City Power plan could cost businesses in Johannesburg dearly

The City of Johannesburg plans to take over electricity distribution in part of the city from Eskom, a move that will be very costly for business, the Association of South African Chambers (Asac) has warned.

Eskom currently handles distribution for 38% of the city’s area of jurisdiction, including Sandton, Bryanston, Waterfall, Fourways, Sunninghill, Diepsloot, Cosmo City, Ivory Park, Orange Farm and parts of Soweto.

A tariff comparison by Asac shows that a factory running 24 hours a day, seven days a week and supplied directly by Eskom was paying R46-million in 2020. If the same factory was situated in a City Power distribution area, its cost would have amounted R71-million for the same period. City Power is Johannesburg’s power utility.

According to Ayal Rosenberg, MD of WeBill, small residential users may benefit slightly from a move away from Eskom.

While there is a large number of such users in Soweto, residents in the area are also notorious for failing to pay their Eskom bills. Soweto’s arrear debt to Eskom was R13.2-billion by December last year.

According to city spokesman Nthatisi Modingoane, the city “has started a process of negotiations with the view of taking over electricity supply service to the areas in the City of Johannesburg currently supplied by Eskom”.

Negotiations

The negotiations started in July last year and included representatives of Eskom, minister of public enterprises Pravin Gordhan, the department of mineral resources and energy, the department of cooperative governance and traditional affairs, the Gauteng provincial government, and the city’s executive mayor Geoff Makhubo and councillors, Modingoane said.

Several working committees have been established to look at aspects such as the social, financial, human resources and statutory implications, as well as the process to be followed.

Modingoane said the city already provides other services – including water, refuse removal, road maintenance and health care – in these areas.

“So, we came from the premise that as the city we are better positioned to manage service delivery in totality which include electricity in those areas.”

He added: “The other reason is that when people in those area do not receive adequate services including electricity, they complain and march to the City of Johannesburg not Eskom, and our councillors were attacked in the past and had their homes petrol-bombed by residents protesting against Eskom’s problems with electricity supply.

“So, the reasons include that there will be a reduction in number of protests, and risks faced by councillors who can now address electricity challenges with authority and not always refer customers to Eskom. There will be improved credit management and collections rate through the city by-laws,” said Modingoane.

Matters like the Soweto debt, profits to be made in Sandton, assets, employees and systems are being addressed in the ongoing negotiations, he said.

Asac’s David Mertens says in principle it would be a good thing if all end users in the city were supplied by the same distributor, but City Power is hugely inefficient. The city should improve its operations before expanding its area of distribution, said Mertens.

In a recent presentation to energy regulator Nersa, Asac showed that City Power’s energy losses increased from 19% in 2017 to 27% in 2019. Mertens says the way municipal electricity tariffs are currently being determined is irrational. If that is rectified, the City Power and Eskom end-user tariffs won’t differ as much, he says.

Mediation

Asac is engaging Nersa on the matter.

City Power’s expansion plans come as it is engaged in a mediation process at Nersa after Trusted Utilities lodged a wide-ranging 28-page complaint against it. Trusted Utilities consultant Rene Kilner lists among others the following complaints:

• City Power fails to apply the correct tariffs and only corrects them from the date of application for a different tariff by the end-user, and upon payment of an application fee;
• It fails to properly maintain infrastructure according to basic regulations and safety standards, which results in damages to consumer equipment and loss of production and revenue, which the consumer is not compensated for;
• City Power retrospectively and fraudulently adjusting job cards to correspond with incorrect billing data;
• City Power’s infrastructure database is only about 65% correct, but even the 65% does not contain data to show it is correctly programmed and that the correct tariffs are being applied.

Johan Hopley, chair of the Electricity Resellers’ Association (Erasa), says its members battle with the city’s incorrect billing daily.

One member, who administers 30 complexes in the city, estimates that the billing is incorrect for all but one of the complexes.

In one case a reseller has been battling since 2014 to fix a meter that was incorrectly programmed. The council by now owes the reseller R7-million – but instead of rectifying the situation, it cuts supply every now and then.

• This article was originally published on Moneyweb and is used here with permission