NERSA’s Reseller’s Guidelines

reseller's tariffs
15 Nov 2016

This article considers the legal implications for various parties of NERSA’s recently published Reseller’s Tariff, with specific reference to the impact on property owners and managers within the jurisdiction of the City of Johannesburg Metropolitan Municipality (“COJ”). The authors only consider certain aspects of the Reseller’s Guidelines; a full exposition of same is beyond the scope of this article.

Applicable Law

The NERSA Guidelines on Electricity Resale (“the Reseller Guidelines”) have been published in terms of the Electricity Regulation Act 4 of 2006, which empowers and obliges NERSA (as the authorised regulatory authority for the generation, distribution and trading of electricity) to regulate the buying and selling of electricity as a commercial activity.

What is a Reseller?

Essentially, a reseller is a person or entity who trades electricity as a commercial activity (i.e: buys it and then sells it on) but is not licenced by NERSA. The reseller must buy in bulk from Eskom or a municipality (using a bulk supply point) and then on-sell it to end users (who have individual meters), and in so doing make a profit. Because municipalities and Eskom are licenced by NERSA, as are other major distributors, this leaves smaller persons and entities (mostly property owners and managers, and collective associations such as sectional title bodies corporate and home owners’ associations) to fill the gap as “resellers” who “trade” electricity. Resellers typically include the owners of blocks of flats, sectional title bodies corporate, home owners’ associations, and the managers of shopping complexes and commercial buildings.

Why must Resellers be regulated?

Firstly, resellers must be regulated to ensure that they provide electricity to end users at a price not less favourable than the licenced distributor in the area: to ensure that consumers are not prejudiced with a higher cost merely because they happen to be buying from a reseller rather than Eskom or a municipality. Second, in order to ensure that the service levels provided to consumers by resellers are of a similar standard to those provided by Eskom or a municipality: again to ensure that they are not prejudiced as a result of having to purchase electricity from a reseller.

Why become a Reseller?

As a reseller you buy from Eskom or the municipality at a cheaper rate (on the reseller’s tariff), than the rate you on-sell the electricity to your end users, which is the normal residential or business rate applicable. You make a profit from buying in bulk and on-selling.

How to become a Reseller

Any person or entity who buys and sells electricity as a commercial activity and is not already licenced by NERSA automatically qualifies as a reseller and is subject to the Reseller Guidelines. To be recognised as a reseller and qualify for the cheaper reseller’s tariff, however, you need to apply for recognition as a reseller with Eskom or the municipality that supplies electricity in the area that your property operates. Note that even resellers who are not registered with Eskom or the municipality are still subject to the Reseller Guidelines.

Reseller Do’s

  • Resellers can purchase power in bulk on the cheaper reseller tariff and sell it on to their end consumers at a price not less favourable than what the consumer would pay if purchasing directly from Eskom or the municipality.
  • Resellers should have their own supply agreements with their end users, but on terms not less favourable than the end user would have with Eskom or the municipality.
  • Resellers can terminate the supply of power to an end user, but only on the same conditions that Eskom or a municipality can terminate supply. This means that the consumer must have breached the provisions of the agreement between the reseller and the consumer relating to payment, and that appropriate notice and opportunity to make representations must be given.
  • Resellers can collect debt owed to them by end users, but only in accordance with all other laws, which would include, for example: the National Credit Act 34 of 2005, the Consumer Protection Act 68 of 2008, and the Debt Collectors Act 114 of 1998.

Reseller Dont’s

  • Resellers cannot recover any of their operation costs at all through reselling electricity:
    • They are only permitted to recover the difference between the reseller’s tariff and the applicable “end user” tariff.
    • They may not charge the end user any other charges, such as meter reading charges, network maintenance charges, or administration, vending, billing or collection charges.
  • Don’t rely on tacit agreements:
    • Make sure you have a written agreement regulating your relationship with your end users. Make sure the provisions thereof are legal.
  • Don’t illegally terminate the supply of electricity to an end user:
    • Termination will be illegal if you have not given proper notice (which should be a minimum of 14 days) and if your notice does not give the end user the relevant information that explains how much is owed, what it is owed for, how to make payment or payment arrangements, and how to challenge the disconnection instruction.
    • Termination will also be unlawful if there is any challenge or dispute relating to the amounts billed, which have not yet been finalised.
  • When charging customers fees for disconnections, legal fees, interest fees, or phone calls or letters written for debt collection purposes, make sure that you do not fall foul of the various pieces of legislation that govern these charges.
    • For example, if you charge interest you will most likely need to comply with the special notice requirements set out in the National Credit Act, and if you charge for phone calls or emails when collecting debt, you will probably need to comply with the provisions of the Debt Collectors Act.
    • If you are a body corporate or home owners’ association you cannot simply add collection charges or legal fees to the debtor’s levy statement. For legal fees you first need to take judgment against the debtor and have a bill of costs taxed, and for collection charges you need to comply with the Debt Collectors Act – which requires registration as a debt collector – failing which, such charges on the levy statement will be unlawful.

Free Electricity Allowances

Resellers are obliged to pass on any free electricity benefits to the end users, as if they were receiving the supply directly from Eskom or the municipality.

Disputes with the end user

Unhappy customers should first raise their complaints with the reseller. If that doesn’t resolve the issue, then the customer can go to Eskom or the municipality, and thereafter NERSA if the matter is still unresolved.

Penalties for non-compliance

The reseller could face a civil claim from an aggrieved party for the difference between what was charged, and what should have been charged, and any other damages suffered.

Unanswered questions

  • Is the reseller the owner of, or (where the owner is not the account holder) the account holder in respect of a property such as a block of flats? Is the reseller the body corporate or home owners’ association – or the account holder (in cases where the account is not in the name of the body corporate or home owner’s association, but rather the account holder is the developer or the managing agent)? This is a very important question because often owners have managing agents managing their properties for them. This raises the issues of (amongst others), who must be registered, who must give notice, who is responsible for dealing with complaints, who has the power to terminate supply, and from whom invoices must be issued.
  • Can a reseller charge each end user (ie. each sectional title unit or flat) the standard network and/or service fee charged to the reseller? Or must it divide this charge up amongst all of the units or flats?
  • Where the reseller is buying in bulk and is on a tariff that does not provide any free electricity or charge in steps (such as a large user LPU tariff): must the reseller still charge the end user based on the applicable residential or business tariff using steps, and/or provide for a free allowance?
  • Is refusing to sell any further pre-paid electricity to an end user a termination?
  • Can disconnection or reconnection fees lawfully be charged by resellers?

Conclusion

The introduction of these Guidelines creates a regulatory framework for resellers that previously did not exist. These Guidelines make it clear that NERSA intends to ensure that resellers operate on terms similar to – and not less favourable than – the terms of purchasing electricity directly from Eskom or a municipality. However, the Guidelines do not provide answers to all of the important questions that will ultimately arise in the industry, and it remains to be seen how NERSA will deal with these challenges going forward.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
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