Joburg electricity bills are due to go up more than the standard rate because of theft and vandalism. And combating those huge losses of electricity is now City Power’s top priority.

“We need to start operating as an efficient business,” said City Power acting MD Sicelo Xulu.

“This is the strategy I am driving in the organisation.”

City Power loses nearly a fifth of the power it buys and that adds to the cost for those who pay, plus the utility now needs to spend money on equipment to stop the thefts.

In July electricity bills across the country will go up when municipalities charge 11.03 percent more, to cover the costs of paying the Eskom hike of 13.5 percent.

City Power has applied to the National Energy Regulator of SA (Nersa) for permission to increase tariffs by 11.93 percent. This will give the utility an overall revenue increase of 14 percent.

Nersa had previously indicated that this was a 14 percent tariff increase but Xulu said the increase requested was an average of 11.93 percent.

The application is still under consideration by Nersa.

Tariff increases range from 11 percent for poor customers to 15 percent for agriculture.

Xulu acknowledged that business and industry charges are high – they face 12-13 percent increases – and said the city wants to ease this burden in the long term. Cross-subsidisation of lifeline tariffs (for poorer customers) by business and industry is being reduced.

Xulu is asking for a slightly lower tariff than he needs, because he aims to save R229 million by improving efficiency over the next year.

He also hopes to halve the unpaid debt.

It’s Joburg’s fifth above-standard increase in tariffs in the past six increases.

The big expense is buying bulk electricity and Nersa estimates municipalities spend about 70 percent of their costs on this.

City Power buys about 93 percent of its power from Eskom and the rest from the privately owned Kelvin Power.

When the revised Eskom price was announced in March, the city estimated that bulk purchases of electricity would be about 67 percent of its costs.

But by the time City Power presented its application to Nersa last week, it had worked out the Kelvin costs and revised this to predict bulk purchases would take up 81 percent, said Xulu. This was calculated on planning for the utility to buy slightly more from Eskom and less from the more expensive Kelvin, which is hiking prices by 29 percent because of fluctuating coal costs which are passed on to City Power.

Assuming that City Power buys the same amount of power in 2012/13 as in 2011/12, the 13 707 gigawatts of power that cost R8.2 billion in 2011/12 will cost R9.4bn the next year, more than the City of Joburg has budgeted to spend.

As an independent power producer, Kelvin is not bound by Nersa’s pricing rules. Existing agreements mean Kelvin’s power is sold to City Power, not Eskom, but City Power may sell this on to Eskom.

Xulu said City Power bought Kelvin power even when it was not needed in Joburg, to pass on to Eskom to ease the strain on the national grid and avoid the load shedding of 2008.

He said City Power just covered costs in sales to Eskom.

“There’s no profit,” he said. “They (Eskom) are covering the cost because we’re putting it into the grid.”

Xulu wants to improve City Power’s finances so the repairs and maintenance and capital expenditure budgets can go up.

City Power’s 2012/13 budget doesn’t show much improvement, with repairs and maintenance still at 3 percent – 6 percent is ideal – and capital spending under 7 percent of the budget.

Xulu said it was a long-term plan; the priority is to get power losses under control.

City Power loses 19 percent of the electricity it buys, a cost of R1.217bn in 2010/11. Xulu wants to cut that to 12 percent by the end of June next year.

The losses are believed to be made up of 9 percent due to technical losses (losses from transmitting electricity over networks) and 10 percent due to problems of theft, vandalism, bypassing meters.

Xulu wants to know exactly how much the technical losses really are, so City Power is installing smart meters along the network to check this.

But the thieves and vandals are the main target.

“I want to squash that 10 percent down to a very minimal figure,” said Xulu.

Those who steal electricity or damage networks should expect to get caught.

Those who don’t pay their bills should expect cut offs.

Customers who repeatedly block access to their meters will be disconnected.

“We need to attack this thing,” said Xulu. “That’s where it starts.”

To help cut losses and boost efficiency, City Power is focusing on its 407 000 customers’ meters.

About 200 000 of these are for prepaid customers, usually the smaller users. These customers will start getting solar water heaters (most don’t have geysers but heat water on hotplates) and their meters will get steel tamper-proof boxes and remote access units to alert City Power to any tampering.

Xulu wants to finish that process in three years.

The bigger customers – residential and business – will get smart meters, which can be set to prepaid or post-paid charges, can help customers track and streamline their own spending, and will eventually be able to accommodate customers who generate their own power and sell this back to City Power.

The smart meters will be able to run time-of-use tariffs (cheaper power outside busy hours) for residential customers, which City Power hopes to start in another year.

“We just need to get the policies in place and the infrastructure,” said Xulu.

Tenders have been issued for much of the meter project.

City Power is setting up a back room – effectively a war room – to respond to the tampering alerts from the meters.

“We need to be at war over the theft of electricity,” said Xulu.

If you tamper with your meter, Xulu intends his team to be on your doorstep within hours.

Sorting out metering and theft will also reduce overall power use, in line with national needs, because once people have to pay for electricity, they often use less.

Xulu emphasises that it’s not just the poor who steal electricity.

He said officials struggled to gain access to 33 000 meters because properties were locked and they found such meters were often bypassed.

They’ve also found businesses which disconnected a fuse on one of their three-phase meters, effectively getting some of their power free.

The new meters are in the capital expenditure budget.

Eskom wants customers to keep power use to a minimum, the customers all want to keep their bills to the minimum, but City Power needs to put more money into capital expenditure. The only way to get that sum right is to cut the costs of power losses.

City Power has an ambitious plan to spend R26.8bn on capital programmes by 2028, most of it in the early years.

It’s already behind.

“There is a backlog,” said Xulu. “This is the challenge we face.”

He aims to build up City Power’s surplus this year so that this can go into capital spending next year.

There are other places that City Power wants to improve efficiency.

Unplanned maintenance must drop from the current 41 percent of all maintenance to less than 20 percent.

Efficiency is the key for Xulu, who emphasises the need to run a tight ship and streamline the system. “It’s like running a spaza shop but your till is not working,” he said.

City Power’s proposed tariff increases from July 1:

Lifeline: 11 percent increase

Domestic single- and three-phase: 13 percent

Prepaid: 13 percent

Agriculture: 15 percent

Traffic lights, streetlights and billboards: 14 percent

Business and industrial (prepaid, service charges and energy): Up to 13 percent

The Star