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Who Pushes the Buttons? Investigating the Regulatory Governance of Retail Electricity Tariff Setting in South Africa Through Institutional Analysis and Development

The rapid increase in South African electricity prices in the past eight years has been overseen by a proactive, policy-oriented regulator, NERSA. Regulatory governance theory proposes that regulation is most effective when the roles of different organisations 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 amongst the parties involved. It is hypothesised that this impacts the outcomes of the regulatory institution. Using Institutional analysis and development as a framework, the interactions between the regulator, the energy ministry, municipal electricity distributors and National Treasury are investigated. Attempts to change the institutional rules have generally failed because of the threat they posed to the constitutional and financial interests of municipalities. The regulator, with support from National Treasury, has achieved success in ensuring compliance by municipalities to its administrative processes and its prescribed tariff escalation rates. It has been less successful at ensuring standardisation of business tariffs across electricity distributors. The regulator’s tariff objectives have prioritised protection of the poor rather than economic development. The major pro-poor initiative of the regulator is the inclining block tariff which has effectively subsidised electricity consumption of low usage households. This is primarily at the expense of municipalities, rather than other consumers.