Stuck between solar and theft, municipalities founder on electricity

This year the City of Cape Town expects to sell less electricity than it has since 2006, even though both its economy and population have grown. In Johannesburg about half of the city’s prepaid electricity boxes claim that the households to which they belong have used no electricity, something the city has a very hard time taking at face value.

From Thembelihle in the Northern Cape to Mantsopa in the eastern Free State, municipalities are watching a mushrooming of rooftop solar electricity panels with trepidation verging on fear.

Municipalities are in trouble – and it is only going to get worse.

“Where you see a decrease in electricity sales, which we are seeing because of high prices and the introduction of renewable energy, your increase in [the electricity] tariff has to take that into account,” Leslie Rencontre, director of electricity at the City of Cape Town, told the National Energy Regulator of South Africa (Nersa) last Thursday.

That much is inescapable; as new data confirmed last week, municipalities around the country rely heavily on the profit they turn by reselling mostly Eskom power to their towns and cities. For most local governments, about a third of their revenues come from electricity sales. That money pays for other vital services, from roads to sewers.

Unlike those other services, electricity is relatively easy to charge for directly. And municipalities are not constricted by the kind of legal and ethical considerations that make it hard to charge a big markup on, say, water.

But as the price of electricity increases, so does the number of people who leave the grid, as ever-cheaper photovoltaic (PV) panels – which turn solar power into electricity – and small electricity storage solutions become more and more attractive when compared with the municipal account.

That can lead to absurdities: “One of the key threats we discussed with Nersa previously is that we were finding higher-end households were able to reduce their [electricity] consumption and were then accessing subsidies aimed at the indigent,” said Rencontre, referring to packages intended to make more electricity more accessible for the poorest of the poor.

At the bottom end of the market, higher electricity prices see people stop paying for electricity.

“We are facing massive bypassing of meters and sabotaging of meters,” Quentin Green, acting chief executive of the Johannesburg agency, City Power, told Nersa on Thursday. Between the revenue loss of such illegal connections and the need for maintenance – some of it caused by the load from those illegal connections – “we can’t sustain the business”, he said.

Cape Town, Johannesburg and a dozen other municipal areas were in front of Nersa to sometimes demand – but mostly beg – to be allowed to increase the amount they charge residents for electricity.

In terms of a Nersa guideline local governments can hike their prices by about 2%, but must get permission for anything above that. On Thursday, municipalities asked for increases ranging from just above that level to, in one case, a hike of more than 20% for business customers.

“We really hope and believe that Nersa will look favourably on this application,” said David McThomas, a manager for the Breede Valley district in the Western Cape. His slide presentation was a little more forceful, lingering on a highly stylised picture of a woman with tears streaming down her cheeks and a single droplet suspended from her nose, with the caption: “If you don’t take action and help me … who will?”

In his picturesque valley, McThomas said, a historic attempt to diversify an economy highly dependent on seasonal agriculture has left a legacy of too-low electricity prices for businesses.

Such tariff disparities between business and individual consumers are not uncommon.

Also not uncommon in the group of applicants is the story of Renosterberg in the Northern Cape, which acting chief financial officer Disang Molaole tactfully described as having “acute income-generating problems”. Its debt to Eskom has risen to the point where national government grants intended to cushion the poor are swallowed up in interest payments.

In desperation it proposed a 12% increase in electricity prices. Its citizens, 60% of them formally in the indigent bracket, said they could not afford that, so the municipality is instead applying for a 6.4% increase in line with inflation – a number not high enough to dig it out of its financial hole but still so big that residents are unlikely to keep using (or at least paying) for power.

Renosterberg has nobody but the poor and a tiny middle class to tax. “There are no major commercial and manufacturing industries,” said Molaole.

Johannesburg hopes to thwart electricity theft with a new generation of smart prepaid meters, which can phone home. In Msukaligwa, in Mpumalanga, the council hopes to uncover fraud on prepaid electricity by auditing meters with strange buying patterns, then slapping those guilty of bypassing them with three years worth of charges that will have to be paid before being reconnected to the grid.

Ultimately, though, the municipalities admit that achieving zero theft can only go so far in bolstering their accounts, because those who can pay for their power are freed from subsidising those who genuinely can not pay.

“Face it, if you disconnect everyone who is illegal you’ll have to have a bigger free basic [electricity package for the poor] or bigger social grants, because you can’t actually live without power,” said one city manager privately, predicting that gains from fraud reduction would be a partial and temporary reprieve for the current payers.

At the top end of the network, meanwhile, there is no reason to expect anything other than an accelerating move away from the grid as PV prices keep dropping. Various municipalities have proposed large “connection” or “availability charges” – fees that can be levied in return for the rich maintaining but not using their connections to the grid for when their private batteries run low. Yet such charges, they admit, only create an incentive to shoot for an entirely off-the-grid home or business.

In the longer term, then, there is little prospect for local governments to maintain their income from electricity sales.

But trouble could come even sooner than that, in the form of fierce opposition to attempts at plugging budget holes.

Cross-subsidisation is no excuse for increasing electricity tariffs, energy analyst Ted Blom, of the Organisation Undoing Tax Abuse (Outa), told municipalities on Thursday. Nor is poor management of electricity or general finances. With Nersa watching municipal increases, Outa will be watching Nersa, he said. And if Nersa allows increases that discriminate against, say, residents over businesses, or condones “any defective application [for an increase], Outa believes it has a mandate to initiate legal action.”

Nersa is due to announce its decision on the individual municipal applications for increases in the coming weeks.

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Phillip De Wet
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