A report on Fin24 quoting Nersa regulatory specialist, Charles Geldard, states; “The warning from Nersa came after the committee heard this week that certain major municipalities were adding mark-ups of several hundred percent to Eskom’s megaflex tariff.
“According to [a study by] the Energy Intensive Users Group (EIUG) of Southern Africa, the figure was 692% in the City of Tshwane in the past financial year, and 548% in Nelson Mandela Bay Municipality.”
At first read the numbers in the article seem to say that the Nelson Mandela Bay Municipality is marking up electricity by 548%, after all the definition of the term ‘Megaflex Tariff’ is not one known to the man in the street.
No matter the definition of ‘Megaflex Tariff’ a 548% markup, in anyone’s language, is a HUGE number. If you want to skip to the bottom line then click here to see just how many millions the ‘typical industrial consumer’ is being fleeced by the NMBM through application of this markup.
According to Shaun Nel of the EIUG the TRUE picture is this;
“…. the 600% markup is only on the demand charge portion of an industrial bill. Our study indicates that energy charges are on par but that network access and demand charges are being significantly increased. We surmise that decreasing demand for energy is affecting Municipal revenues and therefore the move toward increasing fixed income from those charge elements.”
Industrial tariffs have 3 components:
- Network Access charge (to cover the costs of the infrastructure),
- Demand Charge (related the size of the connection required) – the subject of high markups – and
- Energy charge (actual electricity consumed)
To clarify – the huge numbers mentioned in the article are only for the Demand Charge portion of electricity bills that affect industrial and large consumers of 200kVA and over and are NOT a markup on the electricity (energy) charges from Eskom.
Still a sneaky move on the part of municipalities, though, as if they get away with one out of kilter mad markup they may be tempted to milk consumers even more.
Recently Nersa regulatory specialist Charles Geldard told parliament’s trade and industry portfolio committee that municipalities procured around 60% of their funding from electricity distribution.
The result was prohibitive energy tariffs imposed on industry and a high risk of business closures and job losses.
“In my personal view that is where the problems are lying in terms of industrial tariffs. The issue is that approximately 60% of the municipal budget is funded by electricity revenue,” he said.
“National treasury staff have also been made aware that municipal funding from electricity is reaching a tipping point and needs to be reduced. We can’t just continue to increase the amounts they are getting.
“It seems to us that they see industry as a source of revenue and don’t understand the impact on industry… there is concern that this will force industries to close down.”
According to figures from the energy department, municipalities provide electricity to roughly 54% of the country’s users and had an asset maintenance backlog of R27.4bn in 2008.
The portfolio committee this week heard repeated warnings that escalating energy prices could have dire consequences for the economy. If Nersa were to approve Eskom’s application, the price of electricity would more than double by 2018.
Asked to help justify the 548% markup by the Nelson Mandela Bay Municipality, EIUG spokesman Shaun Nel said:
“BDO Consulting Services developed this study to focus principally on the comparison of municipal electricity tariffs on a national scale, due to increasing pressure from smaller Industrial Users (not primarily EIUG members) to press for moving from Municipal supplied electricity to ESKOM supplied electricity. Note the study did not address any commercial or residential tariffs.
The methodological approach adopted in our study was to review existing tariffs, and comprised of a number of distinct stages:
First, a thorough process was undertaken to identify and locate all existing published tariffs by the municipalities themselves and the approved tariffs by the National Energy Regulator of South Africa (NERSA) for the municipalities included in the sample set for years 2010/11 and 2011/12.
Secondly, distinct charges were defined and grouped in order to develop an appropriate definition based on what is accepted in the majority of the municipal tariff booklets under review. The developed definition was applied to published municipal and NERSA approved charges in order to categorise them.
Thirdly, hypothetical user profiles were constructed that reflect average usage patterns for industry. The methodology is able to illustrate variations between municipalities in relative revenue derived from fixed, demand and energy charges. However all the user profiles argue that the balances of charges reflect a ‘typical’ user. We noted that this can lead to distortions because usage patterns inevitably reflect the existing tariff structure.
Lastly, a comprehensive comparison of each of the municipalities was conducted. This comparison was undertaken in order to achieve the following:
- Identify the difference in tariffs between Eskom and municipal tariffs;
- Identify the difference in tariffs between municipal charges and NERSA approved charges; and
- Identify the increase/decrease from the previous year’s tariff.
All the information and data used in this study, except for the member data used to create the hypothetical user profiles, is in the public domain and was provided by the municipalities themselves, as well as NERSA.
There is a large range of municipal tariff structures in effect in South Africa. Although tariff information is public (municipalities are obliged to publish their tariffs annually and to make a copy of these tariffs available on their web-sites – see NMBM Electricity tariffs here), these tariffs have not been collated and analysed by NERSA. Repeated requests for detailed clarification on the differences between the NERSA approved tariffs and municipal applied tariffs were unable to be explained by either NERSA nor the Municipalities.
Of 187 licensees the six metropolitan and four quasi-metropolitan municipalities were selected. The selection was influenced by the size of the municipalities and those that had very dominant industrial customers.
The electricity tariff structures for these ten municipalities below were collated.
- Buffalo City;
- City of Cape Town;
- City of Tshwane;
- City Of Umhlathuze;
- City Power;
- Nelson Mandela Bay; and
The comparison was restricted to the time of use (TOU) tariffs for industrial customers. The method of comparison was based on a model case. In this method, a model with unified usage conditions (energy charge, demand charge and fixed charge etc.) is established, and the tariffs of municipalities are used to calculate the hypothetical electricity charges. Because it is necessary to obtain the tariffs from municipalities to be compared the study focuses exclusively on reviewing the existing tariffs levels and tariff structures approved by NERSA and published by municipalities. This means that the findings reported here stem exclusively from what is contained within these published booklets.
One important addition to this is that our study used actual electricity bills paid by users to generate ‘typical’ user profiles in addition to being used as a reference point for model-generated results. Because this calculation method provides results that represent that particular user, the obtained unit price is dependent upon the usage characteristics of the consumer, which are in turn reflective of the consumer response to the existing tariffs.”
The typical user profile used for the above study was an 11kV User using for a full year:
- 12 300 000 peak units
- 30 000 000 standard units
- 37 800 000 off-peak units
- Demand Component of 121 000
- Network Access charge of 165 000
- For a total of 80 386 000 units
The Nelson Mandela Bay Municipality Demand Charges compared to Eskoms are:
Using the tables above then shows that our ‘typical industrial consumer’ will pay R17 894 250.00 to the NMBM per year JUST for the demand charge component.
If our ‘typical industrial consumer’ was paying Eskom direct for the demand charge they would pay R3 098 700 per year representing a whopping saving of R14 795 550.
Now that figure would create many many jobs!
The NMBM industrial electricity bill (businesses using 200kVA and above, i.e. not office type business or residential) consists of three components:
- Monthly basic charge (network access charge)
- Energy charge (actual Consumption)
- Demand Charge
The only charge that can be controlled by the consumer is the energy/consumption charge. The demand and basic/access charges remain static. Now there is some confusion as to what the demand charge may be used to fund by the municipality with some people saying that the demand charge could be viewed as an ‘incentive’ to the user to become energy efficient whilst the basic/access charge is to be used by the municipality to fund infrastructure. Other people say that the basic/access charge PLUS the demand charge are to be used by the municipality to fund infrastructure.
My attempts to get NMBM Communications and the Electricity department to clarify if the NMBM’s demand charge component was just a line entry plus costs failed though.
So, I am now surmising when I say; “Yes, it certainly does seem that our dear municipality is being shortsighted by screwing industry with a 548% markup and, at the same time, they are also screwing with the people who need jobs. sarcastic fontNice one, guys, nice one!/sarcastic font“