In the previous financial year, power utility Eskom wrote off almost R8 billion of the R18 billion it claimed it was owed by households in Soweto. This is more than 40% and largely consists of interest that exceeded the principal debt.
And this is just the beginning.
In terms of the common law in duplum rule it is unlawful for a creditor to charge interest that amounts to more than the original debt, but that is exactly what Eskom did.
In the recent presentation of its annual financial statements for year ended March 31, 2020, Eskom disclosed that it wrote off “in duplum components of R7.9 billion” from the R18.2 billion that small power users (SPUs) in Soweto owed it at the end of the 2019 financial year.
Eskom later explained that R2.6 billion of the amount written off was debt that had prescribed and the balance (R5.3 billion) was non-compliant with the in duplum rule.
These amounts related to 10 166 households that buy their electricity directly from Eskom and was accumulated over 15 years.
Eskom normally charges interest at the prime lending rate plus 5%.
It says it was aware of the excess interest, “but because of customers continuing not paying their debt, a strategy to stop the capital debt from growing needed to be implemented first to avoid continual in-duplum and interest reversals or write offs”.
The utility is now moving customers to a prepaid system, and in doing that is analysing each account.
This write-off is only the beginning, since the power utility is dealing with the matter “in manageable batches”, it says.
It has also adjusted is billing programme to prevent a recurrence.
At the end of March Soweto’s arrear debt amounted to R12.8 billion. The good news is that the payment rate in Soweto has increased from 12.5% to 20.7%.
This huge write-off however raises questions about the integrity of Eskom’s bills to other clients who have fallen in arrears.
The Department of Public Enterprises reported to parliament that municipal arrear debt stood at R31 billion on July 1 this year.
During a recent meeting of energy regulator Nersa’s electricity sub-committee, officials and regulator members said the biggest portion of municipal arrear debt to Eskom consists of interest and penalties.
Full-time regulator member Nomfundo Maseti said Eskom charges compound interest. This makes it very difficult for municipalities to pay their debt and leads to higher tariffs, she said.
Eskom claims, for example, that the Maluti-A-Phofung municipality in Harrismith owes it R5.4 billion, of which R1.5 billion is interest. It is unclear how much of the amount owed is penalties.
Municipalities incur huge penalties if they exceed the notified maximum demand (NMD) agreed upon with Eskom.
NMD is the half-hour of highest demand during the month and Eskom plans its infrastructure according to that. If a user exceeds their NMD, it poses a risk to the network.
Large users, like municipalities, are expected to manage their NMD, but many municipalities fail to do that, claiming that illegal connections and electricity theft makes it impossible to stick to the agreed limit.
Eskom has for many years allowed municipalities to exceed their NMD and merely charged more and bigger penalties.
Maseti questioned during the meeting whether this is a revenue stream for Eskom.
In recent months Eskom has instituted “load reduction” at connection points where the NMD is regularly exceeded. It only supplies what it has been contracted to supply.
Nersa has been working on new NMD rules and has decided to publish new draft rules for public comment.
During the meeting Maseti suggested that the current set of rules with its punitive penalty regime be suspended until the new rules have been finalised. She further suggested that the rules also provide for penalties to be imposed on Eskom when it fails to supply the agreed upon demand.
No decision was taken in this regard.
According to Eskom, NMD penalties incurred by municipalities so far this year amount to R200 million. It is not clear how many municipalities have in fact been penalised.