng has to prepare and publish for comment
by the general public a Draft Budget which needs to be considered
and
approved 30 days before the start of every new fiscal year (1 July).
In its Draft Budget Matjhabeng has to publish the electricity
tariff
increases which it intends to implement in that financial year, and
has to give proper notice of any intended change in
the structure of
the tariff.
[8]
Once
the Draft Budget has been tabled, public participation facilitated,
and the proposed changes ventilated, the Municipal Council
may
finally approve the Budget for the next fiscal year which would
specify the proposed rate increases and structure changes to
the
electricity supply.
[9]
In
accordance with the provisions of the Energy Regulations Act NERSA
approved a 14.24% electricity tariff increase for ESKOM and
a 12.20%
increase for municipalities for the 2015/2016 fiscal year. For the
2016/2017 financial year it approved a guideline of
a 9.4% increase
for ESKOM and a 7.64% increase for municipalities.
The
Applicant' Case:
[10]
In its founding affidavit the Applicant alleged that NERSA's approval
of the Matjhabeng
time of use
tariff increases for
2016/2017
and Matjhabeng's approval of the said tariff increase at its 27
May 2015 meeting where it approved its Budget (which according to
the
Applicant was the final 2016/2017 Budget) constituted administrative
decisions which had been unlawfully taken and should be
set aside. To
substantiate these allegations the Applicant relied on several
purported shortcomings in the approval and implementation
of the
2016/2017 tariff increases.
Allegations
against Matjhabeng:
[11]
In
its founding affidavit the Applicant alleged, first of all, that the
"12.20%" increase in electricity tariffs introduced
in the
"2016/2017" Budget were not in accordance with the 7.64%
NERSA Approved Guideline for 2016/2017.
[12]
Secondly,
it averred that Matjhabeng during the budget process neither informed
the public of any proposed structural changes, nor
informed it of the
proposed "access fees" which it intended to levy over and
above the basic monthly charges, but merely
11sta ted that the
electricity charges would increase by 12.20%".
[13]
It
also alleged that Matjhabeng did not publish any differentiation
between ordinary block tariff use increases (IBT) and any other
tariff structures, and that the access charges had led to a
substantial increase in the overall electricity charges. According
to
the Applicant, although Matjhabeng reduced the demand charge, access
charges substantially increased the overall costs, and
the
time
of use
low voltage rates increased
with a percentage far beyond the "recommended and approved"
"proposed 12.20%", for
both low and high season tariffs.
[14]
The
Applicant maintained that Matjhabeng had attempted to seek approval
of this tariff by stating that across the board 12.20% more
was going
to be charged for electricity sales, which allegedly entailed that an
increase of up to 40% in one instance would be
mitigated by a
decrease in other areas by around 30-33% (on average). As a result,
the Applicant alleged that in certain instances
Matjhabeng
implemented tariff increases of between 40% and more than 100%, which
increases were neither in accordance with NERSA's
recommendations nor
with what Matjhabeng had informed its clients the tariff increases
would entail.
[15]
The Applicant claimed that the said
"ludicrous" increases were far beyond the approved
benchmark. These claims the Applicant
attempted to substantiate by
annexing a table of “ElectricalTariff Increases v ESKOM
Charges” with reference to
time
of use
tariffs which the Applicant's
Chairperson, Mr Van der Merwe, himself had compiled to demonstrate
the allegedly excessive increases.
[16]
All of the above, according to the
Applicant, rendered Matjhabeng's approval and implementation of the
increased tariffs unlawful
and procedurally unfair.
Allegations
against NERSA:
[17]
The
Applicant averred, furthermore, that NERSA's approval of Matjhabeng's
proposed increased tariffs for 2016/2017 was unlawful
since NERSA had
merely "rubber-stamped" the application. It submitted that,
if NERSA had considered the application,
it would have seen that the
proposed tariff increases far exceeded the 7.64% guideline. To
substantiate this allegation, the Applicant
made several submissions.
[18]
First of all it averred that Matjhabeng
was never called upon to explain why it should be allowed to
implement the proposed tariff
increases. This assumption it drew from
the absence of Matjhabeng's name from a list of municipalities
applying for average increases
above the 7.64% NERSA guideline that
were invited to a NERSA meeting on 3 June 2016.
[19]
The Applicant also alleged that, since Matjhabeng had applied for a
14.03% increase for
time of use
low and medium voltage
tariffs, stakeholders and interested parties should have been invited
to comment on the proposed structural
changes and the increase but
that that had not been done.
[20]
It
maintained, furthermore, that the 7.64°/o NERSA benchmark was
merely used to determine whether Matjhabeng would have a revenue
increase with electricity sales of 7.64% whereas it sought approval
for an average 12.2%more on electricity sales.
[21]
All
of the above, according to the Applicant, rendered NERSA's approval
of Matjhabeng's 2016/2017 tariff increase application unlawful.
The
Law:
[22]
It
is trite law that an Applicant in motion proceedings has to make out
a proper case for the relief in its founding affidavit.
[1]
As Muller J stated in
Shakot
Investments (Pty) Ltd v Town Council of the Borough
of
Stanger
[2]
:
"In
proceedings by way of motion the party seeking relief ought in his
founding affidavit to disclose such facts as would,
if true, justify
the relief sought and which would, at the same time, sufficiently
inform the other party of the case he was required
to meet."
[23]
An
applicant therefore has to set out in his founding affidavit the
facts to justify the relief sought and to inform the respondent
of
the case he is required to meet. The Court then considers the
applicant's entitlement to the relief applied for by considering
the
facts alleged in the founding affidavit which are admitted by the
respondent in the opposing affidavit together with the facts
alleged
by the respondent therein.
[3]
[24]
A
final order will only be granted if these facts justify such
order.
[4]
[25]
The Applicant in the present case therefore had to prove in its
founding affidavit that Matjhabeng
had acted unlawfully in approving
and implementing the 2016/2017 increases, and that NERSA had acted
unlawfully in approving such
increases and in allowing Matjhabeng to
implement them.
Application
on Wrong Basis:
[26]
The
Applicant did not succeed in doing so, however. The basis of its
application was wrong. It confused and/or conflated the terms
of the
2015/2016 and the 2016/2017 Budget. Whilst the Applicant was
attacking the 2016/2017 Budget, it annexed to its founding
affidavit
the
2015/2016
Budget
instead, the data of which it then erroneously relied on to attack
and/or support its allegations against Matjhabeng and
NERSA.
[27]
The
2015/2016 Budget was the one for which a 12.20% average tariff
increase was applied for in 2015, and which was then approved
by
NERSA and implemented by Matjhabeng on 1 July 2015. It is in the
Revenue section of that Budget (2015/2016) that it was stated
that
Matjhabeng's
average
electricity
tariff for the 2015/2016 year would increase with 12.20% "as per
the NERSA approved guidelines", while the
ESKOM tariff would
increase with 14.24
%.
[28]
The
Applicant's confusion between the 2015/2016 and the 2016/2017 Budgets
is evident from the Applicant's repeated references in
the founding
affidavit to the 'proposed' or 'approved' 12.20% increase with
reference to the 2016/2017 Budget. It then erroneously
kept basing
its arguments against the 2016/2017 tariff increases on an alleged
proposed 12.20% increase. It alleged, for instance,
that the
time
of use
low voltage rates had been
increased far beyond the proposed 12.20%" and that
Matjhabeng by the addition of the access
charge, had caused "a
substantial increase above the recommended and approved percentile".
Based on that misconception,
the Applicant averred that the approval
and implementation of those tariffs and the access charge had been
unlawful and procedurally
unfair.
[29]
Mr
Grabler had to concede, therefore, that the figures and percentages
on which the Applicant relied in its founding affidavit to
aver that
NERSA had merely rubber-stamped Matjhabeng's 2016/2017 application in
which it "attempted to seek approval of its
tariff
implementation by stating that - across the board 'on average' 12.20%
more was going to be charged for electricity"
and that the 7.64%
benchmark had merely been applied to determine whether the
municipality was going to have a revenue increase,
were wrong.
[30]
As Matjhabeng's municipal manager in his
opposing affidavit pointed out, Matjhabeng never proposed, applied
for or implemented a
12.20% increase in the 2016/2017 fiscal year,
nor did NERSA approve such an increase for 2016/2017. On the
contrary, the average
electricity tariff increase which Matjhabeng
did apply for in the 2016/2017 financial year was one of 7.47%, which
was less than
the NERSA benchmark of 7.64% for 2016/2017. He
explained, furthermore, that municipalities were allowed to increase
or decrease
individual tariffs as long as the overall average
conformed to were less than NERSA's 7.64% guideline, which condition
Matjhabeng
met.
[31]
As the municipal manager explained,
furthermore, the reason why Matjhabeng's name was not on the list of
municipalities invited
to explain to NERSA their applications for
average increases above the 7.64% guideline, was not, as the
Applicant averred, proof
of NERSA's mere rubber-stamping of
Matjhabeng's application. Its name was not on the list because
contrary to the 12.20%, increase
which the Applicant alleged
Matjhabeng had applied for, it had actually applied only for an
average increase of 7.47%, not for
an extra-ordinary average increase
above the 7.64o/o benchmark as alleged. There was therefore no need
for its name to be on that
list.
[32]
The calculations in the table drafted by the Applicant’s
Chairperson
'
to
demonstrate the “
ludicrous”
tariff increases of "between
40% and more than 100%" were actually based on a comparison of
the 2014/2015 to the 2015/2016
increases, and not on the 2016/2017
increases which were under attack. Mr Grabler duly conceded that the
percentage increases so
calculated and used to "prove" the
Applicant's averments of unlawfulness were wrong, because of the
Applicant's confusion
between the contents of the 2015/2016 and the
2016/2017 Budgets.
[33]
The Applicant's allegation that the access charge to be levied over
and above the basic monthly charge
which had been introduced into the
electricity
time of
use low and medium voltage rates for which
Matjhabeng applied in 2016/2017 was never mentioned during the
budgeting process, was
refuted. Both Matjhabeng's 2016/2017 NERSA
application for tariff increases and its approved 2016/2017 Annual
Budget were annexed
to the opposing affidavit. Both dealt with the
introduction of access fees. Since the 2016/2017 Draft Budget had to
have been considered
prior to the approval of the final Budget,
contrary to the Applicant's allegations additional components like
the access fee and
the
time of use
Megaflex and Nightsave
tariffs therefore had to have been made available for public
consideration and comment as Mr Grabler indeed
conceded. On that
basis, therefore, the allegation that Matjhabeng's implementation of
the 2016/2017 tariffs had been unlawful,
must also fall.
[34]
The same principle obviously applies to the 14.03% increase for both
low voltage and medium voltage
time of use
tariffs regarding
which the Applicant also averred that stakeholders and participants
had not been invited to comment, but which
had in fact been approved
in the 2016/2017 Budget after the tabling of the Draft Budget.
[35]
With
reference to the allegation that NERSA should have consulted with the
stakeholders before approving the 2016/2017 Matjhabeng
application
for tariff increases, Mathjabeng annexed, besides the approved
2016/2017 Budget, a Consultation paper dated 07 March
2016 in which
NERSA invited stakeholders to comment on the guideline increase, the
benchmarks and the proposed timelines set out
in the said paper,
warning that the approved guideline percentage was not an automatic
increase for any municipality.
[36]
It was denied that NERSA had merely
rubber-stamped the application without applying its mind before
approving it, and that the approvals
had been unlawful or irrational
and it was averred that the increases had been well-motivated and
approved for good reason. According
to NERSA's report, it, in the
consideration of Matjhabeng's application, balanced the objective of
ensuring Matjhabeng's financial
viability against the affordability
for customers and allowed the increase to enable Matjhabeng to afford
ESKOM's power and to
settle its bills fully on a monthly basis. The
report stated that NERSA had considered the increased fees to be
justified because
they were necessary to enable Matjhabeng to support
itself as a sustainable service provider. The increased fees would
help Matjhabeng
to generate sufficient revenue to reach its service
delivery targets. It also for that reason allowed the deviation from
the 7.64%
in certain tariff categories to protect Matjhabeng's income
during the transition from flat tariffs to medium volt
time
of
use tariffs which in the long run
would be more cost-effective.
[37]
As stated in Matjhabeng's 2016/2017
Budget, the approved 7.47% increase for that year was arrived at by
taking into consideration
local economic conditions, input costs, the
macro-economic forecasts as prescribed by MFMA circulars, the
affordability of services,
the NERSA Regulations, the approved ESKOM
tariff increase of 9.4%, Matjhabeng's projected income, the CPIX of
6.60%, salary increases
of around 7% and the payment agreements that
Matjhabeng had concluded with ESKOM for the huge payment deficit
which it needed to
honour and its aim to achieve the ability to make
full monthly payments. According to the 2015/2016 application it at
that time
owed ESKOM R2 billion, resulting in an RBO million monthly
bill while Matjhabeng only earned R60 million per month from
electricity
sales.
[38]
These averments supported the denial
that Matjhabeng's application had merely been rubber-stamped or that
the approvals had been
unlawful or irrational and the averments that
the increases had been well-motivated and approved for good reasons.
In its 2016/2017
tariff increase application which the Applicant
annexed, Matjhabeng explained, for instance, that the introduction of
access charges
to the Industrial
time
of use
tariffs made the latter more
cost-reflective since ESKOM had done the same.
[39]
In
the 2015/2016 Budget which the Applicant relied on, it was stated
that a comprehensive tariff study had been performed on the
electricity tariffs to ensure full cost recovery and "that the
tariffs for the 2016/2017 financial year would have to be
cost-reflective to ensure improving revenue collection as well as
quality of services to be provided by the municipalities".
[40]
The
application for the 14% increase for medium voltage
time
of use
tariffs was explained as
being necessary to effect the conversion of the previous Large medium
volt tariff to the much cheaper
time
of use
medium volt tariff without
jeopardising the municipality's previous income levels. In view of
Matjhabeng's struggle to fully pay
its monthly ESKOM bills it can
hardly be said that the approval of the above tariffs are either
irrational or unlawful.
[41]
The
First Respondent pointed out, furthermore, that Matjhabeng's approach
for the 2016/2017 financial year's Budget had been guided
by the back
to basics principle to improve community conditions.
[42]
NERSA's recommendation for the approval of Matjhabeng's tariff
application was annexed to the opposing
affidavit, together with the
2016/2017 tariff increase application itself. Matjhabeng's
application deals with,
inter alia
the design of and
application for a Commercial
time of use
tariff during the
tariff application for 2017/2018 to cater for commercial customers
still on a flat tariff. In NERSA's recommendation
it indicated that
the Industrial
time of use
tariff would be benchmarked with
the approved ESKOM's 2016/2017 Megaflex tariff plus a maximum of
7.64% increase.
[43]
That Matjhabeng's application was not
simply rubber-stamped by NERSA, is confirmed by the comparison of the
relevant table of proposed
tariff increases in Matjhabeng's 2016/2017
application which is annexed to the founding affidavit, and the
"Proposal for Tariffs
(2016/2017)" annexed to the opposing
affidavit, in which two additional columns reflect the “NERSA
Approved Figures”
and show the resulting differences between
what was asked and what was approved. It is only logical to deduce
that, in order to
have approved tariffs which differed from those
applied for, NERSA considered and not only accepted the proposed
tariffs.
[44]
Further confirmation of NERSA's
consideration of the proposed tariffs can be found in NERSA's 29 June
2016 letter to Matjhabeng's
previous Municipal Manager in which it
set out specific tariffs which the Energy Regulator had approved for
Matjhabeng for 2016/2017
and which in several categories differed
from those applied for. That the contents of the application and
Matjhabeng's motivation
for the increases must also have been
considered appears from the Energy Regulator's directive to increase
Matjhabeng's "Budget
for repairs and maintenance to 6% of the
total revenue from electricity sales".
[45]
In its report NERSA stated that “taking
into consideration the motivation for Matjhabeng's deviation from the
NERSA guidelines”,
it had decided to approve the proposed
increases. It can therefore hardly be claimed, as the Applicant did,
that NERSA failed to
consider and merely rubber-stamped Matjhabeng's
application, or that it acted unlawfully in approving the
application.
[46]
The allegation that the public was not
informed of the proposed changes or given an opportunity to comment
on the proposed tariff
increases was not proved in the founding
affidavit either. The allegation of procedural unfairness therefor
also has to fail.
[47]
Likewise, there is no evidence that Matjhabeng unlawfully approved or
implemented the electricity tariff
increases. And as Mr Edeling
pointed out, neither is there any proof to that effect in the
founding affidavit. Although the Megaflex
tariff, plus the access
fee, plus the 7.64% increase would have amounted to more than the
percentage that was approved, the Applicant
did not inform the Court
what the Megaflex tariff or the access fee was.
[48]
I therefore have to agree that due to its confusion between the
2015/2016 and the 2016/2017 Budgets
and the resultant wrong basis on
which the Applicant approached the Court, the Applicant failed to
make out its case in its founding
papers. It has, accordingly, failed
to prove valid grounds for the review and the application therefore
cannot succeed.
[48]
As far as costs are concerned, there is
no reason to deviate from the normal practice of costs following the
outcome of the application.
WHEREFORE
THE FOLLOWING ORDER IS MADE:
1.
The review application is dismissed with
costs.
H MURRAY AJ
I
concur and it is so ordered.
JORDAAN, ADJP
On behalf of the
Applicant:
Adv S Grabler
Instructed by: P D Yazbek
Lovius
Block
BLOEMFONTEIN
On
behalf of the First Respondent: Adv
W J Edeling
Adv D de Kock
Instructed by: Bokwa Attorneys
BLOEMFONTEIN
[1]
National Council of Societies for the Prevention of Cruelty to
Animals v Openshaw
[2008] ZASCA 78
;
2008 (5) SA 339
(SCA) at 349 A - B at paras (29)
- [30].
[2]
1976 (2) SA 70
(D) at 704 G
[3]
Plascon-Evans Paint Ltd v Van Riebeeck Paints (Pty) Ltd I984 (3) SA
623 (A) at 634 - 635
[4]
National Director of Public Prosecutions v Zuma
[2009] ZASCA 1
;
2009 (2) SA 277
(SCA) at 290 D - E at para [26]