Financial implications of primary and sub-metering

Utility bills are notorious for not being understood. People generally think that utility billing is simply a case of a calculation based on a difference between a previous and current meter reading.

Very little awareness is given to the service providing aspect of distribution and services delivery, required so that we can simply press a switch, turn a tap or open a valve that allows electricity, water or gas to flow. While some sectional title schemes do have direct billing from their local municipality, most have a bulk services supply. To obtain a bulk service the body corporate of the scheme would have to apply for and open an account with the relevant authority.

The terms and conditions of the account agreement are broad and are out of context for this discussion. For our purposes, we will focus our discussion on tariff and charges normally found on a utility statement. For simplicity, we will limit this discussion again to billing for electricity. As with any supplier, utility companies create product offerings. These offerings are designed to match the requirements of different customer requirements. Usually the organisation of product offerings will be arranged into broad groups. For example: Eskom categorises various product offerings into the Urban, Residential and Rural groups. Within these groups there may be one or more product offerings. Each product offering is comprised of a number of billable components. Following is a list of common factors that determine how and how much electricity costs:

Supply size – measured in kVa
Service charge – charged as fee per day
Admin charge – charged as fee per day
Transmission network charge – charged as fee per kVa
Distribution network charge – charged as fee per kVa
Energy demand charge – charged as fee per kVa
(Active) energy charge (non time of use) – charged as fee per kWh
(Active) energy charge (time of use) – charged as fee per kWh
Reactive energy charge – charged as fee per kvarh
Electrification and rural subsidy – charged as fee per kWh
Environmental levy – charged as fee per kWh

As you can see, these charges are quantity-based. The fees charged for each of these components vary between different product offerings. As a result, knowing which product offering or tariff your body corporate is on is a good starting place. We assume that your body corporate has applied for and has an account agreement that is suitable for the capacity and demand requirements of the scheme.

As a starting place it is always worth checking that the tariff plan you are on is suitable. It can happen that you have applied for and been placed on a tariff that is far in excess of on the ground infrastructure capabilities and requirements. In this case, starting costs for electricity will already be higher than required. Changing tariff may result in immediate savings for a sectional title scheme. However, investigation into whether your tariff plan matches your measurement may also reveal that you need to change to a more expensive plan. In either case getting a sectional title scheme onto an appropriate tariff plan from the start is the basis for all decision making when developing a billing regime for sub-metering. Understanding the different charges found on a utility bill is an important input for schemes that have sub-metering infrastructure.

The billing regime must also cover costs associated with management of the sub-metering infrastructure. Typically there is either a charge per meter per month or a percentage fee of funds collected on the meters which is levied by a private metering company contracted to the body corporate management company. Armed with this information, the body corporate must calculate and determine how they will recover all associated costs. The decision making essentially centres on where the money will come from to pay for various aspects of the service. In some cases levies will be used to cover certain costs and in others a tariff charge will be imposed that includes these costs.

Whichever method is used, the body corporate must plan a billing regime that will ensure 100% recovery of all costs charged by the utility supplier and private meter readers. The financial implications discussed will have a direct impact on levy and cost of utilities. In some cases, levy may be reduced while in others it may be increased. It all depends on where the cost of electricity and services is billed. However the billing plan engineered by the trustees of the body corporate must be able to justify the expenses in order to comply with local or national regulations.