A household using 300kWh a month will see an effective 66% increase in what they spend on electricity, more than five times higher than the 12% increase on the underlying tariff.
A major-metro trend
Johannesburg and Tshwane have become the second and third major metros to introduce a fixed monthly charge for prepaid customers. Last year, the City of Cape Town introduced a ‘home user tariff’ of R150 per month for prepaid customers whose houses were valued at over R1 million (credit customers paid the tariff regardless of the value of their property). From this month, the Cape Town tariff increases to R163.32.
City Power has not explained the reasons for introducing this tariff, but the City of Cape Town says in an explanatory document that “the service charge helps to maintain the infrastructure of our grid, including power lines, substations, transformers and electricity meters … Some 25% goes toward the maintenance of the grid, 65% to Eskom and 10% to the rates account.”
It adds that: “Due to the decline in usage, it is not possible to rely on electricity consumption to cover fixed costs as this will lead to unequal distribution of costs among the customer base.
Maintaining the ‘incentive’ to save electricity
“A hybrid tariff such as the home user tariff, which has a fixed cost but also looks at usage, will help cover the cost of energy purchases from Eskom so residents still have a financial incentive to save electricity. You will also be protected to some extent from future price shocks as a result of declining sales. Such shocks are a reality and we need to do everything that we can to mitigate against this. Due to the decline, we also need to create more certainty in the income that we get and a fixed cost is necessary to do this.”
Cape Town also points to the “model where fixed charges are recouped separately” already being “implemented by Eskom, Johannesburg City Power, and the City of Mangaung, among others”. It says the “municipality also previously had a service charge until 2011, when it was discontinued as a result of a regulatory requirement” and that in 2016, “Nersa [National Energy Regulator of South Africa] gave the go-ahead for the reimplementation of a fixed charge”.
Joburg’s financial pressures
Joburg City Power is clearly facing similar challenges. In a note to residents, Ward 117 councillor Tim Truluck points to the City Power 2019 Business Plan which states: “City Power has not been able to meet its revenue for a while. City Power used to have a cash coverage of three days and now it is an estimated -33 days. City Power has insufficient funds to meet its financial obligations in the short term.” He also cites a City Power document from March: “City Power will continue to assess ways in which the residential prepaid tariff can be better aligned to the residential conventional tariff.”
Already, City Power’s post-paid/conventional residential customers pay a service charge and a capacity charge each month. From July 1, this ranges between R631.17 and R805.41 per month (including Vat), depending on supply and phase usage. For a basic residential connection (single-phase 60 amp), the increase on the service and capacity charge is 13% from last year.