Nersa throws municipalities a curve ball

Comment invited on draft tariff guideline.
Image: Moneyweb

Energy regulator Nersa has thrown municipalities a curve ball, by benchmarking their retail electricity tariff proposal on Eskom’s retail tariffs.

This could open the door to closing the big gap between the tariffs paid by the end-user, who buys their electricity from municipalities, and those paid by Eskom’s direct customers.

According to David Mertens of the Nelson Mandela Bay Business Chamber, a large factory working five days a week, 24 hours per day, pays about R44.5 million annually for electricity if it is supplied by Eskom.

That same factory would have had to cough up R64.4 million if it bought its power from Joburg’s City Power, R54.4 million in Cape Town, R52.7 million in Tshwane and R47.4 million in Nelson Mandela Bay metro.

Nersa’s proposal is contained in the draft guideline for municipal electricity tariffs, published on its website for comment.

The regulator has invited written submissions before the deadline of April 9 and says it will announce the date for a public hearing thereafter. Nersa is currently closed due to the national Covid 19-lockdown and it is not yet clear whether the deadline and process will be affected by the current countrywide state of disaster. Nersa is due to reopen after the lockdown, on April 16.

The guideline, which Nersa publishes annually, proposes an average increase in the tariffs municipalities charge their electricity customers of 6.24%.

This is calculated taking into account, among others, the 6.9% increase in the Eskom tariff for municipal bulk purchases, increased staff cost and the cost of repairs and maintenance.

Every municipality still has to submit its own application to Nersa and increases that exceed the guideline of 6.24% will have to be very well motivated and subject to strict conditions.

The guideline however also provides for benchmark tariffs for different customer categories.

According to the Electricity Regulation Act (ERA) a licensee, be it Eskom or the municipality, is entitled to recover the efficient cost of supply as well as a reasonable margin.

Municipalities have however been using electricity revenue to subsidise other services, even though the ring-fencing of electricity revenue is one of the conditions of their distribution licenses.

Despite an obligation on municipalities to do cost of supply studies, very few have complied and that is where Nersa has changed tack.

Each benchmark provides for a tariff band, with the lower value of the band being based on the previous year’s benchmark, but the higher value based on Eskom’s retail tariff.

The regulator says in the document published for comment that it uses the Eskom tariffs because it is based on cost studies. It hopes to thereby protect consumers against too-high tariffs and compel municipalities to do their cost studies. It further hopes to ensure a competitive market in the light of plans to unbundle Eskom into three separate companies for electricity generation, transmission and distribution.

According to Mertens, a study by the Nelson Mandela Bay Business Chamber on documents that previous municipal tariff determinations were based on, showed a lack of rational basis. He has lauded Nersa’s move to base the benchmarks on Eskom retail tariffs and says it opens the door to challenge unreasonable municipal tariffs.

Morné Mostert, head of local government matters at AfriForum, says municipalities have to base their tariffs on proper cost studies. AfriForum has submitted a request in terms of the Promotion of Access to Information Act for all municipal cost studies submitted to Nersa.

He says an average tariff increase of 6.24%, which is less than 2 percentage points above inflation, is fair.

The Nersa guideline also provides for a margin of up to 20% for electricity resellers, which according to the Electricity Resellers Associations of South Africa is in line with Nersa’s earlier position that a 15% to 20% margin for resellers is sustainable.

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COMMENTS   17

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This is positive however the main story is still the nonpayment by most townships and the theft of the utility

The vicious circle of poverty will only get bigger. If you can’t pay you can’t have power, if you don’t have power you can’t work to get paid.
The same is happening with work from home, schooling from home. Can’t do these if you have no internet, devices etc. Can’t get work to afford these things if you don’t have them…

Non-event, municipalities will just increase rates to recover lost revenue.

Just wondering…. supposing this action also prompted NERSA because some municipalities were not sticking to the guideline of 20% or less margin, what have the municipalities been charging us all along?

This doesn’t ring true and seems overly simplistic. Really big businesses can negotiate with municipalities for rates that are competitive with what Eskom would charge as these businesses have the option of buying from the nearest Eskom infrastructure. The real subsidiser is the small and medium size consumer who has no negotiating power.

It would be good compare with what consumers are paying in other developed and developing nations.

Well done , it’s a step in the right direction to help the consumers pay a fair amount as opposed to just another easy latch on by municipalities , for funding to give away to those who do not pay for what they use – electricity must be seen in perspective of household use as a luxury and not a necessity ( think of our parents Who still lived and grew up on on farms years ago Without it ) unlike water and sewerage

It would be interesting article to take a few representative consumers’ bills and compare a few cities?

Single phase residential small user
Single phase residential large user
Commercial small office three phase 40A
Commercial large office three phase 200A
Small industrial say 80kVA on LV
A few large commercial and industrial on MV and HV

My council’s margin over their Eskom Megaflex on me is 96% – complete breach of the NERSA guide for 2019/20.

They have refused, as Electricity Regulation Act s15 compels them, to give me exactly what cost I impose on them. Refuse, no reason.

They also refused a Nov PAIA application for their 2019/2020 application data for my class of users. Quoted secrecy and then refused to give the appeal process as per PAIA.

I opened a dispute with NERSA in December – no response yet.

If there is a lockdown-bored energy legal expert that can help, please shout. I know my facts are correct.

NERSA is correct with this and it is in all ratepayers interest to take note.

When Eskom is unbundled, councils will be competing against Eskom Distribution for business owners in site selection. There are areas inside councils served by Eskom. Eg Montagu Gardens in the Cape you can get Eskom Direct or pay 30% more from CPT for the same power and energy.

Councils have been milking electricity far too long as the source to generate margin for the stuff they do make losses on

These municipalities will have to start thinking about reducing their costs. They can start by reducing Mayors and elected official salaries, Management to reduce their sky high salaries and then start with the lower down staff. Get rid of excess staff of which there are numerous.
After that they can look at reducing rates and taxes to assist with gewtting the economy working again. If this does not start happening soon the collapse will be humongous.
this goes for provincial gov and national goevernment as well of course.

It is time that the extortionate rates and taxes that are levied by municipalities are readjusted to reflect the affordability of those that do pay these charges.

IF I WERE PRESIDENT…

I would make electricty, water, and other municipality services free of charge for primary residency. Holiday homes and businesses will be billed as normal.

How will I get revenue to cover all service costs… I would increase VAT to 18% and levy 150 cents off a litre of petrol(reducing RAF Portion from the fuel levy) 50 cents off packet of cigarettes 50 cents from every 330 ml of bear and ciders 50 cents from liquor and spirits 10 cents from every box of matches and 50 cents any technological fire lighting device.

All will pay more for goods and wont be able default on services and treasury will get this money and hand over municipalities when invoices are presented.

BUT I KNOW YOU WOULD PREFER TO SUFFER AS WE DO AND WON’T VOTE FOR ME… your loss.

Don’t make assumptions about my viewpoint 😉

Will never work. We would all just have heaters and whatever running 24/7 at home. Waste electricity because its free. Soon they would need more power stations and to cover the costs of building these power stations and to grease some hands Vat would have to increase past 18%. Fuel levy would have to increase, smokes and liqour too.

No Steven, our govern-mental powers apparently do not need the levies on liquor and tobacco at all. They are insisting on not getting a cent from its sales in an economic crises. There is clueless, and then there is our government.

Steven nothing will never ever work… If you listen to an idea and try it you will be surprised… They said to Thomas Edison it will never work, They said to the Write Brothers it will never work, they said to Marconi it will never work, they said to Zuckerberg it will never work… and a bunch of fools said to Nazir Allie e-tolls will work. New ideas are worth being given a chance… Just because everyone is doing it does not mean you too must just follow… South Africa is unique, we need to come up with new concepts that’s what makes us who we are.

Someone has to pay for the useless cadre deployment into city councils. So these legal thieves are screwed in terms or annual increases in property rates and taxes, soon the be limited (hopefully) on electricity. What is next? WATER. Look at your annual increases on water, way above inflation. You need water more than electricity and refuse removal.

End of comments.

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