Advice and Opinion

Costs of running a prepaid electricity system

When it comes to the installation of prepaid electricity meters in sectional title schemes, in most cases the body corporate will benefit by having these installed but sometimes the trustees might not investigate fully what the vendor’s conditions and costs are going to be, says Michael Bauer, general manager of the property management company IHFM.

There are often costs that have not been factored in and the system is not as straightforward as it is thought to be, he said.

All the costs need to be worked out beforehand, not just what the body corporate will be paying but what the consumer will be paying for each month, said Bauer.

Vendors have different business models, and it is vital that on choosing who the service provider will be, that all the costs are calculated before agreeing to sign a contract for their services, he said.

Most of the business models are similar, which entails the body corporate purchasing prepaid meters for each unit. The cost of prepaid electricity meters is straightforward and these would usually cost around R1 500 to R2 200, excluding VAT – and will often include installation (supply and fit). But this is only for the meter and this assumes that the building allows for the meters to be installed.

Each vendor has a vending platform (the vendor software application): some have their own and some use other larger platforms.

“Obviously, the larger the vendor, the larger the choice of outlets for the owners to buy from, so the first thing to check is how big the vendor is that scheme will be obliged to buy through and which outlets you can buy your tokens from,” said Bauer.

There are larger vendors who have their own systems, which the body corporate will be limited to buying their electricity through. The prepaid cards they supply will have a number linked to their system, which then dictates where the owners of the units will have to buy their units from. The problem here is if there are limited hours when purchases can be made or no online purchase option is available, said Bauer. Sometimes, too, the vendor doesn’t have a card machine and so owners have to pay cash each time.

Usually the body corporate would have to raise a special levy for the installation of the prepaid meters and, in addition, there is a monthly charge for the monitoring of these meters: usually around R29 per month and sometimes as high as 10% gets added to the monthly cost.

Alarmingly, sometimes the vendor allows the arrears that the body corporate owes to be added onto the monthly payments, which then means that each owner, if they had to recharge their meters, will only get a portion of what they paid for because they are paying off a debt.

The problem comes in where the tariffs of electricity are calculated – each vendor varies. The tariffs are often higher than what the consumer would pay if buying directly from Eskom or the municipality The costs broken down could possibly be: the vendor takes up to 10%, a store that it is bought through could charge up to 3%, so before you even have received any units, up to 13% is being taken off the top to pay for the service, said Bauer.

Many vending contracts last for five years or longer, so this is why it is so important for the body corporate to investigate fully all the charges and running costs, before agreeing to sign a contract with any vendor. The contracts can be quite complex, so careful thought needs to be put into whether, (a) this is actually necessary for the scheme, and (b) what the owners will actually be paying for and what they will be receiving.

Some sectional title schemes don’t actually need to convert to prepaid systems because they do not have any problems in collecting the amounts necessary and have stable consumption over the years. What the trustees do need to consider carefully is the owners’ costs to operate and maintain the prepaid system, said Bauer.

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