Major metros clarify picture on electricity tariffs

Metros confirm adherence to NERSA rules….

In an important meeting with the portfolio committee on trade and industry under the chairmanship of Bheki Radebe, South African Local Government Association (SALGA) gave its views on recent and forthcoming hikes on electricity tariffs and confirmed that  none of the major metros, constituting more than 80% of municipal electricity distribution, ever imposed tariffs that had not been approved by NERSA, the regulator.

Although it was acknowledged that there could be isolated cases of smaller municipalities not complying with this principle, Mthobeli Kolisa, executive director, municipal infrastructure services, SALGA, said there was an overlap between the provisions of the Electricity Regulation Act dealing specifically with tariffs charged by its licensees and the Municipal Finance Management Act dealing generally with municipal tariffs but any problems and most conflicts were overlooked in the national interest.

NERSA’s word was final, he said.

Local government reports for three major cities

SALGA, with input also from representatives of the eThekwini, Ekurhuleni and Johannesburg Metros, briefed the committee on the breakdown of municipal electricity tariff charges.  When determining the municipal increases, in line with the NERSA guidelines, the municipalities would take into account the costs of bulk purchases, repairs and maintenance, salaries, interest charges and other cost, and then would have to justify their requests for increases to NERSA, Kolisa said for SALGA.

eThekwini municipality said that electricity purchases made up the largest percentage of the budget of the metro.   For a municipality whose electricity purchases constituted 64% of its budget, Eskom would charge a percentage increase of 13.5%.    This would contribute 8.6% to the total average increase of 11%, which was a direct pass-through cost for the municipality.

They said that even if the municipal cost did not go up, the increase would still be 8.6% to the end customer, as a direct result of Eskom’s increase.   As a result of the municipal cost increases, a further 2.4% was added onto the total increase for the year, as a result of the increases in salaries and wages, repairs and maintenance amongst other cost items.

Sticking to the rules, they say

City of Ekurhuleni said that when Eskom was running short on generation capacity, which happened during the winter months of June, July and August, there was a strong signal during peak hours and although it might cause customers to complain, municipalities would not work against the national objective.

They said that an analysis of the Eskom “Megaflex” tariff indicated that energy was 90% of the cost in Ekurhuleni and demand constituted 10%, with the mark-up at zero (as Eskom was the baseline tariff for a municipality). The Tshwane tariff, on the other hand, indicated that energy was 62% of the cost, demand at 38% and mark-up at 9% which was known to be the case..Should Eskom run the lot?

Should Eskom run the lot?

Kolisa commented, in response to a question whether Eskom should distribute all electricity, that cutting municipalities out of the distribution lines and the equation generally would not be feasible.   It was still necessary for them to distribute electricity.

They only, and only they, had the infrastructure in place in their areas, he said, and the suggestion of separate re-distribution zones, or REDS, was an issue of the past.

However, municipalities and metros, said SALGA, faced a generalised critical shortage of skills in the engineering sector and were unable to attract and retain specialist skills, particularly since they also faced competition from private industries.    The idea of “adopt a municipality” inviting participation by industry was now being promoted to re-gain some of the lost territory.

City of Johannesburg explained that Eskom tariffs to municipalities included a 4,17 c/kWh (cents per kilowatt hour) cross subsidy towards Eskom’s residential customers, and a cross subsidy for electrification in Eskom supply areas (3,59 c/kWh) and said that the general idea of one rate or one tariff would not fit all municipalities mainly because of their disparate size, different services and different demographics.

Hope that independents might make common tariffs possible

City of Johannesburg said the government initiative to establish the ISMO system where Eskom and municipal distributors would be treated as peers and all distributors would be purchasing from the ISMO at wholesale rates would make some form of tariff alignment possible.   But this was well into the future.

SALGA said that a tariff design plan was in process by the five main metros which took into consideration the principles of the cost of supply and this co-operation accounted for the current compliance.    Metropolitan distributors and a significant portion of the larger municipal distributors, it was said, were working towards detailed cost-of-supply analysis.

In conclusion, SALGA noted that it might be possible to set a uniform tariff structure but such a move to make it viable would require financing.  Generally, part of the problem, it was said, was that there was a strong need to move towards more advanced technology.

Inevitable coal question

In reference to the control of cost inputs in energy supply, SALGA said it was interesting to note that China relied on coal that it imported at very low cost and countries like South Africa were exporting to China at cheap prices to get their business. Local government could not regulate on such issues as coal exports, which were an issue for debate at Eskom and national level, but SALGA could see perfectly well what some of the problems were.

SALGA finally noted that education campaigns to promote energy efficiency were not as effective in the field as they might be and SALGA would work with the Department of Energy to try to correct this.

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