Electricity Tariffs

Andrew Layman:  PCB CEO

After such a promising start in a revitalised relationship with the Msunduzi Municipality, I am preparing, as I write, to wage another battle on behalf of the city’s industrial electricity consumers.    After years of objection, the tariffs were hastily reviewed and revised for implementation on 1 July.   The Chamber had prepared its input on the review.   Ideally, we wanted the local tariffs to match those of Eskom’s retail tariffs with a service fee added to cover the extra costs of the Municipality’s distribution function.    We also recognised, when push came to shove, that although the principle of profit from electricity and other services being used to subsidise the rates account is questionable, the reality is that more people use electricity than pay rates.    Thus, if the cross subsidisation – standard practice among municipalities, by the way - were stopped, the shortfall would have to borne by a limited number of rate-payers and each would have to pay a lot more.  

In our deliberations, we concluded that if people were paying the Eskom retail charges plus a service fee, the bases for the tariffs would be transparent and clear.    Each year, the service fee on its own would be the subject for scrutiny and debate.   What has happened over years in this, and other municipalities as far as we have been able to determine, is that tariffs have been summarily increased year by year, often by the simple addition of the Eskom percentage increase to an already-higher tariff.    This was done without any careful thought.  It resulted, in the case of our city, to a demand charge that grew to 435% higher than the demand charge that the municipality was paying to Eskom.   In addition, the city enjoyed the time-of-use concessions that Eskom offered, but was not passing these on to consumers.   The task of comparing municipal tariffs is fraught with frustration because there are so many variations.  Like medical aid packages, it is almost impossible to determine which is the best.  And like medical aid packages, one is able to make comparisons only on the basis of one’s own circumstances.    I suspect that the architects of municipal tariff structures do all they can to sow confusion and hide the truth.   It is a measure of the relatively low cost of electricity that our members accepted the annual increase without much outcry - until Eskom found itself in such a parlous position that huge, super-inflationary increases had to be contemplated.  

About ten days ago, the July accounts reflecting the new tariffs reached industrialists.   The fact that many were not prepared for any great shock is attributable to two factors.   The Municipality didn’t see fit to inform its customers, especially the large users, of the changes.   The Chamber did inform its members, and even convened a meeting where the new tariffs were explained, but this was not particularly well attended by manufacturers, many of whom did not take sufficient notice of the Chamber’s communication on the subject either.   The application of a high demand tariff as part of the time-of-use innovation flummoxed many who were not expecting it.    Accounts reflecting up to double, and more, of what they were accustomed to, created panic.   Errors in the billing system didn’t help.    The fact is that for many companies the increase during the three winter months amounts to some 93%.   When the summer tariff comes into play for the other nine months, the increase over their accustomed bill will go down to about 10%, if they are lucky.    But over the year, the increase will amount to about 31% and more, in some cases.  

This is not acceptable to industry.   In the absence of the adoption of what we wanted ideally, we wanted time-of-use and we wanted a better balance between the user and demand charges.  When the revised tariffs were presented with these principles accommodated and we were told that the Municipality had confined its electricity charge increase to 21%, we were pleased.   The reality of the implementation, and the prospects for the future, have destroyed this comfortable acceptance.   Why, I wonder, would a municipality impose a tariff that for many will turn out to be 40% higher than if they were supplied directly by Eskom?   Why would a municipality, which values its industrial employers presumably, not even engage them directly when it introduces a new system of charging?   With unemployment at such a high level, why would a municipality continue to exploit manufacturers as cash cows?    

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