South Africa's municipal electricity pricing is broken. Current policies are draining city budgets, overcharging residents and letting infrastructure crumble.

South Africa's municipal electricity tariff methodology is fundamentally broken.

Worse still, recent regulatory practice risks accelerating financial stress on paying consumers while simultaneously undermining the sustainability of municipal electricity services.

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South Africa's municipal electricity crisis is often reduced to a familiar list of symptoms: failing infrastructure, high losses, weak billing systems, political interference and a culture of non-payment. While all of these are real, they obscure a deeper and more structural problem at the heart of the system -- the way municipal electricity price increases are calculated, approved and regulated.

At the centre of this lies the annual electricity tariff determination process overseen by the National Energy Regulator of South Africa (Nersa). What should be a transparent, economically rational and legally sound mechanism has instead evolved into a deeply contested process, increasingly challenged in court, poorly understood by stakeholders and widely mistrusted by consumers and municipalities.

A technically sound and industry-credible alternative exists -- but it requires Nersa to rethink its approach from first principles.

A system under strain

Municipalities that distribute electricity are required to apply annually to Nersa for approval of tariff increases. In theory, this process is governed by an Electricity Pricing Policy, which requires municipalities...