Major electricity price battle as City Power charges businesses 80% more than Eskom

Johannesburg’s City Power stands accused of “unthinkable” and “irrational” behaviour for charging over 80% more than Eskom’s rates for electricity to businesses.

The city’s power tariffs are being used as an example in a court application challenging the National Energy Regulator of South Africa’s (Nersa) methodology for calculating municipal power tariffs, Sunday newspaper Rapport reports.

The Nelson Mandela Bay and Pietermaritzburg Business Chambers have taken Nersa to court over its methodology for determining price adjustments that municipalities can make annually.

Their application has received Eskom’s support.

The power utility’s legal representative, Advocate Matthew Chaskalson, explained that the law dictates municipal power tariffs are supposed to be reflective of the actual cost of supplying the service in addition to a reasonable margin.

To determine these amounts, Nersa should investigate the cost of the service and each consumer category to establish whether there was any unfair cross-subsidisation.

However, the regulator has not been doing this.

Instead, it has been taking the historical tariff and approving hikes on it each year over the past decade.

This resulted in City Power supposedly being able to charge businesses over 80% more than Eskom for electricity.

Chaskalson said the law clearly distinguished between the power tariffs that Nersa could determine and levies that are a form of tax, which it may not implement.

Nersa’s guideline for municipal power tariff increases for the 2022/2023 year suggested municipalities increase prices by roughly 7.47% from 1 July 2022.

But should the business chambers’ challenge succeed, that increase would be set aside.

They have asked that a ruling in their favour be suspended for a year to give Nersa time to fix its approach.

The parties have been given an opportunity to settle, failing which the matter will be heard again on 24 June 2022.

Nersa is also set to hold public hearings on 15 June regarding applications from four municipalities to increase their tariffs above its guideline of 7.47%.

These include the municipalities of the City of Cape Town, the City of Ekurhuleni, Stellenbosch, and Witzenburg.

Initially, the regulator did not plan to hold the public hearings, but the DA challenged it over this decision.

The table below shows the proposed increase that municipalities have applied for and their motivations for the hikes.

Nersa is busy changing how it calculates electricity tariffs, but these plans have also endured heavy criticism from Eskom and energy experts.

Its principles document on electricity supply prices contains several ambitious changes, some of which Eskom warned would be unfeasible.

Among the controversial proposals is distinguishing between three types of users and charging them separate tariffs.

These customer segments would include:

  • Baseload profiles with constant power demand likely being 100% grid-based. These are primarily industrial customers like mines.
  • Day or mid-merit demand profiles, supplied by own or embedded generation through solar and wind. Will be on- or off-grid.
  • Variable load profiles, which will include peak demand and grid-based backup.

One of the consequences of these distinctions is that home solar power users still connected to the grid as a backup would have their tariffs linked to the price of producing electricity using open-cycle gas turbines.

That could see them paying over 1,000% more than the country’s biggest power users.

Nersa previously said it would hold public consultations regarding the new pricing methodology during May 2022, but this did not happen.

Now read: Eskom CEO André De Ruyter’s load-shedding nightmare

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Major electricity price battle as City Power charges businesses 80% more than Eskom