The National Energy Regulator of South Africa (NERSA) published a consultation paper on Friday 6 November 2026 proposing to rewrite the rulebook that decides how much municipal and private electricity distributors may charge, with written comments due by 4pm on 7 December 2026 and a virtual public hearing on 14 December. The paper reviews the Cost of Supply Framework and Pricing Methodology, and the regulator says the legal basis for distributor profits has changed.
Why NERSA is rewriting the framework
According to the consultation paper, NERSA approves distributor tariffs each year using a framework that lets a licensee build its revenue either on a cost-plus basis, where a surplus margin is added to costs, or on a rate of return on its regulated asset base. NERSA says the amended Electricity Regulation Act now requires a reasonable return proportionate to the risk of the licensed activity, and that this does away with cost-plus regulation. It proposes to set the return by applying a weighted average cost of capital to the regulatory asset base.
Under the current cost-plus approach, the paper says NERSA applies a tolerable surplus range of 10% to 20%, with a target of 15%. The paper adds that licensees have applied for higher increases on the grounds of declining surpluses.
What else is on the table
The paper lists ten problems it wants to fix, and several bear on what businesses pay for power.
- Energy losses. NERSA currently builds a 10% allowance for losses into purchases. It says its own compliance audits found municipalities with losses as high as 32%, that most losses above the technical level come from theft, illegal connections and meter tampering, and that these “should not be recovered from paying customers”. It proposes differentiated loss thresholds, to be set after consultation.
- Repairs and maintenance. The paper says National Treasury’s norm is 8% of the carrying value of assets and that in 2023/24 none of the eight metros met it. It asks whether 8% is the right minimum and whether a 90% spending threshold, with unspent money returned to customers, is appropriate.
- Clawback. It proposes a mechanism to recover revenue or costs that were not prudently incurred or used as approved, applying where actual and forecast figures differ by more than 2%.
- Multi-year control periods. It proposes a five-year regulatory control period, and asks whether the first one should instead be three years to match municipal budgets.
- Tariff structures. It says licensees use over 500 types of charges and wants them standardised, in preparation for separate network and retail tariffs as the wholesale electricity market develops.
The paper also proposes stricter ring-fencing, which separates the costs, revenues, assets and liabilities of the electricity business from other municipal activities. It asks whether ring-fenced accounts are enough or whether a separate bank account should be required.
What it means for businesses
Any business that buys power from a municipality or a private distributor pays tariffs approved under this framework, so the rules on losses, maintenance spending and clawback shape what ends up on the bill. The paper’s own reasoning is that when losses are passed through in tariffs, paying customers subsidise them, and that customers should pay no more than the efficient cost of the services they receive. Standardised charges and multi-year certainty, if adopted, would make tariffs easier to compare and budget for. Businesses with a view on any of this can send it in: NERSA accepts comments at cosframework@nersa.org.za, by hand at 526 Madiba Street in Pretoria, or by post.
This sits next to NERSA’s separate consultation on cost recovery rules for independent transmission providers, its approval of Eskom’s tariff rise for 2027, and the municipal finance pressures we reported in municipal debt up 19% to R185bn.
What is not yet known
These are proposals and questions, not decisions. NERSA has not said when it will decide, and the notice does not quantify what the changes would mean for any tariff. Anyone wanting to speak at the hearing must register by 16:30 on 10 December, and NERSA says the hearing will not take place if nobody registers. The draft framework itself is published as Annexure A on NERSA’s electricity consultations page, and its final text may differ from this paper.
