Most municipalities that distribute electricity are looking for double-digit increases in electricity tariffs from July 1 and in some cases, they aim as high as 15%.
In addition, several municipalities have indicated that they are vastly under-recovering their cost of supply and need significantly higher increases over several years to prevent selling electricity at a loss.
The Blouberg local municipality in Limpopo, for example, indicated that it needs an increase of 192% over the next three years to make ends meet. Its cost-of-supply study suggested an increase of 43% this year and 20% and 13%, respectively, in the following two years. Acknowledging that consumers will not be able to afford that, it tempered the proposed tariff increase for this year to 15.26%.
Stellenbosch, asking for 9.95% more in its application, said its cost-of-supply study requires a “very high increase” and eThekwini, asking for an increase of 12.72%, says its cost-of-supply study requires a 20% increase.
This information is disclosed in the tariff applications that Nersa has published on it website this year, for the first time. It has invited comments from stakeholders with staggered deadlines — the first on June 2 and the last on June 12.
The applications, however, differ vastly from each other in form and substance — some merely a one-pager listing the proposed tariffs for each category of users, without any context and others containing additional comprehensive analysis of tariff trends with a clear disclosure of the average tariff increase applied for and the factors taken into account to arrive at the numbers applied for.
In many cases the published applications will however be of little help to consumers who want to assess the fairness of what their municipalities expect them to pay for electricity from next month.
The Electricity Regulation Act provides for electricity tariffs to be set at a level that enables an efficient licensee to recover its cost plus a reasonable margin.
This applies to Eskom and all other electricity distributors, municipalities included.
Until last year, when the High Court ruled against the regulator, Nersa merely published a guideline every year for municipal tariff increases, together with tariff benchmarks.
It did not embark on public participation unless a municipality’s proposed increase exceeded the guideline. Neither did it publish reasons for its tariff decisions for each municipality. Although it has appealed against the ruling, which is still pending, Nersa this year requires that every application is based on a cost-of-supply study and in some municipalities that study exposed vast under-recovery.
To make thinks more complex, Eskom has also implemented a new tariff structure that will take effect for municipalities on July 1.
Municipalities’ bulk purchases from Eskom is their biggest cost item and the impact of these changes is material to their overall cost of supply.
Hendrik Barnard, municipal tariff expert, says normally the municipality needs an increase a bit lower than its increase in bulk purchase cost, as other expenses like salaries and maintenance should be closer to the inflation rate, driving the average municipal increase lower.
On average, Nersa said Eskom’s tariffs for municipalities would increase 11.3% this year, but Barnard’s detailed projections for ten municipalities show increases ranging between 8.95% and 16.04% in their Eskom bills.
Barnard says municipalities buying from Eskom at higher voltage will see increases of less than 10% in their bulk purchase cost whereas those at low voltage will see increases of close to 15%. “Those that were previously on Rural tariffs would see increase of close to 0%.”
He cautioned that municipalities that merely relied on the average increase of 11.3% quoted to draft their applications, might find themselves overcharging customers or coming up short, which may exacerbate the dire financial situation in many municipalities.
Collectively municipalities owe Eskom about R100bn in arrear debt.
Business Day looked at 28 municipal applications. Three did not stipulate the average increase applied for, and only four asked for single-digit increases, the lowest being the City of Cape Town that applied for 7.2% more.
Cape Town’s tariffs also include a so-called unregulated component that changes the average increase to consumers. Seventeen of the 28 (60%) applied for increases equal to or higher than the 11.3% average increase that Eskom will apply for their bulk purchases, the highest being Blouberg.
The published tariff applications give little insight into the interplay between impact of Eskom’s new tariff structure and the implementation of the results from the cost-of-supply study.
For consumers to participate meaningfully in the municipal tariff determinations, municipalities will have to show in an accessible way what the results of the cost-of-supply study were, how cost is being allocated to every consumer group and to what extent cross-subsidisation is taking place, how the new Eskom bulk tariffs will affect the municipality and also how efficient the municipal operations are.
Barnard suggests that the cost-of-supply studies themselves should be interrogated as Nersa gave very little guidance to municipalities in this regard and it was not clear whether all relevant factors were considered.
The question is, to what extent has the inability of municipalities to collect revenue, technical losses and nontechnical losses (including electricity theft, bypassing meters and billing errors) made it into the tariff calculations? In Johannesburg alone, News24 reported that such losses cost its electricity utility, City Power, R23bn over the past five years.
While more information may be gathered from municipalities’ proposed budgets, Nersa’s tariff determination process focuses on electricity specifically and its public participation process must stand on its own legs.
It is not clear if the publicly disclosed municipal tariff applications are all that is before the regulator when it determines the electricity tariffs for each municipality, but consumers definitely need more.
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