You are currently viewing our desktop site, do you want to visit our Mobile web app instead?

How middle men pad your municipal electricity bill – expert

Landlords, body corporates don’t know how bills are being padded.

PRETORIA – While municipal customers are battling to pay increasing electricity bills, middle men are often making huge profits, mostly without disclosing it and often being totally unauthorised, says an industry expert.

These resellers typically manage the technical and financial aspects of power distribution within residential sectional title complexes on behalf of body corporates and within shopping centres and office blocks on behalf of landlords. In other scenarios they sell and provide prepaid electricity to a variety of customers.

The National Energy Regulator (Nersa) is taking steps to increase regulation of resellers and will be holding public hearings next week about reseller tariffs recently introduced by councils.

Eric Bott, director of Energy Measurement Consulting (EMC) says Nersa regulates the margins of municipalities, but the management fees of resellers are currently not capped.

In one case he came across, a reseller made R26 000 per month at a big coastal shopping centre. It was basically reading one meter per month “and they paid the security guard to do that.”

He says especially outside the big cities, resellers often get someone else, without the necessary expertise and without verification, to read the meter on their behalf.

Meters are often inaccurate and not regularly calibrated as prescribed by the national standard.

The resellers are supposed to recover the amount billed by the municipality from the tenants or sectional title owners and pay it over to the municipality. They are supposed to use the same tariffs as set out in the municipality tariff structure applicable to consumption, but often use much higher tariffs and pocket the over-recovery.

The period of measurement is often not aligned, which complicates the issue as do municipal estimates.

In a recent investigation at a Gauteng shopping centre it was found that the reseller made R490 000 per month without the knowledge of the landlord by applying the most expensive tariff to tenants, while benefitting from a preferential bulk time-of-use tariff, which is billed by the municipality and much lower.

At a small office block in Johannesburg, Bott found an over-recovery of R300 000 over a three-year period.

He says the municipality expects any over-recovery to go into a kitty and be utilised for maintenance or to compensate for later under-recovery, but that seldom happens. Many resellers just pocket it.

In some cases, especially at commercial buildings, management agents and resellers split the over-recovery: with the agent getting 40% and the reseller 60%. This happens without the knowledge of the landlord.

It is important that recovery from individual tenants should be accurate and often that is not the case. If one tenant or sectional owner does not pay his portion, the others end up subsidising them. Often this is done by over-charging the common area and other users are being overcharged on their share of this cost, Bott says.

Many resellers hold deposits and if they have a big client base, huge amounts of money go through their accounts every month, without any regulatory oversight.

There have been numerous cases of resellers vanishing with large amounts. Their clients only realised that the money they collected had not been paid over to the municipality when their electricity was cut.

Bott has also seen a pattern of resellers manipulating the timing of their payments to municipal suppliers in order to maximise interest earned in their accounts on the money they collected.

He believes resellers should be licensed and only those with the necessary technical and financial skills and a strong enough balance sheet should be approved. Licences should be revoked where misconduct has been proven.

Bott has over many years done investigations on behalf of retail and commercial property groups as well as public sector clients, including Johannesburg’s City Power.

He says in some cases the conduct of resellers is criminal and somebody within the municipality is complicit. He dealt with a case where the reseller tampered with the municipal meter to undercharge the property by 10%. The reseller also over-recovered from tenants by 10% and thereby built in a cosy 20% margin for himself without the knowledge of his client, a big commercial property owner with a collective monthly account of R50 million. It went undetected for a long time because the landlord did not regularly check the collections against the municipal bill.

The investigation is on-going.

Bott warns that body corporates and landlords cannot delegate their responsibility for the electricity account to resellers. The reseller is acting as an agent and the body corporate or landlord will be held responsible for his misconduct. The landlord and body corporate remains ultimately responsible for the municipal bill and recovering it from tenants or sectional title owners.

He gave some advice to body corporates at residential and commercial complexes.

Residential:

1. Deposits should be held by the body corporate or in a trust account .

2. Check the collections/payments made against the monthly municipal bill.

3. The tariff should be the same as that stipulated by the municipal tariff structure.

Commercial:

1. Landlords should hold deposits and payments by tenants should be made to the landlord.

2. Get opening and closing readings in order to check the consumption and the applicable period.

3. Check that the tariffs applied correspond with the tariffs published by the municipality and that over-recoveries are ring-fenced for electricity maintenance and other related expenses and not charged as an operational cost.

4. If necessary get professional advice.

Resellers are expected to make representations at the Nersa hearings.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

COMMENTS   0

Comments on this article are closed.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: