Ekurhuleni body corporates pay the price for electricity tariff mess

A flawed decision by the energy regulator Nersa, and the unlawful implementation of tariffs, has put the electricity supply of thousands of flat dwellers in Ekurhuleni and the financial sustainability of their body corporates and electricity resellers at risk, according to the Electricity Resellers Association of South Africa (Erasa).

Erasa is the latest in a long line of litigants asking for the court’s assistance over questionable tariff decisions by Nersa.

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The court recently set aside Nersa’s determination of Eskom’s allowable revenue for the three-year period ending 31 March 2028 and, in another ruling, also its determination of municipal tariffs for the current financial year.

In both cases, the tariffs currently in force were not affected by the rulings.

Role of electricity resellers

Electricity resellers play a crucial role in the supply of electricity to residents in sectional title complexes. In many cases, these are low- to middle-income households but also includes some commercial and industrial owners and tenants.

Resellers administer the internal electricity distribution where the licensed distributor, be it Eskom or a municipality, supplies only one bulk point for the whole complex.

This is mostly done on behalf of the body corporate, and in the case of Ekurhuleni, the municipal bill is in the name of the body corporate rather than the reseller.

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Resellers are by law not allowed to charge their end-users higher tariffs than those they would have paid if they had bought directly from the municipality.

Their profit lies in the difference between the special bulk tariff at which they buy from the licensed distributor and the applicable retail tariff.

It is therefore crucial that these two sets of tariffs are calculated with that in mind.

Where Ekurhuleni went wrong

And this is where it went wrong in the case of Ekurhuleni.

According to Johan Hopley, chair of Erasa, the tariffs the metro submitted in its application to Nersa differed from those contained in its draft budget. This deprived resellers of the opportunity to object during the budget consultation process.

The public participation process that Nersa ran was also deeply flawed, as confirmed in a ruling by the same court in October last year.

This further deprived Erasa members of the opportunity to voice their concerns. Despite this, Nersa approved the tariffs, which included a structural change in the form of differentiated time-of-use tariffs, as well as some new charges.

These changes were however not mirrored in the retail tariffs that resellers are obliged to charge their end-users, leaving resellers financially out of pocket.

Financial impact on resellers and body corporates

Erasa shows that a complex with 76 units using 26 600kWh per month must pay the metro almost R103 000, but it can only recover about R106 000. This leaves it with R3 000 for operating costs, which is not nearly enough.

Smaller complexes don’t even make any gross profit, and the fewer the number of units, the bigger the loss.

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Erasa committee member Byron Taylor says in the founding affidavit submitted to court that in order to make ends meet, resellers would have to charge end users a 23% premium compared to what other consumers in the same position – but buying electricity directly from the metro – pay.

This, however, would be unlawful, because resellers are bound to the municipality’s retail tariffs. The alternative, to absorb the difference, leaves the reseller out of pocket.

Because the utility bills in the case of Ekurhuleni are in the name of the body corporate, instead of the resellers, it is in fact the body corporate that suffers the greatest harm, according to Hopley.

This poses a risk that the body corporate could fall into arrears, potentially resulting in the disconnection of electricity supply to all units.

Metro’s confusing tariffs

To add insult to injury, the metro has implemented tariffs that differ from those Nersa approved by further differentiating between winter and summer in their energy charges.

The metro has since published a third set of tariffs on its website, but these have not been implemented.

Hopley says he personally tried to discuss the matter with members of the Ekurhuleni council, but the councillors were also in the dark.

Erasa then laid a complaint with Nersa, but Nersa advised the association to approach the courts for relief.

It has now filed papers in an urgent application to have Ekurhuleni’s bulk tariff for resellers for the current year reviewed and set aside. It is also requesting that the 2024/25 tariffs be restored, with an increase equal to the Eskom tariff increase for municipalities of 11.32%, pending the finalisation of the matter in court.

The respondents in the case are Nersa and the Ekurhuleni metro. Ekurhuleni has indicated that it will oppose the application.

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