City Power makes u-turn on electricity tariffs increase again

The City of Johannesburg has backtracked on a contentious R200 per month capacity charge for all residential prepaid electricity customers from 1 July.

It has also dropped plans to implement a R402 a month capacity charge for business prepaid electricity customers.

These changes come as the city finally managed to pass its budget on Thursday, just one day before the deadline given to it by the Gauteng government.

This is the second year that the city has made a U-turn on these City Power tariffs. Last year, however, the tariffs had already been approved by council and were then quietly dropped in July within a week following a fierce outcry from ratepayers.

Had the R200 monthly charge been implemented, the effective rate paid for electricity by prepaid customers would’ve soared by close to 50%, depending on usage.

The ANC-led municipality required support smaller parties to pass the budget. No party has a majority in the metro. Tariffs were adjusted down from those proposed in the original draft budget tabled in May.

Already, the city’s postpaid customers pay steep monthly fixed charges for electricity. From July, the service charge (R147.76) and capacity charge (R435.27) for a single phase 60A connection totals R583 – before any usage at all.

Because of these sizeable monthly charges, postpaid customers in Johannesburg pay the most for electricity among the country’s major metros.

Effectively, postpaid customers are right now subsidising the city’s prepaid customers, who enjoy among the cheapest electricity in South Africa (almost as ‘cheap’ as those end customers supplied by Eskom directly).

The City Power tariff increases have mostly seen a straight-lined implementation of a 6.23% adjustment across the board. This extends to the monthly fixed charges for postpaid customers too. Businesses that aren’t large power users are offered some relief, with increases of 3.47% (postpaid) and 5.23% (prepaid) from July.

However, City Power has changed the tariff bands for prepaid electricity. The 0-350kWh band will change to 0-300kWh.

A change such as this to bands in an incline block tariff structure is disingenuous as it could hide significant increases.

The change from July 1 has the effect of making the next 50kWh of usage beyond 300kWh per month a whopping 22% more expensive for prepaid customers. This has been partially offset by making sure that the increase in the base band is only 3.64%.

The impact starts being felt the more electricity a prepaid customer uses.

For a customer who uses 600kWh per month, the increase is 6.53%, and for one who uses 1 000kWh, it is 7.1%. This is due to the higher increase at the upper band.

* Excluding the impact of the tariff band change

Given the pushback over the past two years, it is unclear how City Power will ever be able to ensure parity between prepaid and postpaid rates over the medium-term.

The National Energy Regulator of South Africa (Nersa) will not allow the city to increase prepaid tariffs at a significantly higher rate than other tariffs to try and narrow this gap. Nor would the city arguably want to as the majority of low-income households use prepaid electricity.

The city had planned, after this year’s now failed attempt, to implement two further charges added for prepaid customers in 2021 and 2022.

This would’ve likely brought the prepaid and postpaid rates in line. The failure to address this by multiple administrations has resulted in ever more postpaid (‘conventional’) residential customers switching to prepaid.

This means the effective cross-subsidisation will not hold for much longer. Base tariffs will have to keep increasing to ensure balanced budgets.

City Power has a budgeted deficit of R511.5 million this year on total revenue of R17.27 billion. After transfers, it will report a deficit of R63 million. It has been able to reduce the tariff increases because this will be offset by a “strategic drive to reduce total electricity losses to a level of 25.5%” this year.

Yet this is more than double where experts believe the level of losses should be. The entity’s capital budget is just R738 million for this fiscal, far below the R901 million in last year’s adjusted operating budget.

This article first appeared on Moneyweb and was republished with permission.

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