Advice and Opinion

Complex electricity tariffs and the knock-on effect on landlords

Electricity

With many South Africans working from home, residential users will be in for a shock when it comes to their electricity bills. The electricity tariff hikes came into effect from the 1st of July 2020 and these complex tariffs are not only frustrating, but they are hindering attempts by consumers to manage electricity costs at a time when, for most people, every cent counts.

Michael Franze, Citiq Prepaid Managing Director says that electricity tariffs factor in the costs to build, finance and maintain the grid. It is both reasonable and desirable that Eskom and our municipalities receive enough funding (with property management) to keep the lights on and our economy growing.

The trouble, however, is that over the years our electricity tariffs have become so complex that consumers are bearing the brunt of an opaque creation that is resulting in higher bills and defaulting consumers” he says.

In 2010, the energy regulator NERSA recommended its inclining block tariffs (IBTs) to provide cross subsidies for low income domestic consumers and to encourage energy efficiency. It has published a study on its website where it defends the efficacy of the solution. However, Franze says that despite its good intentions, the complexity of tariffs is hindering energy saving efforts and the confusion can result in sub optimal consequences, exacerbated by the current economic climate.

The better solution is to match the tariff structure to what people can understand and the capabilities of meters and systems. Most residential meters can only measure kWh and give users no tariff feedback,” explains Franze.  

If a meter could signal to the user that they have now exceeded their allocation in the first block of an IBT and they are moving into the next, more expensive one, then this would help modify user behaviour, as NERSA intended” he explains.

“With a post-paid sub-meter, the user will find out months after the fact with no opportunity to modify behaviour. And only when municipalities print the tariff blocks on their invoices, which many do not do. For prepaid sub-meters, meanwhile, people will buy credits for the month and the only indication of the tariff blocks will be on the receipt. And, when they buy for more than one month, they end up paying more than if they waited to buy again the following month. It is unrealistic to expect people to translate the IBT into something intelligible, even if they have access to the information and take the time to understand it.” 

Landlords and the additional electricity headaches

While end-users have their own challenges, Franze says that these are exceeded by landlords who are faced with bills that are even more complicated.

The landlord bill can be very complex and almost impossible to translate into a tariff for their tenants. Maximum Demand Charges or Seasonal Tariffs might make sense for industrial users, but residential tenants typically have no control over these variables.” 

He says it is unfair to expect a tenant to understand that, for three months of the year, their tariff jumps threefold. Rather, he believes it would be better to simply have a slightly higher tariff in low usage summer months to make up for the higher cost in winter. 

He points out that the Reactive Energy charge (a charge for ‘non-working’ power, or power that has to be made up due to inefficiencies at the customer’s load source) is only measurable with industrial meters. 

These industry complexities cause huge headaches for the landlords and often result in tenants either over or underpaying. This leads to disputes and non-payment, the knock-on effect of both of these can even result in evictions.” 

Franze believes that both Eskom and the municipalities would benefit from a simple, flat kWh tariff with lower rates for indigent users. What is more, additional billing items such as daily and flat charges should be avoided.  

Creating a tariff structure that people understand will improve confidence in tariffs overall, lower disputes and cut down on non-payment.”

Currently, we are stuck with complex tariffs that can only be justified with user education. But this education is sorely lacking. A glaring example is that the Tariff increases would have gone live without being published on most municipal websites. For example, on the City of Joburg website, the tariff update was only published on 6 July. The City of Cape Town’s publication of their updated tariffs are ok, but not that of the City of Ekurhuleni, which last published their tariffs in 2019 Nor that of the City of Tshwane, which still reflects outdated tariffs

We have some poor municipalities like Buffalo City who last shared their tariffs three years ago.

When the correct tariff is published, it is almost unintelligible to somebody outside the industry. This example is from the published City of Cape Town tariffs (and the tariff is quite simple).

Unfortunately for both landlords and tenants very few municipalities will have the new 1 July tariff structure published anywhere for the next few weeks or even months. We can expect some confusion and anger from consumers, and, given our fragile power system, additional non-payment pressure is not ideal,” Franze concludes.