LUNGILE MASHELE: Fixed electricity tariff fails to distinguish indigent from wealthy

In the midst of the election hysteria, an electricity tariff adjustment was approved, which is set to upset residents in the City of Johannesburg.

The 12.7% increase and R200 fixed charge came into effect on July 1, but most residents will notice it only this week as they recharge their prepaid electricity meters.

For years the city charged only its prepaid customers a variable charge based on their consumption. The prepaid tariff was also subsidised because of its intended customer base. However, the widespread adoption of prepaid meters, because customers wanted to have control over their spend, means even wealthy customers were being subsidised and not paying fixed but only variable charges.

Historically, prepaid electricity customers were charged only a variable charge, but as from July 1 the city has introduced a fixed charge of R200 for prepaid customers. This charge will be deducted from the token purchase amount. For instance, if you buy electricity for R1,000 there will initially be a VAT deduction of 15% (R130.44), then R200 will be deducted for fixed charges. What remains, R669.56, will then be used to buy energy in kWh. Depending on your municipality, residential tariff structure and inclining block tariff, that could be anything between R1.60kWh and upwards of R10kWh.

The R200 fixed charge emanates from a cost of services study that revealed that prepaid customers were not paying for their fair use of electricity. Assume you have a holiday home in Johannesburg that is unoccupied in June, that means you had no variable charge, which is correct because there was no-one home, but there was a fixed charge that was incurred. Similarly, if you have solar and you use the municipal grid as backup, the network and capacity charge is not being recovered. The R200 fixed charge aims to remedy this.

And therein lies the rub. The fixed charge is being levied on the poor and the rich alike. If you buy electricity for R200, VAT will be levied (R26.08) then the remainder (R173.91) will be split equally between fixed and variable charges; this will happen on every recharge until the R200 charge is paid.

This tariff affects the poor disproportionately because it’s flat and does not distinguish between indigent and wealthy customers. Furthermore, the process of being placed on the indigent register is time consuming as registration takes place only every six months, and only about 30,000 homes are registered.

The fixed charge as a concept is not new. Residential postpaid customers in Johannesburg pay R1,000 a month, and Eskom customers pay between R225 and R1,410, depending on the customer segment. The prepaid customers are simply catching up. This adjustment is also coming to other municipalities, most likely after their cost of supply studies are completed.

The effect of this charge is yet to be felt, but what is known is that energy poverty will increase. The wealthy will insulate themselves through substitutes such as solar PV and geysers, and using diesel generators or efficient lighting to offset their costs. This cycle will lead to greater municipal allocative inefficiencies, driving prices higher and the cost burden to fall further on the poor as cross-subsidisation falls apart.

The poor will defect from the grid and use candles, paraffin and indoor fires to keep warm. This not only poses health risks through respiratory problems but could lead to a loss of lives through fires. There are no easy solutions. The city is haemorrhaging millions and not recovering its spend, cable theft abounds while the city’s population grows at more than 25,000 new people every month. The municipal electricity model is defunct, and more people are joining the unemployment statistics.

For most of us, municipalities are our first interaction with government. If not handled and communicated properly, such tariff changes will become the precursor to service delivery protests and political instability two years before local government elections.

• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.