Electricity: Who pays more?

Municipal tariffs are gobbling up an increasing portion of household income in South Africa, with especially electricity becoming almost unaffordable, says economist Mike Schüssler.

Of the amount Joburg inner-city tenants pay for their council bills, almost half is for electricity.

According to data from the Johannesburg Property Owners and Managers Association (JPOMA), its council bill represented 14.05% of tenants’ household expenses in 2009/10. Now it is almost 24%.

The biggest increase (224%) over this period was in electricity tariffs, while salaries increased by 91% and rent by only 80%.

JPOMA’s members together provide over 40 000 affordable housing units, accommodating about 200 000 tenants, according to information on its website.

The struggle to pay for electricity is however not limited to these households.

Analysis

Using the tariffs approved by electricity regulator Nersa, Eric Bott, electricity expert from Energy Management Consulting, had a look at the total monthly electricity bill of different households in the metro councils and when buying directly from Eskom.

Schüssler compared this with BankservAfrica data on salary and pension payments into the bank accounts of South African consumers as a basis for his comments.

He says electricity costs amount to almost 13% of the average take-home salary in the formal sector.

In the informal sector income is lower and affordability is therefore an even bigger problem.

Schüssler says electricity costs represent 27.6% of the median private pensioner’s net income.

“Many people can simply no longer afford it,” he adds.

Really poor households often get some sort of assistance from their municipalities or other parts of government, but the middle class is mostly on its own.

* Conventional meters; Vat excluded; summer and winter tariffs differ in only two cases.
Source: Energy Management Consulting

Notably small consumers in Ekurhuleni on the Gauteng East Rand enjoy the lowest tariffs, which are probably heavily subsidised by middle class households, as the following data shows.

* Conventional meters; Vat excluded; summer and winter tariffs differ in only two cases.
Source: Energy Management Consulting

The cost for middle class urban households exceeds R2 000 in every metro, with those in a few municipalities paying less that Eskom charges its direct customers.

* Conventional meters; Vat excluded; summer and winter tariffs differ in only two cases.
Source: Energy Management Consulting

Residents of Cape Town have been protesting high electricity tariffs under the banner of the organisation Stop City of Cape Town (Stop COCT). In response, the city first issued a statement to bust “myths” being spread in this regard, then mayor Dan Plato issued a statement blaming the Eskom monopoly for high tariff increases that are being forced on council.

Plato indicated that the current steps towards a liberalised electricity supply industry could enable the city to buy from other generators at lower tariffs.

He also emphasised that his council absorbed the Eskom increase to some extent and limited its tariff increase in July to 13.48%, while most other municipalities implemented a 14.59% increase in line with the Nersa municipal guideline.

Tariffs ‘too complicated’

Bott says electricity tariffs are too complicated for the lay person to understand and this makes it difficult to check bills and make comparisons.

Apart from inclining block tariffs where the extent of the blocks is not standardised among different municipalities, some distributors apply seasonal tariffs.

Commentators have also in the past criticised the lack of transparency in the nature and extent of cross-subsidisation among different user groups in a single municipality.

Bott says tariffs could be lower if municipalities and Eskom operated more efficiently.

City Power in Johannesburg, for example, loses almost 30% of its electricity – mostly due to theft – and paying customers have to compensate for those losses by paying higher tariffs.

Morne Mostert, head of local government affairs at AfriForum, says the cost of electricity is shockingly high as Eskom’s steep increases impact end-users. This, he says, increasingly drives consumers to alternative sources of energy. For smaller households it is however difficult to find cost-effective solutions.

Read: Electricity tariffs to rise 15% (Feb 2021)

He advises body corporates or residents’ associations to combine their efforts to achieve economies of scale. Otherwise, households that are already using electricity efficiently will have no choice but to downscale their lifestyles, Mostert says.

He says it is Nersa’s job to look out for consumers, and it should take note of the increasing portion of household income being absorbed by electricity cost.

“Nersa must keep this in mind when it considers applications from Eskom, but also from municipalities, for higher tariffs.”

Read: Eskom fights tooth and nail for massive price increases

Listen to Eskom CEO André de Ruyter discuss where the power utility currently sits, electricity tariffs, its operational outlook and his plans (in Afrikaans below) or read the English transcript here.