Regional Electricity Distributers

Andrew Layman:  PCB CEO

Over the past few years I have become convinced that the sooner the Regional Electricity Distributers (REDS) are put in place the better.   The delay, apparently, has been occasioned by at least two quite obvious obstacles, and, perhaps, a variety of others under the radar that have related to vested interest.   One obstacle is that current legislation, including the constitution, is not compatible with the establishment of new agencies to distribute electricity.    The second, and arguably more telling problem, is that municipalities are not willing to sacrifice their profitable income from the re-sale of electricity.  

As far as the legislative matter is concerned, the status quo seems to be ultra vires anyway.    Municipalities have the right to determine and levy charges for electricity within their boundaries.   Thus, where Eskom supplies directly to some consumers, the applicable tariff should be established by the municipality in which these consumers are located.   Instead, direct Eskom customers, especially in the large or industrial user category, pay less for their electricity than those within municipalities that do the distribution themselves.   A recent calculation that I did revealed that one large user in Maritzburg could save 40% by relocating to a place beyond a municipality’s network.    It might be true that a similar amount could be saved by a move to another municipality whose tariff structure is more hospitable to a company of this size and type.   This, indeed, is one of the difficulties.    The more one delves into tariffs, and despite NERSA and municipal tariff policies, the less transparent they seem to be.   Eskom’s tariffs are available on its website for all to see.  Why is it, then, that Eskom regards its arrangements with the Msunduzi Municipality as “confidential”?   And, indeed, why are there other arrangements with some favoured consumers which fall outside of the published tariff schedule?   Within the industrial sector, the concerns do not relate only to the size of a company’s monthly bill, but, importantly, to the issue of competition.   A large local shoe manufacturer once complained, with good reason in my view, that his competitor in Cape Town was paying 30% less for electricity.   In the days of ‘cheap’ electricity this had far less impact than it does now when manufacturers are finding energy to be among their most challenging input costs.    In light of these issues, among others I daresay, I think that harmonised tariffs throughout the country are a priority.   Many would not agree – REDS have been demonised widely even before they have been given a chance.   A pilot in the Western Cape failed and gave impetus to the anti-REDS faction, but one wonders whether opposition is based on the true merits of the concept or the fear that municipalities would lose their freedom to exploit electricity consumers in order to balance their books.

For this is exactly what many are doing.   Last year, Msunduzi Municipality was not the only one to object to Eskom’s large increase and then apply an equal percentage to their own already-higher tariffs, thereby increasing their own margins.     It suits municipalities to increase their profits from electricity because this enables them to reduce increases in property rates.   However, while the principle of such cross-subsidisation does not sit comfortably, the inequities in society mean that there are far more electricity users than rate-payers.    Thus, the income required to run cities and towns effectively is better spread among a larger number of service consumers than a smaller number of rate-payers.   This is logical pragmatism, but when it is rolled out as implementation, the unequal ability for property owners to pay rates is matched by the capacity to pay for electricity and other services.   Indigent households pay for neither, unless they exceed their pretty paltry quota.   The cost of such free services is borne, supposedly, by the national treasury.   It is questionable, however, whether municipalities receive enough in equitable share grants to cover their costs in this regard.    Industry is the cash cow, based, apparently, on some long-standing perception that industrialists exploit their environments, human and natural, and make pots of money on the back of other people’s efforts.    Sight is lost of the fact that they are the major employers and that unreasonable increases in electricity charges are likely to result in retrenchments, which, indeed, has been the case in recent times.

Bring on the REDS, I say.   Deny the pessimists their satisfaction by ensuring that they are not new empires of self-enrichment but efficient, focused entities that introduce sustainable, uniform tariffs; that consolidate the meagre engineering capacity that the country has; that allocate sufficient funds to adequate infrastructure maintenance and that distribute profits equitable to municipalities so as to enhance their incomes without having to support electricity departments and infrastructure.       

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