Municipal tariff excessive, unlawful, says Eskom in support of business chambers

City Power responds to statement that ‘businesses pay 80% more for City Power than when buying directly from Eskom’.
A kilowatt hour of electricity supplied to businesses in Joburg costs either 139c or 252c depending on who supplies it … Image: Waldo Swiegers/Bloomberg

Eskom on Thursday came out in support of a court application by the business chambers of Nelson Mandela Bay and Pietermaritzburg, aimed at ensuring that municipalities charge end-users only what the law permits for electricity and nothing more.

The Pretoria High Court heard the application during a virtual hearing. Energy regulator Nersa and the City of Joburg are opposing it.

Read:
Nersa proposes 7.47% increase in municipal tariffs
Chambers reject Nersa guideline for municipal electricity tariffs

The business chambers contend that the methodology Nersa uses to determine municipal tariffs is unconstitutional and invalid because it is:

  • Contrary to what the Constitution, the Electricity Pricing Policy (EPP) and the Electricity Regulation Act (ERA) require; and
  • Not based on what it costs municipalities to supply the service as well as a reasonable return.

Nersa has for the last decade been using a method of providing a guideline percentage increase on average tariffs every year as well as a benchmark tariff range for every consumer group, for example residential, business or industrial customers.

If the application succeeds, the guideline approved for 2022/23, which will inform Nersa’s approval of each municipality’s electricity tariffs, will be set aside. These tariffs are supposed to take effect on 1 July.

The applicants however acknowledged that it would lead to chaos if municipalities are left without valid tariffs and there is too little time to rectify the situation. They therefore ask that such an order be suspended for a year to give Nersa the opportunity to develop a valid methodology.

Read:
Municipalities want a piece of Eskom’s distribution pie
SA to allow municipalities to source their own power
Municipalities want another slice of the pie, this time from IPPs

Advocate Matthew Chaskalson SC for Eskom emphasised that the Constitution, the EPP and ERA distinguish between electricity tariffs and surcharges, which are essentially municipal taxes that may be levied upon tariffs.

Nersa is mandated to approve electricity tariffs on the basis of what it costs a municipality to provide the service as well as a reasonable return. Anything over and above that is a surcharge and must be dealt with in terms of the Municipal Fiscal Powers and Functions Act, which gives no powers to Nersa.

Chaskalson said that to lawfully determine electricity tariffs, Nersa does not only have to interrogate the overall cost of supply, it also has to determine the cost to supply each category of customers to be able to consider whether any cross-subsidisation is taking place.

Read:
Eskom: De Ruyter has a plan up his sleeve
Consumers should not have to pay for Eskom’s Medupi, Kusile mess – Asac

That is only allowed if transparent and specifically permitted in terms of a cross-subsidisation programme, he added.

Chaskalson said the EPP provided in 2008 that municipal tariffs should move towards cost-reflectivity with a reasonable margin.

However, Nersa has for more than a decade been using the guideline and benchmark method, even stating that it is an alternative to a cost-based method.

Chaskalson pointed out that the guideline provides for only a percentage increase on the previous year’s tariffs without first determining the cost of supply.

Additional costs

The original tariffs it was based on included a number of additional items. “If it included 20% of additional costs, that remained in the tariff.”

That, Chaskalson said, is why businesses currently pay Eskom 139c per kilowatt hour (kWh), while those same businesses, if supplied by Johannesburg’s City Power, would pay 252c/kWh – more than 80% more.*

He said it is inconceivable that it could cost City Power so much more to supply electricity than it costs Eskom.

“It cannot be reasonably possible,” he said.

Chaskalson called the guideline and benchmark methodology as a whole unconstitutional and rejected Nersa’s contention that it does investigate the cost of supply of each municipality.

“Even though Nersa says it investigates the cost of supply, it does not provide any evidence to that effect,” he said.

If it did, he added, how could it cost City Power 80% more to provide the service than it costs Eskom?

The hearing continues on Friday, when Nersa and the City of Joburg will present their arguments.

Regarding Advocate Matthew Chaskalson’s statement in court that City Power charges customers 80% more than they would have paid if supplied directly by Eskom, City Power responds as follows:

Comparison of Eskom and City Power Tariffs

Eskom is both a bulk supplier to municipal distribution entities and a supplier to its own end-customers, at the end of its distribution network. It may therefore amount to distortion to compare the Eskom tariff to its own end-customers particularly to its Large Power Users (LPU) to the tariffs to City Power end-customer LPU without consideration of the price differential between the Eskom bulk tariff to City Power and the Eskom retail tariff to its LPU. The true anomaly is the fact that the Eskom retail customer (LPU) at Miniflex tariff is almost at the same tariff as City Power even though we are wholesale customer of Eskom transmission for that matter.  

Municipalities and municipal entities may therefore as well be subsidizing Eskom end-customers particularly their LPU customers. Therefore in order for municipal entities to be able to better compete with Eskom end customer tariffs, the tariff Eskom charges to municipal distribution entities relative to its LPU end-customer tariff may have to be assessed and possibly adjusted by NERSA for relative cost reflectivity.

City Power for example has more than 50 Bulk supply intake points most of which are supplied at the Megaflex >66kV <=132kV tariff, while the Eskom (LPU end-customers are likely to be on the Non-Local Authority Miniflex >=500V<66kV. The tariff at which Eskom in this case sells to its end LPU customers, is almost the same as the tariff at which City Power purchases from Eskom.

As City Power incurrs cost  in providing service to its customers, it will not be feasible to charge our LPU end customers tariffs that are comparable to Eskom’s LPU end-customers, as in so-doing we will essentially be selling at about our purchase price.

It is otherwise incorrect to suggest that City Power business tariffs are 80% higher than those of Eskom. Eskom has business tariffs referred to as business rate 1-4. Similar to our conventional business tariff rate 1-3 have both energy and basic charged. Assuming consumption of 2000kWh a month the Eskom tariff comes at a discount that ranges from 10%-23%, i.e. Business rate 1 is 23% cheaper and not 80% as suggested. Business rate 3 is however only 10% cheaper than the business conventional tariff charged by City Power.

Eskom Business 4 like our Business Prepaid tariff does not attract basic charges, and the two tariffs are therefore comparable, though the Eskom tariff in this case is approximately 41% more expensive. 

COMMENTS   4

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

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

Most of the municipalities have become too reliant on this excessive tarrif margin for Electricity that it is unconstitutional.

They should only charge a reasonable handling fee, no more.

“ That, Chaskalson said, is why businesses currently pay Eskom 139c per kilowatt hour (kWh), while those same businesses, if supplied by Johannesburg’s City Power, would pay 252c/kWh – more than 80% more”

Sheer luxury (80% more).

I pay R6.95 effective per kWh on my net consumption (difference between drawn and fed back). In a month where my consumption is nil on net basis, the number is obviously insane. I am fairly certain Chaskalson made a similar logic mistake in his comparison. No ways CoJ pays 139c / kWh when consider total annual spent and total annual kWh. Tariffs are a complex game.

The country needs to rejig all tariffs down to a handful of sensible ones all councils must choose from. No special tariffs anywhere.

For stopping abuse : court must order that all Councils must disclose the profit margin they make per consumer category. They MUST have that number at hand or admit they are simply making up tariffs as they go along.

You have a point I think Johan. I’m not sure you are correct in saying “No ways CoJ pays 139c / kWh” unless you have insider knowledge. I have in another large municipality and they are open about the tariffs (was MegaFlex) they paid to Eskom (or Eskom charged) because that is what they were prepared to pay generators of electricity. That municipality also made it clear that industries could negotiate tariffs from them and the larger ones did, getting close to the Eskom charge as these industries threatened to go directly to Eskom who would build their own transmission lines.

The only grip municipalities have is ownership of the distribution network including metering. NERSA should have established baseline wheeling charges (or REDs should have gone ahead) so that consumers could buy directly from generators. Pie in the sky n ANC SA.

Councils are responding to private solar (them selling fewer kWh) with abusive kVA charges (about five times their magaflex kVA cost).

They should be careful what they wish for : business consumers will just add storage to their solar and if the abuse carries on switch off grid entirely.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Subscribe to our mailing list

* indicates required
Moneyweb newsletters

Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.
INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us: