Profiteering Municipalities Have Power To Shield Consumers From Surging Electricity Prices

GOOD Statement by Brett Herron,
GOOD Secretary-General & Member of Parliament

25 January 2023

Government must consider regulating the entire electricity supply chain, as with fuel, to stop middlemen (in this instance, municipalities) from extracting unaffordable mark-ups from struggling consumers.

While Eskom being granted permission by the regulator, Nersa, to increase the base price of electricity by 18.6% to 173.80c per kilowatt hour (kWH) – in the midst of increasingly regular power failures – is shocking, municipalities have the power to shield consumers by reducing excessive profit margins.

If municipalities don’t want to shield consumers, Nersa must use its powers to force them by not approving municipal applications for additional mark-up.

It seems ridiculous that fuel stations can’t add whatever mark-ups they want to the prices consumers pay for petrol and diesel, but municipalities can effectively charge whatever they like for electricity, courtesy of Nersa.

Cape Town, for example, pays Eskom 173.80c per kWH, and then charges residents between 298.30c kWH and 362.72c kWH. That means the poorest Cape Town households are paying an extra 124.50c for what little power they can afford, while households using more than 600 /k/WH per month pay more than double the NERSA regulated tariff.

By adding an extra 25c kWH to the tariff in the current financial year, Cape Town has budgeted for a surplus of R1.78 billion from electricity sales.

In Johannesburg, households are charged between 209.73c k/WH and 274.11c k/WH, depending on the amount of electricity they consume. eThekwini currently charges residential consumers 257.89c k/WH.

What sense does this make, particularly in the context of a struggling economy characterised by unsustainable inequality? Yet all these mark-ups are approved by Nersa.

Yes, municipalities must raise revenue in order to deliver essential services, but the mark-ups must be fair, affordable and just. A zero % mark up in the next financial year would still leave municipalities with surplus revenue.

If municipalities tightened their belts around non-core services, and eliminated excess and waste, they could go a long way to absorbing the electricity tariff increases, and sparing long-suffering residents more hardship and pain.

Yesterday, Eskom was challenged by parliament’s Standing Committee on Public Accounts on how it could cut costs passed onto consumers, in the wake of the President’s call that it should reconsider applying the 18.6% tariff increase.

The standing committee should ask similar questions of municipalities, and of Nersa.

Likewise, the President must understand that the consumer ultimately pays what the supplier charges, not Nersa’s base rate. His call on ESKOM not to implement the Nersa tariff hike should have been accompanied by calling on municipalities not to implement their own hikes.

Ultimately, the President’s energy would be better directed if he instructed COGTA and Treasury to re-examine the municipal funding model. Action on municipal mark-ups would be particularly timeous, now, considering that municipalities are busy preparing 2023/24 budgets, which will include increases in the prices they will charge residents for basic services.

The DA’s energy would be similarly more useful to consumers if, instead of being spent on attention-seeking marches, it was directed toward trimming excess from the budgets of municipalities it leads in order to eliminate tariff hikes.

Media Enquiries:

Brett Herron, GOOD Secretary-General & Member of Parliament
Cell: 0825183264
Email: bretth@forgood.org.za

Janke Tolmay, GOOD Media Manager
Cell: 0733671223
Email: janke@forgood.org.za