An analyst tells Craig Dodds that electricity tariffs are a political balancing act, set in line with policies and the people a council is trying to serve.
How much do you pay for electricity? Do you buy it from Eskom or your municipality and, if the latter, are you paying too much?
These questions, unlike many of the issues on which political parties are campaigning for the local government elections in August, are relevant to voting decisions because municipalities that distribute electricity also set the tariffs, taking into account what they have to pay Eskom.
Municipalities don’t, for example, determine the policy or the budget for land reform, the allocation for social grants or how many police officers are allocated to their area.
Setting electricity tariffs is a municipal competence, but there are constraints.
John Loos, a household and property strategist at FNB, said last week that the electricity affordability component had become “the most troublesome part” of the municipal rates and tariffs bill as Eskom increasingly demanded tariff hikes well above the inflation rate.
Municipalities have no choice but to pass these increases on to residents.
The 50 kilowatt-hours (kWh) a month provided free to households on the indigent register is funded by the National Treasury.
For the rest, to determine how much to charge for a unit of electricity used, municipalities apply a sliding scale linked to the level of usage.
This means lower-usage customers pay less for a kilowatt hour than heavy users.
This encourages efforts to save energy, while the higher tariff for heavy users cross-subsidises the cost of energy for poorer households, which use less electricity.
The weighting of this cross-subsidisation - how much more to charge the wealthy, commercial and industrial users than the poor - is a matter of municipal policy.
Energy commentator Chris Yelland compared the electricity tariffs of six metros last year and found they had different approaches.
Last year, Joburg’s City Power, which doesn’t have a limited-capacity tariff, offered the lowest pricing on a standard prepaid tariff up to 1 000kWh a month.
For limited capacity (or subsidised) tariffs for low-income households, eThekwini offered a tariff of 94.14c/kWh, but limited to 150kWh a month, for those with a 40-amp prepaid meter.
Nelson Mandela Bay charged 86.1c/kWh for usage between 76kWh and 350kWh, Cape Town 96.12c/kWh for up to 350kWh a month, and Ekurhuleni 98.04c/kWh for up to 750kWh a month.
Tshwane, at between about R1.30 and R1.37/kWh for usage up to 650kWh a month, was by far the most expensive.
At the other end of the scale, Cape Town city tariffs escalated sharply for usage above the average consumption of 350kWh a month, becoming the most expensive for consumption of more than 750kWh a month, while Joburg customers paid the lowest prices for up to 1 000kWh a month.
Again, for between 1 000kWh and 2 000kWh a month - or medium-consumption domestic users - City Power charged the lowest tariffs for a 60-amp prepaid meter and Cape Town the highest.
For users with high consumption of between 2 000kWh and 4 000kWh a month, Cape Town was also the highest-priced and Joburg the lowest up to 3 000kWh a month. Above this level, eThekwini’s tariff was highest.
All of this is food for thought for voters before the August 3 polls, but other factors also need to be weighed, according to Yelland.
One is that municipalities use higher electricity tariffs for higher-usage customers not only to subsidise poorer households, but to cross-subsidise services like sanitation and road maintenance.
Demands by residents for lower electricity tariffs could lead a municipality to charge higher rates and taxes, Yelland says.
Another factor was the profile of customers. Whereas metros may have a healthy mix of big industrial and commercial users and significant numbers of domestic users paying higher tariffs, smaller, especially rural, councils may have a predominantly poor domestic user profile, with many households struggling to pay for services.
This makes it harder for such municipalities to pay Eskom for the electricity they have sold.
This may compel them to milk their wealthier customers, if any, driving down their ability to attract or sustain new businesses that would improve the local economy.
Large urban areas have an inbuilt competitive advantage, Yelland says. They are better able to absorb significant levels of non-payment by poorer customers, while keeping tariffs reasonable.
“Certainly, a place like Joburg, which is reasonably dense and has a broad spectrum of customer classes, is much more viable than a small municipality that has no commercial and industrial base and doesn’t have the money to provide basic services,” Yelland says.
This also enables metro municipalities to shape their pricing strategy to match their economic or political strategy, whether it is to offer the lowest electricity prices to business in the hope of attracting investment or charging the rich more, so they may supply poorer households with cheaper electricity in the hope of winning votes.
“Of course, it’s a political decision.
“That’s what city politics is all about - what is your strategy, who are your customers, whom are you trying to serve,” Yelland says.
“Ultimately, it’s a big balancing act, to try to get the right balance, to achieve the most, and in that way get political mileage and be re-elected. It’s the way a council is held accountable, through elections.”
Political Bureau