Municipalities cash in on power

Municipal electricity costs are coming under fire as the state gears up to review South Africa’s electricity pricing policy.

Industrial and commercial customers have been knocking on the door of the national energy regulator in recent weeks, complaining that the price trajectory of electricity is not sustainable. The outrage follows the additional increases that municipalities have added on top of Eskom’s tariff hikes.
In the last multi year price determination Eskom was granted increases of about 25% a year from the 2010-2011 to the 2012-2013 financial years.

Thembani Bukula, the regulator member primarily responsible for electricity, said although some of the claims about electricity price increases were “alarmist”, the rate at which municipal electricity prices were rising was a concern. “To my mind this is creating an unfair playing field,” he said.

Bukula said some industrial and commercial customers in areas such as the Nelson Mandela Bay Municipality in Port Elizabeth had highlighted the negative effect the municipal electricity tariff was having on their operations. This did not mean the Eskom tariff increases were an issue from which “we should take our eyes off”, he said.

The problem is becoming increasingly acute for business and commercial users in the current hard-pressed economic climate. According to the Energy Intensive User Group, which has been vocal in its criticism of increasing electricity prices, the mark-up in some municipalities for heavy users has risen between 26% and 100%. This takes the price of Eskom’s base megaflex tariff from 50c/kWh to 89c/kWh in a metro such as Tshwane, 97c/kWh in eThekwini and R1/kWh in Mangaung.

In July the regulator held public hearings on applications for tariff increases by some of the municipalities that sought increases larger than the recommended 20% granted. In its submission the South African Chamber of Commerce and Industry argued against the 27.6% increase that Johannesburg’s City Power was asking, particularly in the light of its customer billing disaster and inefficient supply of electricity.

In a further submission consultancy firm ProTacon said increases to business and commercial customers were unjustly high when compared with Eskom prices.

The Cape Chamber of Commerce also raised concerns after Eskom reported a R12.8-billion profit in its interim results last week. The chamber’s president, Michael Bagraim, said the industry was struggling to cope with the string of 25% increases. But of greater concern was that Eskom put its average selling price for electricity at 55c/kWh, whereas small businesses in Cape Town were paying about R1.44 a unit plus VAT.

Bagraim said businesses understood that Eskom’s costs were rising rapidly to pay for new generating capacity, but that all costs between the power stations and the consumers should be increasing in line with inflation, which had been below 5% in recent years. He asked the regulator to examine whether the retailers of electricity—municipalities—were not taking too big a cut from electricity revenue.

The department of energy has undertaken to review the country’s electricity pricing policy. Its deputy director general, Ompi Aphane, told the Mail & Guardian this week that the review would be done alongside developing an implementation plan for the country’s electricity framework, the integrated resource plan.

The implementation plan was chiefly concerned with the question of financing the integrated resource plan, said Aphane, given the effect the tariff path was likely to have on the economy.

“We are particularly concerned about the question of financing. All things being equal, the tariff path undermines other parameters—like the microeconomy where we see, for instance, marginal industries could be pushed over the edge if electricity prices become too high.”

He said the current policy, formulated in 2008, was a high-level framework but it paid insufficient attention to the question of pricing methodology. The question of methodology had also become critical because of the wide range of prices that resulted, depending on the choices made.

Aphane said the department of energy was aware of the time pressures of the review, given that Eskom was due to enforce its new multi-year price determination sometime next year. “We hope we can feed into processes of the National Energy Regulator without upsetting the time lines.”

Bukula said although the department would be dealing with the policy document, the regulator had a consultation on the multiyear pricing determination methodology. The rules guiding the determination had been made under the current pricing policy, he said, but if the review was not completed in time, there was sufficient room under the determination rules to address dramatic price increases.