City Power’s tariff increase: What you need to know

City Power says its approved average tariff increase of 12.72% does not mean that every customer will have the same increase.

The power utility said it had started implementing some of the findings of the cost of supply study and as a result, some customers will experience a slightly lower tariff increase while an increase to others may be above the 12.72% threshold.

This follows approval by the National Energy Regulator of South Africa (Nersa) of the new tariff increase requested by City Power.

Municipal tariffs driven by operational costs

Energy analyst Lungile Mashele said municipal tariffs were driven by operational costs such as salaries, the delivery of services through technicians, refurbishment and equipment, vehicles and other services that were not billed.

Mashele said the largest cost driver was the cost of the electricity which City Power buys from Eskom.

ALSO READ: Nersa to force City of Joburg residents to pay 12.72% more for electricity from 1 July

“These costs have increased substantially in the past two years, resulting in this above-inflation increase, even for indigent customers. The protection of indigent customers is of paramount importance,” she said.

“However, for people who earn a monthly salary of R3 500, a six percent increase which is above inflation is still detrimental and erodes income.”

City Power spokesperson Isaac Mangena said the new tariff increase was not impacted by the utility having to pay Eskom R1.5 billion, as ordered by a court last week.

He said Eskom was the single biggest bulk supplier of electricity to City Power, with average monthly bulk purchases of about R1 billion inclusive of VAT, with 30-day payment terms.

Therefore, at any given time, City Power was likely to owe Eskom about R1 billion in the normal course of business.

ALSO READ: High Court orders Joburg and City Power to pay R1.073 billion debt to Eskom

“The court order that is now suspended pending finalisation of appeal processes is with respect to a payment that is outstanding only because it is disputed,” he added.

“It is therefore up to court processes to determine how best the dispute is to be resolved should it be found that there is a justifiable dispute,” he said.

“Eskom is also going to increase the tariff at which it supplies electricity to City Power with effect from 1 April, 2024, but implemented on 1 July, 2024, which has a direct influence on the City Power increase to its customers to recoup its cost.”

Tariffs determined by several key factors

The utility noted that its tariffs were determined by several key factors such as industry inflation driven by increases in bulk purchases cost, its operational costs and cost structure.

City Power said: “Our tariff application to Nersa was in line with the consideration of the current economic conditions where most of our residents are affected by the rising costs of living.

ALSO READ: City Power’s load reductions could affect businesses’ output and profits

“The residential low prepaid customer who consumes 374kWh per month will pay an extra R49.17 for the same 374kWh, increasing the total charge from R791.57 to R840.74.

“The customer will however, for the first 350kWh per month, pay R2.2162/kWh compared to R2.0967/kWh for the current financial year, which will be R41.83 more per month.

“The next 24kWh will cost R65.06 which is R7.52 more than what it is costing now,” it added.

Producing electricity not cheap

Mashele said tariffs considered the cost of producing electricity and allowable profit. However, the reality was that producing electricity was not cheap.

“By global standards, South Africa still has one of the cheapest electricity tariffs. However, this is of little comfort to ordinary South Africans who are battling to make ends meet.”

ALSO READ: Eskom battles overloading and theft, 400 transformers replaced

She said “electricity increases of this nature mean the wealthy find alternatives like solar. This leaves poor customers to service this debt and this results in an escalating cycle of financial weakness.

“This means municipalities will not be able to service debt, pay for operational expenses, pay for maintenance or provide basic service delivery.”

Mangena said the total quantum of Eskom debt that is disputed as potential overbilling is approximately R3.4 billion as of the end of February 2024 and “growing and as indicated is now subjected to appeal processes”.

“The court processes are ongoing and will not necessarily have an immediate impact, although such can be in favour of City Power for as much as it may well go against City Power,” he said.