The tariff mess the City of Tshwane made

Civil rights group AfriForum is consulting its lawyers after its efforts to stop the City of Tshwane from implementing controversial new electricity tariffs failed on Monday.

National energy regulator (Nersa) refused to approve the City’s tariffs the previous Friday (June 28) after learning from AfriForum about concerns that especially smaller residential users could face increases to their bills of more than 80%.

Limited tariff reductions, which the City proposed at the eleventh hour through an email that reached Nersa after the meeting had started on Friday, raised more questions and the regulator refused to make a decision without proper motivation for the changes.

The City’s proposed changes included the reduction of a new fixed charge of R200 per month to R56 for all residential users except those living in complexes and buying electricity from resellers. They also provided for a large reduction in a new fixed charge for rural and agricultural users.

Such drastic changes deserve public consultation

However, regulator member Nomfundo Maseti said during the meeting that the structural changes the City proposed to its tariffs are so drastic that Nersa should hold public hearings to assess the impact on consumers before considering them.

The City nevertheless proceeded to implement the tariffs on Monday without Nersa approval, in contravention of the Electricity Regulation Act (Era). 

The new tariffs also put the business model of electricity resellers in Tshwane in serious jeopardy by the inclusion of a new fixed monthly charge of more than R2 600 and a demand charge for bulk residential service points. According to the Electricity Resellers’ Association of South Africa (Erasa) the new tariffs represent a rise of up to 400% in cost for resellers who do the internal electricity distribution in residential complexes.

In addition, the City has introduced the fixed charge of R200 per month for residential customers who buy their electricity from resellers.

This means these households have to pay R200 before using a single unit of electricity. 

For several years now, the City has designed its tariffs to allow a sustainable margin between the price at which resellers do their bulk purchases and the price at which they sell to customers. 

This has to be done within the legislative framework that requires customers buying from resellers to pay nothing more than those buying directly from the municipality.

In the new tariffs there is however no margin, Erasa told Moneyweb.

Resellers will be selling electricity at a loss. This is putting the electricity supply of about 150 000 households at risk, according to Erasa.

At the moment the resellers’ situation is in fact even more dire since members unanimously decided against charging households the new, increased tariffs. According to Erasa its members do not want to be on the wrong side of the law. 

That means resellers will be paying hugely increased bulk electricity bills, while only partially recovering their cost since they will be selling at last year’s tariffs.

The Tshwane Money Matter Caucus under the leadership of former DA councillor Lex Middelburg has also pointed out that the proposed new Tshwane tariffs will result in sharp increases in electricity costs for residents on small holdings and farm land.

What happens now?

How this situation can be resolved is not clear, since the Municipal Finance Management Act only allows municipalities to change tariffs at the beginning of their financial year on July 1, unless the minister of finance gives them special exemption.

Electricity revenue represents about 38% of the City’s budgeted income and if the last-minute reductions are approved, they would render the budget underfunded and put extreme pressure on liquidity.

Erasa says it has been trying to draw the City’s attention to its concerns since December and offered assistance in designing the tariffs, but was consistently ignored.

The City has issued a number of statements by its member of the mayoral committee for utility services Abel Tau, in which Tau refutes the concern about the tariffs as false and misleading. 

He did not explain why the City felt it necessary to make some reductions at the last minute.