BM_Lindsey_Minicipal electricity trap 
Most households in South Africa (SA) are keen to replace their electricity bill with something more favourable. But before we put all the Eskom and municipal supply pains in the box to the left and embrace a liberalised market, Mzansi needs to reckon with the truth of the matter – which is that reselling electricity is the main source of revenue for many municipalities.
Read more: Profit over people: A spotlight on South Africa’s contested energy landscape
But unfortunately, municipalities have the biggest unpaid Eskom bills, which is a hangover of decades of centralised, heavily subsidised electrons. Why? Because mining needed to be profitable and the apartheid government wanted to attract more mineral extraction investment.
The growth never materialised due to international sanctions and economic stagnation. By the early 1990s, Eskom was left with a massive surplus of generation capacity (relative to the user market size) and zero storage options – so they sold it on the cheap.
In 2008, after 12 years of rapid grid expansion and some dodgy dealmaking with the aluminium smelters, that surplus tipped to a deficit and investment was needed to build out more power.
Nightmare scenario
Which brings us to now, with a legion of independent power producers who need room in the market, and a National Energy Regulator (Nersa) rushing to write the rules that will let them in.
The draft Rules for Electricity Trading published by Nersa in October 2025 are designed to break the monopoly and allow private traders to use the grid. But for municipalities, these rules threaten to sever the artery that keeps them alive: the ability to mark-up electricity prices to fund other services.
Read more: Eskom awards contract to develop a virtual wheeling platform amid regulatory tension
“If you know how it works, your metropolitans will be significantly faster [to adapt to the new rules] than the 140 rural [municipalities], which means we then embark on a reform that’s built on inequity,” Christo Nicholls, CEO of Utility Consulting Solutions told Daily Maverick.
Nicholls consults with cash-constrained municipalities to help find sustainable economic models and warns that the one-size-fits-all approach ignores the vast chasm between the City of Cape Town – which is actively seeking independence from Eskom – and rural municipalities that are barely holding their financial heads above water.
“In rural municipalities, the electricity income constitutes about 34% to 40% of total income,” he explains. “And out of that, a fair percentage gets used to actually cross-subsidise the other services.”
What this means for you
You’re no longer just a passive electricity customer. The rule changes are about giving households and businesses the right to choose who they buy power from (or sell surplus power to) but that choice comes with consequences for how towns and cities are funded.
If you switch to a private power trader, your municipality still needs to be paid for the electricity distribution network, roads and services your electricity bill currently helps fund. How that gap is filled will shape whether local services hold up or quietly deteriorate.
For now, your biggest role is as a pressure point: pushing for cleaner, more reliable power and a fair transition that doesn’t hollow out municipal finances. Electricity reform won’t just be decided in boardrooms, it will be shaped by who speaks up, and who stays silent.
The neutrality trap
The weapon of mass destruction in the draft rules, according to critics, is the principle of “revenue neutrality” (Rule 9.8.2). This effectively dictates that municipalities can charge for the use of their distribution wires (wheeling), but they can no longer make a profit on the energy itself if a customer buys from a private trader.
For a small town, that profit margin is often the only thing funding the library, plugging the potholes, and churning the water treatment plant.
“Worst-case scenario, you can strip the municipality of about 60% of existing income unless you now do an augmentation in the rules,” says Nicholls.
If Nersa is now asking the municipalities to strip the energy component and only charge consumers for renting the wires, how much money will the municipalities be really left with, he asks?
Open-heart surgery
Undoing all the ugly things in the electricity market without shutting the lights off is like doing heart surgery while the patient is running a marathon.
On the other side of the operating table are the proponents of liberalisation who argue that the patient (the South African economy) needs this operation to survive, even if it hurts.
Business Leadership South Africa (BLSA) and Business Unity South Africa (BUSA) have been vocal, urging Eskom to drop legal challenges against the licensing of traders.
They argue that a competitive wholesale market is the only way to “unlock an additional 6GW of new private solar PV and 3.5GW of wind by 2030”.
Even the Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, has backed this view, arguing that the protectionist stance is a dead end, and insisting that the utility must “resign itself to a new dispensation”.
“If we say Eskom can’t consider participation in renewables, we are essentially advocating for the demise of Eskom”
Energy analyst Chris Yelland is even more blunt regarding the argument that traders will pick the best-paying customers, leaving municipalities with the poor and indigent.
“For Eskom to say that this is cherry-picking of Eskom’s customers [is] nonsense,” he argues. “They are not Eskom’s customers. They are customers who would like choice.”
Slow is smooth
The risk, however, is that in the rush to provide that choice, the municipal finance model collapses before a new one is built.
Nicholls suggests that rather than halting the process, Nersa should consider a reform transition grant – a fiscal mechanism to replace the lost cross-subsidies and help service the R100-billion debt municipalities owe Eskom. He also advocates for staggering the rollout.
“Just exempt [rural municipalities] from starting participation now... And then just shift their start date a bit later,” is his proposal. “I really subscribe to the... [Navy] SEALs approach which says slow is smooth and smooth is fast. Let’s... take the safer route.”
Stakeholder written responses closed on Wednesday, 10 December, but as the March 2026 deadline for the final rules approaches, the country’s electricity policymakers face a choice: open the market and risk fiscal chaos in the countryside, or protect the municipal revenue model and strangle the investment needed to decisively end load shedding.
For now, municipalities are holding the short end of the stick, and it’s burning. DM