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Municipalities want another slice of the pie, this time from IPPs

Local government association calls for surcharge on independent power producer sales in municipal distribution areas.
The envisaged IPP surcharge is over and above the network charges IPPs will pay for the use of the municipal distribution system. Image: Shutterstock

Independent power producers (IPPs) will have to pay a surcharge to municipalities when they supply electricity to clients within their areas of jurisdiction if the South African Local Government Association (Salga) has its way.

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Salga also calls on municipalities to ensure they have network charges on their tariff books that are cost-reflective as more consumers install solar panels but remain connected to the electricity grid.

Salga bases its claim for a surcharge on what it considers to be an exclusive right, reserved in the Constitution, for municipalities to distribute electricity in South Africa.

‘Seller must compensate municipalities’

The sale of electricity is one of the main sources of income for municipalities and if someone else does it, the seller must compensate municipalities for the loss of income, according to Salga head of electricity and energy Nhlanhla Ngidi.

The IPP surcharge is over and above the network charges IPPs will pay for the use of the municipal distribution system.

Salga has for years been fighting for Eskom to sign service level agreements with municipalities for sales in municipal areas that Eskom supplies directly. Such an agreement will provide for a surcharge to be paid to the local municipality.

An inter-ministerial committee approved this in 2018, but little progress has been made with the implementation.

Keeping up with progress

This principle is now extended to IPPs as the electricity supply industry diversifies.

Ngidi says the surcharges will be imposed in terms of the Municipal Fiscal Powers and Functions Act. The City of Cape Town has for some time had a surcharge on electricity sales imposed in terms of this act.

Imposing any such surcharge requires the approval of the minister of finance.

Bokwa Law Incorporated attorney Bertus Maritz says the Matjhabeng municipality in Welkom, which he represents, has already lodged a claim of R4.5 billion against Eskom as compensation for electricity sales in its area of jurisdiction.

This is in terms of the common law principle of unjustified enrichment and is part of an extensive legal battle characterised by claims and counterclaims.

Maritz says the Kai Garib municipality in Kakamas in the Northern Cape is preparing a similar claim that has provisionally been quantified at R411 million.

The calculations are made at a rate of 20% of Eskom’s electricity revenue, pending some information to be supplied by Eskom.

Martiz says Matjhabeng is also preparing a draft municipal bylaw for electricity surcharges on sales within its borders by Eskom or anybody else. The municipal council is expected to approve it later this month.

Private operators using the grid

Thembani Bukula, former full-time member of the energy regulator Nersa for electricity and now CEO of the electricity trader PowerX, says as the local electricity supply industry transforms, more and more independent power producers will make use of the national grid to wheel electricity to end-users in other locations.

Already power is for example being wheeled from a biomass plant outside Bronkhorstpruit to the BMW plant in Rosslyn, Pretoria, using the Tshwane distribution network.

The parties pay the metro for the use of its system.

According to Bukula, apart from Tshwane and Nelson Mandela Bay, few other municipalities have developed such tariffs.

He is however sceptical about the justification for a surcharge and says Eskom direct distribution came about when Eskom electrified townships because the municipality couldn’t.

He is of the opinion that a surcharge would only be justified if the municipality compensates Eskom for the infrastructure it established.

Ig du Plessis, director of solar power solutions provider Sonfin, says Eskom does allow clients to bank their excess power and utilise it later, but they can only offset what they use and can carry it forward within a banking year that ends on March 31.

Eskom applies three different additional admin charges that range from R6.06 to R96.08 each per day, depending on the size of the connection.

He says municipalities that Sonfin has dealt with do not so far allow offsetting and therefore no additional charges apply.

Mike Levington, a director of Kabi Solar, says it is understandable that municipalities question where their revenue will come from if electricity distribution is taken out of their hands.

The power purchase agreement between an IPP and its customer is however a private agreement and he is not sure that the use of a municipal network that parties pay for can be regarded as power “distribution”.

Levington says municipal tariff structures are in any case completely inappropriate and stakeholders should sit around a table and find a solution for the whole country, rather than fighting each other in court.

COMMENTS   42

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One wonders if future IPP’s will be discouraged by these tariffs?

Yet another source for looting!

The saying goes:
Give a Man fish and he will eat for a day, Teach a man how to fish and he will sit in a boat and drink beer all day.

This is another form of Expropriation Without Compensation, the municipality has done nothing here, yet they are demanding compensation.

This is just another push factor for business to leave South Africa because not even securing a stable amount of electricity is guaranteed even if you have paid for it nor is it simple. Things are made unnecessarily complicated just to consume more money for no valid reason other than greed.

“Give a man a fish and you feed him for a day. Don’t teach a man to fish, and you feed yourself. He’s a grown man. Fishing’s not that hard.” – Ron Swanson

True to fashion : More loot for the mainly non functioning decay experts!

By not dealing the culture of non-payment and theft of electricity the municipalities have given themselves (and the willing payers) a big headache.

The ANC have been applying a selective debt recovery policy for 26 years now, where they openly state that they don’t collect debt in black areas.

This is not sustainable.

Another “creative” way of taxing sunlight also taxing environmentally friendly power supply solutions.

I say give it to them, provided they have had at least 5 straight years of clean audits.

Clean audits really don’t mean a lot, they too basic. A forensic type audit would be a far better indication of what goes on behind the scenes.Procurement departments are a big problem.

Isn’t the entire country is within one municipal boundary or another? So all Eskom electricity sales are within somebody’s municipality? Judge should laugh this off.

“ Salga also calls on municipalities to ensure they have network charges on their tariff books that are cost-reflective”. That would be wonderful but I am not holding my breath.

Ratepayers and residents are basically milk cows for councils.

Moe entitlement. Get someone else to provide the service and we will take a cut off the top.

This is the modern SA modus operandi when it comes to service delivery.

It’s not unfair to have to pay a fee for use of the national grid – this is done in other places such as Hawaii where so much PV electricity is produced that electricity sales revenue needed for grid maintenance has dropped dramatically. But it would not be fair to milk IPPs as a new cash cow.

Mistral:

For residents with solar that export to council not selling to remote third party, the councils already charge for the connection and distribution. In most cases councils also pay far less for surplus solar than what they would pay Eskom. So already more than square in this scenario. The solar electrons my council pay me 52c for are sold within 200m to other residents at 204c/kWh!

For residents with solar that are licensed and that generate for offtake by a third party, the councils charge a wheeling tariff already. 26c/kWh in my town and remember that in addition to that the residents are also paying availability fees on their connection. So basically the 26c/kWh is a toll fee for doing nothing = a compensation for profit foregone if they had supplied that energy from Eskom.

Also consider that surplus solar injected into the council distribution network is helping grid quality by fixing voltage losses.

My daughter in the Netherlands lives in a flat with solar panels. You use electricity, but also feed into the grid. At the end of the year the reconcile the amounts. Paid zero for electricity and got € 130 paid to her.

here are they again – with “we want” – they have missed the train (via eskom’s and as well as their own incompetence) when they had the chances to do so, they did not put a cent capital into the project, but want something out of it – sounds identical to the electric meter case where the installer wants to get a continues monthly portion of the installed meter – now the municipalities are trying the same trick – rather ask the sun stop shining and see if it works. for the same reason i say the government is not a single moment worried about one’s health when it comes to the usage of sugar, liquor, cigarettes,etc – tax thereon is just another way of creating income out of nothing – same with tax on fuel

When quality affordable energy storage becomes a reality in the near future, the parallel economy will truly show along with government’s massive shortcomings and incompetence.

Tievo: when storage becomes a bit more affordable I am adding 900kW to my 550 kW solar and installing 3 MWh batteries. With that and 800kVA generators maybe 50h a year : sayonara eskom and council. Then they only have rates & taxes with which to steal from me. No solution on that front I am afraid.

Heheheee– this will just spur all of us on solar to go completely off grid.

Stuff you guys !!!!

Not so fast. They will tax you per solar panel.

In Medieval England they were taxed for windows.

A radical idea: Provide cheap and reliable electricity to your citizens. Problem solved.

The fact that someone who works at the municipality earns almost double what a person with the same skills earns in the private sector, proves that the municipality is a vehicle of extortion. They use their monopoly to exploit property owners. There are no constraints on wages and no minimum standards of service delivery. They have the legal right to extort taxpayers without any reciprocity.

The current legal framework enables a municipality to turn the asset value of businesses and residential property into salaries for municipal workers and services in townships. It is a vehicle for redistribution. The fact that more than 80% of municipalities are bankrupt, proves that this process has reached its natural conclusion. What is the value of a property when that municipality is bankrupt?

Not sure if I understand this. I have a windfarm on my property that supplies Eskom via a substation that they built themselves. Now there are customers getting direct from IPP’s?
these turbines put out 1.5 to 2 mw so the IPP has a substation to reduce that to 220 volts and then supplies a customer by passing the municipality concerned?

Need some detail here guys?

pwgg: there are a few parties with scarce licenses that are allowed to resell electricity other than in the scheme selling to Eskom. So Johnny has a wind/solar plant and has license and concludes agreement with (1) somebody like BMW (2) sometimes just Eskom but could be his council to inject power at his fence. His electrons don’t go to BMW, they go into grid. Johnny pays Eskom and/or his council for transporting his power and BMW pays Johnny. BMW might be in a different council (but mostly the bug guys are Eskom direct) so BMW might pay their council a wheeling fee instead of the full energy tariff.

Why don’t the local authorities become IPP themselves and do something useful for a change?

Municipalities have the same attitude as taxi owners and drivers and also BEE middlemen. Why should they be owned anything for electricity if they have not distributed it or facilitated it’s distribution.

I have an idea. Why don’t we equip every property with wind and sunlight meters and tax people for the use hereof directly. While we are at it why don’t we install air flow meters inside everyone’s throat to tax the quantity of O2 being breathed in, then at the same time we can implement a green tax on the quantity of CO2 breathed out as well because we care that much about the environment. maybe we should also put pollution detectors above every toilet and tax those also because we REALLY love the environment that much.

Please inform Salga that the municipalities were much more effectively run when the counsellors were unpaid, i.e. when it were honorary positions.

Much of the rates goes to political appointees as counsellors, who have a proven dismal record of performance.

With honorary positions the councils attract better people and save much money, that can be used for service delivery.

the mind boggles at the arrogance of these municipal leeches, we dont want to work but we want your money any which way that is easy. Thats Africa!

Sjoe!!!!
Let’s see:
Why don’t they introduce a municipality tax (oops, not tax but surcharge) on houses which have window panes larger than 500mm x 1000mm? After all, larger panes allow more light through so less electricity is needed for lights.
Add to that – if the house has more then 5 panes, ditto.
If there’s a braai area, ditto (no stove necesarry)
While we’re at it:
If there’s two garages, tax it extra.
Ditto for tile roofs.
Ditto for wood window frames.
If the house has more than two doors you get more air in.
If…….
If……

Ja wel no fine, I did expect that management will be effective and reliable……….

It boils down to this – everybody is doing their best, some’s best is just better than other’s best.

“ The calculations are made at a rate of 20% of Eskom’s electricity revenue, pending some information to be supplied by Eskom.” Good luck waiting for Eskimo to provide this info, so that SALGA can charge them! Fat chance

THIS IS WHAT COMMUNISM LOOKS LIKE.

No, this is socialism.
A communist is at least honest about this intention, a socialist lies about their intentions.

Everything in Socialism is done “For the Greater Good” but this rarely happens as patronage networks constantly require greasing. They eventually collapse because socialists run out of other people’s money.

Communists like China own the means of production and thought slave wages export their competitiveness with the main goal of ensuring that the wheel keeps turning. Eventually they too fail as the Natural Law of Spontaneous Order where the demands of citizen change because further product development has occurred and new products are brought to the store front.

Both socialism and communism fail to product anything new.

Watch it will be India that eventually comes out on Top by 2050.

1) The Electricity Regulations Act allow for non Discrimnatory Grid access. That means and IPP can sit in Eskom network and wheel to a customer in a Municipality or Eskom network.

2) Further Regulations allow for the Network Operators (i.e. Eskom and / or Municipalities) to recover the use of system costs”. Thats just fair (provided the use of system cost are truly cost reflective)

3) The problem is some/most Municipalities recover both use of system costs + additional revenue and would use various arguments to either collect both costs and margin (making it les viable for the IPP) or to block IPP’s completely.

One major arguments is that that the constitution provides exclusive rights the them to supply (see clear outcome of court ruling below)

At this point even NERSA sits on the fence. Moneyweb – please phone NERSA and ask them whether or not they think customers are owned by the Municipalities”.

Another argument is that they will be able to procure from IPP’s themselves. The reality is most Munics are bankrupt – who will invest in a project to sells power to a munic that cannot even pay Eskom?

As with regards to the Exclusive right of Municipalities –

Please refer to South Gauteng Court Decision on Chlorchem vs NERSA and others (Oct 2017)

The outcome of the case dealt specifically with the question of whether or not municipalities has exclusive right to supply electricity to customers within their area of jurisdiction.

What is quite relevant also is the fact that the court decision ( which also include the Minister, Eskom, Ekhuruleni Municipality and NERSA) was not appealed.

An extract of the ruling reads as follows: reads as follows:

…”no Act of Parliament gives municipalities the exclusive right to supply electricity to consumers within their area of jurisdiction. EMM and NERSA do not point to any such legislation, but their argument to the contrary seems to proceed from the premise that section 156(1)(a) of the Constitution gives EMM the exclusive power to supply electricity within its area of jurisdiction. Section 156(1)(a) of the Constitution provides:

‘A municipality has exclusive authority in respect of, and has the right to administer –
(a) the local government matters listed in Part B of Schedule 4 and Part B of Schedule 5.’

“Electricity and gas reticulation” are listed in Part B of Schedule 4 as a local government matter. Both EMM and NERSA argue that municipalities enjoy exclusive executive authority in respect of this functional area of competence. In other words, they contend that only municipalities can exercise executive authority in respect of matters pertaining to electricity reticulation. They find support for this interpretation in the Electricity Regulation Act which defines “electricity reticulation” to mean the “trading or distributing of electricity and includes services associated there with”.

[45] I disagree with the interpretation of “electricity reticulation” which NERSA and EMM contend for, as a constitutional provision cannot be interpreted with reference to subordinate legislation. “Electricity and gas reticulation” in Schedule 4 of the Constitution must be interpreted in accordance with the ordinary meaning of the word

“reticulate”. The Concise Oxford English Dictionary (9th edition) defines “reticulate” as:
‘1. divide or be divided in fact or appearance into a network; 2 arrange or be arranged in small squares or with intersecting lines’

The Meriam Webster Dictionary (online) contains a similar definition:
‘to divide, mark, or construct so as to form a network ’

The Collins English Dictionary (online) likewise defines “reticulate” as “to form or be formed into a net.”

When Schedule 4 of the Constitution refers to “electricity reticulation” it refers to the establishment and operation of an electricity distribution network and the provision of electricity.

[46] Section 156(1)(a) of the Constitution, properly construed, does not give a municipality the exclusive power to supply electricity within its area of jurisdiction. “

The Constitution requires back to back local government for the entire country, including in rural areas which previously had no local government at all. Section 156(1)(a) of the Constitution cannot be interpreted to mean that as of February 1997, no-one other than a municipality would be entitled to supply electricity to consumers. Therefore, in so far as section 156(1)(a) read with Schedule 4 to the Constitution speaks of the exclusive authority of a municipality and its right to administer the local government matter of electricity reticulation, this must be interpreted to mean merely that a municipality is entitled to set up its own electricity reticulation network. And that it is the only organ of state entitled to administer that network, since the administration of its own electricity reticulation network is a necessary element of municipal autonomy.

[47] The Constitution does not require an outcome that where national legislation in the form of the Electricity Regulation Act provides for private persons and other organs of state to be licenced to supply electricity[11], no-one other than a municipality is entitled to supply electricity within the area of that municipality.

MONEYWEB – PLEASE CAN WE HAVE MANY MORE ARTICLES ON THIS SUBJECT AS WE NEED COLLECTIVE PRESSURE TO OPEN THE ROAD TO A TRUE FREE MARKET SYSTEM AND THE IMPLEMENTATION OF PROVISION OF NON DISCRIMINATION ACROSS ALL NETWORKS

Well said sir, looking at it simplistically (you haven’t), the outrage in the comments comes from a fundamental distrust, at least by most MW readers of SA municipalities. This is often very well founded as most are dens of ANC iniquity and even the better run ones (DA run) have a massive revenue problem, mostly I say, due to people who pay zero rates and make a miniscule contribution to the municipality, demanding stuff for free; electricity, water, roads etc etc. If they don’t get it, they often resort to destroying municipal property, costing even more.

Now add a whole raft of additional cost to municipalities; AA, BEE, non–payment etc and you have a real cash bind.

One of the ways the municipalities funded themselves was a mark up, over and above the cost of the municipal grid construction and upkeep on electricity. With private generation they are shorted and so are scrabbling around trying to replace that shortfall. It is all wrong, unfair, counter-productive, dishonest etc but this is typical of the ANC SA. Gezundheit.

“Salga also calls on municipalities to ensure they have network charges on their tariff books that are cost-reflective as more consumers install solar panels but remain connected to the electricity grid”

with reference to the above: the grid was developed long before the municipality / eskom run power-supply into the ground – now want to make it a running income while cutting their own throat in the long run.
final result will be that the incompetent bankrupt municipalities will sit with a customer basis who can not pay / want to pay / not use to pay / stealing /tapping electricity while a continues growing ipp customer basis goes on independently from useless municipalities – the direct result when the previouly prime customer is kick in the face – our street cable is not even replaced in the last 30 years, so forget about the term “network grid charges” – overhead or underground nothing is/was done

Intelligence shedding starts at 17:00. Tonight and tomorrow night are going to be fubar for me.

Eskom, Salga and the ANC are invited to go and copulate in a far off place.

Will I get a rebate on the network charge when the network is off?

When the constitution was written (1996), local municipal areas of jurisdiction were much smaller than today. In between these areas of jurisdiction were vast areas under the administration of district councils. Most of these areas were serviced by Eskom. The constitution gave municipalities the duty (please note – a duty, not a right) to distribute electricity in their areas of jurisdiction. When the new municipal areas were promulgated in 2001, all these areas became part of local municipalities. I believe the constitution did not foresee this scenario. Municipalities should rather focus on excellent management of their own networks, then they will not need to spunge on other suppliers.

Get your act together and we’ll consider it and the same goes for any ANC proposal going forward.

So what happens if a IPP wants to sell power to his neighbor within the municipality and chooses to run his own wire over the fence???
Know this bunch they will want to intervene to steal money for themselves ….. The african national corruption is everywhere …. steal first and offer nothing in return!!

End of comments.

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