PMB’s organised business CEO Melanie Veness explains why her chamber, in partnership with its NMB counterpart, has drawn a very distinct line in the sand on electricity prices. The chambers are tackling the National Energy Regulator in court in an attempt to force it to rein in profilate municipalities. By getting the courts to forcing the regulator to apply the law in determining electricity price increases, municipalities will no longer be able to milk ratepayers with excessive price increases to cover corruption and inefficiencies. – Alec Hogg
Melanie Veness on the court battle with the National Energy Regulator of South Africa (NERSA) brought by Eskom
We’ve been in a year-long negotiation with them [NERSA] trying to resolve the issues around municipal tariffs, and we got to the stage where we had no alternative. Electricity is a big input cost. The way municipalities price electricity, historically, has been a problem because the legislation requires that it’s based on a cost-of-supply basis. However, for many years, NERSA has based it on benchmarking. How it works is that Eskom applies through the various processes to get an increase. Once Eskom’s increase is approved by the regulator, it recommends a tariff for municipalities to put in place; a blanket tariff. If Eskom gets 9% of municipalities off a higher base, it might get 8.5%, which is the recommended tariff. If they want anything higher than the NERSA-recommended tariff for municipalities, they have to apply for an increased tariff and justify why they need one. NERSA will give due consideration to that and, in most cases, if there is no objection through a public participation process, they will award the municipality the set increase. However, what has happened over the years is that different municipalities have received different tariffs. So, for the same product all over the country, you are paying different prices and that differential is quite significant. If you look at the charges between Cape Town’s investment incentive of R135 per kilowatt hour and the city of Johannesburg at R2.12, the disparity is pretty significant across the country. Every year when you do this percentage, it is reinforcing a bad system and passing on all of the inefficiencies that sit in this system to the consumer.
From my own municipality’s side, the Eskom charges Msunduzi R12.50 per kVA on a monthly basis. The charge to Louisiana city is R102.30. That’s a massive differential. If Eskom was supplying our customers at the rate they charge their customers, it would be between R35, R87 and R102.30. We’re not the worst municipality, but you can see where the problems arise. And some places in our city have direct Eskom supply. We have got a shoe factory getting direct Eskom supply and a shoe factory with Msundizi supply, so they cannot compete, even within the same space in the city. It has been an issue for us when the municipality applied for a tariff higher than the NERSA recommended tariff. Since I’ve been involved, as a chamber, we have asked for a public hearing and defended that tariff and reduced it to the NERSA-recommended tariff, but it’s still completely out of kilter.
On power outages as a result of electricity theft and municipalities to base their tariffs on an efficiently incurred prudent cost of supply
The irony is that our infrastructure probably needs about R10bn before it will operate efficiently. We are paying this massive premium for [bad] service, totally inconsistent supply and the quality is not great. The system allows them to keep a lot of inefficiency, waste and corruption in the system. For example, we have an industrial area, Mkundeni. I will get a call on Friday night from SAPS to request that I contact someone in the municipality to switch off the power because someone has been electrocuted. They need to remove the body off the power lines because of the amount of theft that takes place there. A big informal settlement has sprung up, 5,000 people. They have constant power outages and usually it’s because the community has tapped into the electricity infrastructure there. You don’t notice at first. They [enter] the stormwater drains by breaking through the concrete and stand in water to connect into the infrastructure.
There is no political will whatsoever to address electricity theft and it’s problematic from a sustainability point of view for municipalities. The only way we can see a way around the situation is to say to NERSA, the legislation requires that municipalities base their tariffs on the efficiently incurred, prudent cost of supply; in which case, there has to be some oversight on what the money is being spent on. Firstly, they cannot spend it on other areas in the municipality, it must be spent on electricity so that we don’t have bad infrastructure. Secondly, they must be able to justify it as prudent, efficiently incurred costs. The reason why we went to court is to say the only way we can address this is to look at the methodology that is applied before you award municipalities electricity tariffs.
On the expected outcome of the court ruling against the National Energy Regulator
We are hoping the methodology that the energy regulator applies in the future will require a cost-of-supply study from each municipality, and that tariffs will be based on efficient cost of supply in order for them to qualify for any further increases in tariff. If we don’t do something now, we are just exacerbating a bad problem every year by [increasing] tariffs. The more Eskom increases its tariffs by huge margins, we could be facing up to 40% on this latest application. Looking at the court action it has won, if you add up those tariffs, that is pretty significant. So, if we don’t do something to halt this runaway train, business is not sustainable. If we have methodology, electricity tariffs will be more standardised throughout the country. So you won’t have one municipality’s [rates] so different from another municipality and the tariff [will be closer] to what Eskom is charging the market as opposed to what we are paying now.
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