Prepaid electricity uproar

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The metre company itself takes 11% and the rest goes into the pocket of the complex’s body corporate.. Photo: Luvuyo Mehlwana
The metre company itself takes 11% and the rest goes into the pocket of the complex’s body corporate.. Photo: Luvuyo Mehlwana


Consumers are paying through the nose for electricity because of extra charges that are added when buying prepaid electricity, on top of the already high electricity tariffs and, worst of all, some of these charges are not regulated.

In some instances, this fee is determined by a body corporate in a residential estate or complex and there are no clear guidelines on how it should be constituted.

Vendors are not allowed to charge a tariff above what is set by the municipality, but they are allowed to charge a service or vendor fee, and this can go up to 15% of the amount of electricity a consumer buys.

While the National Energy Regulator of SA (Nersa) determines the annual tariff increase, this fee is not regulated, only approved.

READ | Everything you need to know about Eskom's proposed new tariffs

Nhlanhla Gumede, the full-time regulator member primarily responsible for electricity regulation at Nersa, explained: "Resellers are not licensed. The person who is licensed is a distributor, so they resell on the back of a licence of a distributor – a municipality or Eskom – so it’s really just those bilateral arrangements between them. So, if there was an agreement between a reseller and a distributor on a basis of a particular tariff which they started many years ago, it’s just been increasing at a particular rate every year."

Rene Kilner, the CEO of Trusted Utilities – a company that does energy and utility management – said the problem with this fee is that there is no transparency on how the amounts are arrived at, which presents an opportunity for vendors to be a law unto themselves.

"One needs to make sure that whoever sells the tariff on to the end user does not mark it higher than it should be. What the regulation says is that you can charge an administration fee, but that needs to be transparent," said Kilner.

One of the things that happened in the past was that there was no transparency and, as end users, you and I don’t have any control over the money that we spend.

Johan Hopley, president of the Electricity Resellers Association of SA, said that, by law, the fee should be transparent.

"There has to be a method where they can show you detailed transaction costs. From the banks, you only get an SMS that shows [the amount of electricity you paid for] and you get a token.

"The company issuing the token must be able to send you a detailed breakdown of how you have been charged."

Hopley said his association was trying to get this fee fixed, because the way it’s currently determined is not sustainable.

"With municipalities, they have worked that fee into the tariff structure, but when reselling to complexes, that structure has never been changed.

We are trying to get the bulk tariffs changed to accommodate the vending fees so that we can absorb those fees through buying in bulk because, currently, you can’t, as the margin is too little.

Kilner said conventional electricity supply was a better option because such fees were not included and there was more transparency regarding how one consumes electricity.

"The other thing is that we cannot see how we're using that electricity. If you ask municipalities such as Tshwane for a meter download to show how you used electricity and when you used it, and you say you want a profile of how you used the electricity, they say, ‘no, we can’t give it to you, we can only say when you bought electricity'."

She said, even though the law provides that municipalities keep this information for prepaid consumers on their back-end systems, most don't.

Vendor fee charges are not the only costs that lead to consumers paying more for less electricity.

In the 2022/23 financial year, Nersa granted Eskom a tariff hike of 3.46% per kilowatt hour (kWh), as well as a more than 6% increase to cater for the regulatory clearing account (RCA), which brought the total increase for Eskom to 9.61%. The RCA is an amount that usually accrues as an under-recovery or money that is paid back to the power utility if it overspent above the set tariffs for a particular financial year.

Nersa then granted municipalities an increase of 7.47%, which came into effect last month.

Following the increase by Nersa, Eskom in turn charged municipalities a tariff hike of 8.61%. But the tariffs consumers pay per unit not only differ depending on which municipality you live in, but also depending on whether you, as a consumer, are perceived to be rich or poor. Poverty levels are determined by the amount of electricity a household consumes monthly.

Frank Hinda, a pricing and tariffs manager at Johannesburg’s City Power, said: “We’ve got what we call inclining block tariffs at City Power, meaning that, for the first 300kWh of every month, there is a different price; for the next 150kWh, there is a different price; and anything over 500kWh is at the same price. It’s not that when you use more you pay more, but the idea was that the indigent customer, who consumes only 350kWh, would be afforded a lower tariff, provided they keep within that consumption bracket.”

Gumede said this was not meant to penalise the electricity consumers who were classified as affluent, but to subsidise poor households.

"The original idea around the inclining block tariff was that the rich or the more affluent, where you basically measure by how much electricity they use, would then subsidise the poor.

"If somebody used less than 350kWh per month, that means they don’t have many appliances around the house. By that definition, they are poor. And somebody who uses 500kWh and above, they say that person has a number of appliances and so on, so you charge them more to subsidise the poor. That was the thinking."

Hinda explained how the different tariffs work in Johannesburg: "For the first block, you pay R1.82/kWh excluding VAT; that’s for 350kWh. If you come back and buy units for the same amount of money, you will not get 350kWh – you will get less because you would now be going into the second block and the third block."

Second and third block consumers pay R2.09 and R2.38/kWh excluding VAT, respectively. An additional surcharge of R0.06/ kWh is also charged to third block users.

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In Ekurhuleni, first block users pay R1.73/kWh, second block users pay R2.95 and third block users, who consume more than 700kWh of electricity per month, are charged R8.31/kWh, excluding VAT.

In Tshwane, the first block is charged at R2.09, the second at R2.45, the third at R2.68 and the fourth block costs R2.88/kWh.

Gumede said the inclining block idea had backfired and came with unintended consequences.

"If you come from Soweto, for instance, in some places you've got many backroom dwellers, so you find that a poor household has two or three backroom dwellers and the complete yard consumes 500kWh of electricity, which is split among everyone. Because there’s only one meter in the house, they would end up in a different incline block tariff [that is not meant for the poor].

You also find that an affluent household in Sandton has rooftop solar panels and only uses the grid as backup, and maybe buys no more than a 100kWh for instance, so they then pay at the lowest rate.

"The thinking was progressive – that the rich would subsidise the poor – but it hasn’t turned out that way."

He said Nersa was looking at a different option. In its application for tariff increases for next year, Eskom said it wanted to do away with inclining block tariffs.

In the meantime, Hinda offered advice for prepaid electricity consumers: "[The block tariff] enables you to buy smartly in the sense that at the beginning of the month, you can buy 500kWh, which should cost a little more than R1 000 with the increases; use those units sparingly and if you run out closer to month-end, don't buy another 500kWh because then it will be at a higher block – buy enough to last you until month-end and then reload when a new month starts.

"It's not ideal to buy for R2 000 upfront, for example, because then you’d buy about 1 000kwh for double the amount than if you had bought 500kwh at a time. Ideally, you should only buy enough to last you a month, unless if you use a lot of power monthly."

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