OUTA calls on NERSA to investigate prepaid domestic electricity tariffs and reseller charges
Today the Organisation Undoing Tax Abuse (OUTA) releases the report on our investigation into domestic prepaid electricity in Johannesburg.
We found two main problems: illegitimate charges by commercial electricity resellers to their customers, and significant problems in the City of Joburg’s electricity tariffs. Electricity prices are regulated by the National Energy Regulator (NERSA), but these problems point to possible failures in regulation.
Prepaid customers are gold-star customers. They pay 100% of their bills and they pay upfront. Many are low-income households. But instead of being rewarded for this – particularly in a country with a widespread culture of non-payment – they are milked as cash cows, by the City of Joburg and by many resellers. Electricity customers have no choice in supply or control over prices. Those who complain or try to challenge unscrupulous behaviour are ignored. In the domestic prepaid market, those in the worst position are tenants, who find out about the padded prices after moving in.
These problems have contributed to turning electricity into a luxury, increasingly out of reach of low- and middle-income households.
OUTA is sending copies of our report to the City of Johannesburg, to NERSA, Eskom, the National Treasury and SARS, with recommendations for action.
OUTA’s recommendations include:
• NERSA should investigate the electricity reseller market nationally to stop illegitimate charges and order the refunding of customers who were overcharged;
• NERSA should halt the City of Johannesburg’s planned electricity price increases for 2020/21 and investigate the legitimacy of the prices, particularly those relating to prepaid tariffs;
• The City of Johannesburg must withdraw plans for a new monthly fixed charge on prepaid tariffs, the City should rebase the domestic prepaid tariff on the version presented to the public a year ago, and it needs to improve pricing transparency.
OUTA’s investigation
During April 2020, OUTA carried out an informal survey into the domestic prepaid electricity market in the Johannesburg municipal area, after hearing allegations of unexplained charges. We asked residents in the City of Joburg area who use domestic prepaid electricity to send us receipts so we could establish if there was overcharging and, if so, who was responsible. We received inputs from 830 people and, after excluding those who were outside the City of Joburg area (due to the many different municipal tariffs) or with insufficient information, we assessed 1 571 receipts from 550 respondents.
We are very grateful to those respondents, as this would not have been possible without their help.
We also looked at the tariffs which related to these receipts, and the process of setting these tariffs by the City of Johannesburg and its utility City Power.
Electricity resellers
The involvement of commercial resellers in the sale of domestic prepaid electricity in Joburg is widespread. Resellers buy electricity from distributors (Eskom and City Power) and resell it on behalf of body corporates and landlords to units and flats through the use of private electricity meters. The distributors and the commercial resellers control the prices set on the meters. Resellers’ customers should not be charged more than they would pay if they were direct customers of distributors (City Power or Eskom).
OUTA’s investigation found abuse of this system by resellers, who load extra charges and higher tariffs on meters, contrary to the NERSA guidelines issued in terms of the Electricity Act.
In our survey we found receipts that showed extra charges such as service fees, hidden charges which could be found only be adding up the receipts, and inflated rates per kilowatt hour (kWh). There were indications of collusion between resellers and property owners who wanted to profit from sales to tenants or collect on other debts.
We found inadequate receipts, which contribute to confusion over prices and make it easier for illegitimate charges to be loaded on the bills.
In our survey, 26% of our respondents in the City Power distribution area sent us receipts which showed overcharging: these were receipts where the average price paid per kWh was more than the most expensive City Power block charge. At least half of these respondents had receipts linked to resellers; there appeared to be 19 commercial reseller businesses involved.
City of Joburg tariffs
We found that the City of Joburg and City Power obscure the real price of electricity to consumers in tariffs and budget documents. These authorities have increased prepaid prices beyond what was publicly acknowledged in the City’s budget documents. We question this lack of transparency.
We found that the City Power reseller and domestic prepaid tariffs are set in such a way that at certain levels resellers operating legally will run at a loss. This is an inducement to resellers to overcharge customers.
We found that the domestic prepaid tariff was restructured and significantly increased in 2019/20, but that this was kept out of two public participation processes (the City’s budget process and the NERSA approval process). Instead of the publicly claimed 12.2% increase, the increases on the blocks covering 350kWh to 1000kWh increased by 29%.
We found that the introduction of the 6c/kWh surcharge on electricity sales in July 2018 did not go through the City’s budget process as legally required. This charge is hidden in the tariffs.
The tariffs fail to include VAT, which flouts the VAT law.
In the City’s 2020/21 budget, the prepaid tariffs are again subject to huge increases. The lowest block is reduced for the second time in two years, to below the lifeline tariff level set by the national Electricity Pricing Policy. The energy charge is increased. There is a new capacity charge of R230 a month (incl VAT) and the City plans to treble this within three years. City Power’s average domestic prepaid customer uses 374kWh a month; the monthly cost for such a user will increase by 48%. The new capacity charge will apply to both direct and indirect customers, and there are no exemptions for indigent households. There is no clear costing to justify this charge, no attempt to explain the practicalities of applying it and it backtracks on previous promises to consumers that there are no fixed charges on prepaid. Likewise, a new capacity charge of R460 a month (incl VAT) is added to the business prepaid tariff. This is a huge extra cost for small businesses and does not take the economic climate into account.
The City of Joburg's budget 2020/21
OUTA is submitting this report to the City of Johannesburg as part of the public comment process on the City’s 2020/21 budget, which is open for public comment until 23 June. OUTA is also making comment on other aspects of the budget. For more on this, see here.
OUTA's report
OUTA's full report is available here.
Annexure B for the report, showing examples of receipts with overcharges, is here.