Electricity pricing policy: Consequences needed for institutions that disregard policies
AfriForum has submitted comments to the Department of Electricity and Energy regarding the Revised Electricity Pricing Policy (EPP), which outlines the government’s framework for how electricity prices, tariffs, and related charges in the electricity market should be determined and regulated. However, the organisation warns that although the policy contains new rules, frameworks, and directives, there is little information regarding the consequences of non-compliance.
Among other things, this policy aims to replace the 2008 pricing policy and establish rules that are no longer structured exclusively around Eskom. It also addresses, among other matters, how generation, distribution, and retail costs are to be recovered; how network and capacity charges operate; and how consumers who generate their own power should be treated.
The civil rights organisation believes that the government’s plans regarding how citizens will pay for electricity in the future are erroneously based on the assumption that the National Energy Regulator of South Africa (NERSA), Eskom, and municipalities will comply with the rules as set out in the policy.
According to Deidré Steffens, advisor for Local Government Affairs at AfriForum, the department is out of touch with reality. “A rule on paper means nothing if no one is held accountable when it is not followed. AfriForum has already had to go to court more than once to force NERSA to simply do its job. Now we are presented with yet another policy that almost automatically assumes everyone will follow the rules this time.”
According to AfriForum, the policy assigns numerous new responsibilities to NERSA and electricity distributors, yet it is not sufficiently clear what the consequences will be if these responsibilities are not carried out within the prescribed timeframe or in accordance with the policy. AfriForum warns that the envisaged changes or plans could fail if accountability and enforcement are not properly incorporated into the new framework.
One of AfriForum’s major concerns is the reference to so-called “legacy costs” and how the policy aims to ensure that these costs are factored into electricity prices and ultimately paid by consumers. Simply put, these costs refer to historical expenses and contractual obligations arising from the existing electricity system that still need to be recovered within the new electricity market.
The problem, however, is that the EPP requires, on the one hand, that new electricity tariffs reflect costs and be transparent and fair, yet on the other hand, it must also provide for the recovery of historical costs from consumers. The policy does not state clearly enough that it must first be demonstrated where these costs originate and why it is equitable to pass them on to current consumers.
Morné Mostert, manager of Local Government Affairs at AfriForum, believes that these costs will only place more pressure on the consumer. “A cost does not suddenly become a good cost simply because it is labeled a ‘legacy cost.’ We cannot create a black box into which billions of rands in historical costs are dumped, only for the consumer to foot the bill later.”
AfriForum also objects to the manner in which the electricity pricing policy makes provision for municipal surcharges on electricity. Municipalities already possess the authority to levy such surcharges under existing legislation. AfriForum therefore maintains that it is unnecessary for the Department of Electricity and Energy to further endorse this authority through the electricity pricing policy, particularly given that such surcharges can result in consumers paying an additional amount over and above the actual cost of electricity supply.
The real problem is that municipal surcharges are not sufficiently regulated or transparent. Consumers need to be able to see exactly what they are paying for electricity and what constitutes an additional municipal surcharge. AfriForum’s submission therefore calls for the EPP neither to create nor endorse such a surcharge, and insists that any surcharge be clearly separated from the actual electricity tariff.
The same principle applies to the fixed charges consumers pay when they purchase less electricity from Eskom or their municipality but remain dependent on the grid.
EPP increasingly makes provision for fixed network, capacity, and standby costs. There are legitimate costs associated with remaining connected to the grid, but AfriForum warns that these charges must not become a means to offset a decline in profits – caused by falling sales – through new fixed charges.
“It makes no sense to promise a new, competitive electricity market while simultaneously designing a system that protects the revenue of Eskom and other distributors when consumers buy power elsewhere or generate their own. You should pay for the costs you actually incur—not be penalized for buying less power,” Mostert concludes.
For every rand recovered from an electricity consumer, it must be clear what the charge is for, why it is justified, and how it was calculated. Without this transparency, the country will not truly achieve a reformed electricity market, but merely see new levies imposed on the same old problems.
