City Power backtracks on shock prepaid charge (again)

But no indication of how the city will fix a broken tariff structure.
Postpaid customers in Johannesburg effectively subsidise the city’s prepaid customers, with the two groups paying among the most and least for electricity in SA. Image: Waldo Swiegers, Bloomberg

The City of Johannesburg has backtracked on a contentious R200 per month capacity charge for all residential prepaid electricity customers from July 1.

It has also dropped plans to implement a R402 a month capacity charge for business prepaid electricity customers.

These changes come as the city finally managed to pass its budget on Thursday, just one day before the deadline given to it by the Gauteng government.

This is the second year that the city has made a U-turn on these City Power tariffs. Last year, however, the tariffs had already been approved by council and were then quietly dropped in July within a week (City of Joburg quietly reverses new prepaid surcharge) following a fierce outcry from ratepayers.

Had the R200 monthly charge been implemented, the effective rate paid for electricity by prepaid customers would’ve soared by close to 50%, depending on usage.

Read: Joburg prepaid electricity customers in for a shock

The ANC-led municipality required support from other parties to pass the budget as no party has a majority in the metro. The opposition DA voted in favour. The EFF did not vote in favour. Tariffs were adjusted down from those proposed in the original draft budget tabled in May.

City of Joburg tariffs Proposed ‘average’ increase from July 1  Approved ‘average’ increase from July 1
Electricity 8.1% 6.23%
Water 8.6% 6.6%
Rates 4.9% 4%
Refuse removal 5.2% 5.2%

Already, the city’s postpaid customers pay steep monthly fixed charges for electricity. From July, the service charge (R147.76) and capacity charge (R435.27) for a single phase 60A connection totals R583 – before any usage at all.

Because of these sizeable monthly charges, postpaid customers in Johannesburg pay the most for electricity among the country’s major metros.

Effectively, postpaid customers are right now subsidising the city’s prepaid customers, who enjoy among the cheapest electricity in South Africa (almost as ‘cheap’ as those end customers supplied by Eskom directly).

The City Power tariff increases have mostly seen a straight-lined implementation of a 6.23% adjustment across the board. This extends to the monthly fixed charges for postpaid customers too. Businesses that aren’t large power users are offered some relief, with increases of 3.47% (postpaid) and 5.23% (prepaid) from July.

However, City Power has changed the tariff bands for prepaid electricity. The 0-350kWh band will change to 0-300kWh.

A change such as this to bands in an incline block tariff structure is disingenuous as it could hide significant increases.

The change from July 1 has the effect of making the next 50kWh of usage beyond 300kWh per month a whopping 22% more expensive for prepaid customers. This has been partially offset by making sure that the increase in the base band is only 3.64%.

The impact starts being felt the more electricity a prepaid customer uses.

For a customer who uses 600kWh per month, the increase is 6.53%, and for one who uses 1 000kWh, it is 7.1%. This is due to the higher increase at the upper band.

Residential prepaid tariffs – City of Joburg
2019/2020 2020/2021 Increase
0-350kWh R1.3942/kWh 0-300kWh R1.4449/kWh 3.64%
351-500kWh R1.5992/kWh 301kWh-500kWh R1.6988/kWh 6.23%*
>501kWh R1.8223/kWh >501kWh R1.9631/kWh 7.73%

* Excluding the impact of the tariff band change

Given the pushback over the past two years, it is unclear how City Power will ever be able to ensure parity between prepaid and postpaid rates over the medium-term.

The National Energy Regulator of South Africa will not allow the city to increase prepaid tariffs at a significantly higher rate than other tariffs to try and narrow this gap. Nor would the city arguably want to as the majority of low-income households use prepaid electricity.

The city had planned (after this year’s now failed attempt) to implement two further charges added for prepaid customers in 2021 and 2022. This would’ve likely brought the prepaid and postpaid rates in line. The failure to address this by multiple administrations has resulted in ever more postpaid (‘conventional’) residential customers switching to prepaid. This means the effective cross-subsidisation will not hold for much longer. Base tariffs will have to keep increasing to ensure balanced budgets.

City Power has a budgeted deficit of R511.5 million this year on total revenue of R17.27 billion. After transfers, it will report a deficit of R63 million. It has been able to reduce the tariff increases because this will be offset by a “strategic drive to reduce total electricity losses to a level of 25.5%” this year.

Yet this is more than double where experts believe the level of losses should be. The entity’s capital budget is just R738 million for this fiscal, far below the R901 million in last year’s adjusted operating budget.

AUTHOR PROFILE

Get full access to 's financial insights and support quality journalism.

Only R63 per month or R630 per year. You can cancel at any time.

COMMENTS   18

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

“Given the pushback over the past two years, it is unclear how City Power will ever be able to ensure parity between prepaid and postpaid rates over the medium-term.”

Why must there be parity? Prepaid doesn’t require meter reading and should have much less administrative costs, aka less overhead.

And it’s paid cash up-front, no collections fees and if the money was used correctly could generate investment revenue.

Post paid customers should be charged 30% surcharge not the other way around. They get 30 days to pay and still they don’t pay…. that’s why municipalities are in trouble.

Its not the post paid people who are bankrupting the power utility – if you don’t pay they terminate your electricity -its the electricity thieves that are the real problem as consumption exceeds income

The tariff structures in Jhb do not make sense and the valuation roll is outdated and incorrect.

When you do not collect utility consumption or rates from everyone then this is what you get – crazy.

There are 100 of thousand of houses in Jhb that have been turned into businesses that are valued at ridiculously low prices and they also are not tariffed or rated correctly.

The illegal theft of electricity is also a big big issue that just knocks onto everyone else, time and time again.

Just solve it, once and for all.

Prepaid also ensures no bad debts and debt collection. surely the more customers on prepaid the better.

It’s so beguiling to me that they refuse to go prepaid en-mass, especially for households. Imagine fuel companies opening accounts for each motor vehicle on the road and bill us every month… e-tolls system works fine, so thinks municipalities… “SALGA is everybody in your outfit retarded?”….

Prepaid electricity was introduced for lower income tax payers and according to all metros and municipalities to cut costs for meter readings, administration, etc., etc. Now it would appear that especially Metros are using prepaid electricity meters to fund their ‘budget’. How this can be allowed and Joburg City Council not be taken to Court is beyond me as the taxpayers are left destitute financing a corrupt system.

The trick councils use to slither past NERSA when they cannot increase a tariff by enough is to move users from one tariff structure to a totally different structure. Taxpayers should take care and note that per law, that move is only legal in certain circumstances and requires stakeholder consultation.

Let’s not forget that the ANC-driven imperative to split Eskom into three parts will give all SA’s dysfunctional municipalities full control over their electricity infrastructure and billing systems. This initiative is, of course, a smoke and mirrors exercise created to give the impression that some sort of activity equates to some sort of progress. Utterly pathetic. The real solution is to restart and restaff a unitary Eskom with competent and non-corruptible people at every level – but it needs to be done quickly before they ALL emigrate.

The basic charge has always been a part of good electricity tariff systems. There are a lot of fixed expenses that must be covered, even if a consumer does not use any electricity for that month. Unfortunately, Eskom, and a lot of cities, thought they were smart and dropped the basic charge. Now that they realised their mistake, they are trying to bring it back, with a lot of resistance from customers. In Cape Town we are paying it already for the past year.
Prepayment metering has advantages, but 23 years of experience have told me that it is not the perfect solution some people think it is. The meter reader was replaced with meter inspectors, because the older model meters, where the meter is in the house, are easy targets for tampering and theft. Where you could do all the administration from the municipal offices, you now have to supply a sales point every few kilometres (NERSA rules). The supermarkets, cafe’s and individuals who sells the electricity must be supplied with sales equipment, paid for their services and audited on a regular basis. The prepayment meters are also much more expensive than the conventional meters and must be replaced more often. Unfortunately, the distributors who disobeyed the basic rules of tariff development by dropping the basic charge, are now paying the price.

Do you pay a basic charge for petrol in your car. It is also energy is it not? All I want is power in my house and I care less for the conduit. They can supply it wireless or Wi Fi, I don’t care. Their business and pricing model should cover all their costs, fairly through margin. But you know who we dealing with here.

all my bags are packed
I’m ready to go
I’m leaving [as soon as I can afford a flight] on a jet plane
I have a been a prepaid user for over a decade and am now [insert expletive] tired of being punished for paying my bills in advance

The people in CityPower or the Joburg Council are either ignorant of the concept of prepaid charging or are dishonest with consumers (= clients).

I would bet on some corruption and lack or willingness to halt corruption and theft of electricity.

Why must the post paid customers carry the maintenance cost of the infrastructure alone? Pre-paid customers use the same infrastructure. A flat charge for every type of consumer will make sense.

If I was a post paid customer I would immediately demand to become a prepaid customer to avoid the R583 per month charge. Also it has the effect that the municipality cannot charge one upon estimates. It also limits the possibility of billing surprises which results in residents being forced to pay bills that are incorrect.

Let the meters get mortised over three years and then owned by the owners themselves and stop the gauging through the meter reading intermediaries.

In fact, in a time of Covid-19 the tariffs should decrease to assist the people and property rates should float loser due to real drops in property values.

End of comments.

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: