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Capping, what it is and how it can be damaging to suppliers and consumers alike

Capping is a process in which a service provider, landlord or body corporate sets a purchase limit for utilities; meaning if a tenant or meter user in a body corporate wants to purchase R1000 worth of electricity at the beginning of the month is limited to purchasing R500. The means of limiting purchase are varied; however, the result is the same.
 
The reasons why a body corporate or landlord may do this could be to reduce the Demand Site Charges and fees on the bulk supply and maybe also to link utility purchases and levies to every utilities purchase.
 
In the first case a KVA Demand Site Management (DSM) fee is normally set for any bulk supply. The charges on large demand can be very high, such charges become even higher and punitive if the load exceeds the KVA set for the bulk meter. Some examples of KVA charges can be in excess of R10,000 and R20,000 per month and with additional punitive fees for exceeding demand this number can easily double. These charges must be then recovered after the fact, as to the municipal readings on the bulk supply. This in turn creates a problem when residents all of the sudden do not pay the extra charges, nor do they understand such charges. Limiting supply of electricity or limiting purchase reduces the risk of exceeding normal DSM charges and incurring penalty charges on excess demand.
 
The second reason may be due to linking of levy to purchases to utilities. In such case for example if the levies were to be R100 per month, the body corporate would deduct this amount from the utility purchase at the beginning of every month. Therefore if capping was to be implemented and set at a certain level, this would force the tenant or the meter user to pay a set levy before the purchase of utilities.
 
Such actions do have consequences and often legal consequences can be far reaching.
 
In both of the above case there are two considerations to look at: one in relation to the Rental Housing Act in relation to tenants, second in relation to provision of utilities to body corporate owners, which falls under the Municipal Systems Act and the CPA (Consumer Protection Act) which relates both to tenants and owner of a property as both are in fact consumers.
 
In terms of the Rental Housing Act, municipal services must be provided in terms of the lease and the landlord may not charge a tenant more than the exact cost of services as charged by the municipality in the property if there is a separate meter (see reference to our article Selling Power to Your Tenants or Not?). In the case of the Municipal Systems Act, the provision of utilities is controlled by municipalities or primary utility providers and such bodies are the only entities which can disconnect utilities for reasons of non-payment or other legal reasons related to such entities. The Municipal systems Act states in Chapter 4 (1) The council of a municipality has the right to (c) finance the affairs of a municipality by- (i) charging fees for service; and (ii) imposing surcharges on fees, rates on a property and, to the extent authorised by national legislation other taxes, levies and duties. Also see Municipal systems Act, Chapter 9, Municipalities right to access premises: “The occupier of premises in a municipality must give an authorized representative of the municipality or of a service provider access at all reasonable hours to the premises in order to read, inspect, install or repair any meter or service connection for reticulation, or to disconnect, stop or restrict the provision of any service.”
 
The service must therefore be provided and it is therefore the intent of the legislation that such services may not be denied. In terms of the Consumer Protection Act a consumer MUST be supplied with the product or service purchased and paid for. This is enshrined in the consumer’s rights with respect to delivery of goods or supply of service. In the prepayment environment, this means that if a tenant purchased R1000, he may do so without the landlord restricting him to R500 limit of the R1,000 purchased.
 
Hence, in both cases, no matter what the intent behind the limitation, “Capping” would disenfranchise and deny a tenant or meter user from access to municipal services which MUST be provided as long as such are paid for. Furthermore in the event that a consumer purchases goods or services and is unable to obtain the full product or service that would be due to them under normal conditions and circumstances the consumer has recourse under the Consumer Protection Act.
 
In case of limiting the delivery to R500 of utilities out of the R1,000 if the delivery of the full amount under normal circumstances is not possible the difference should in theory be refunded immediately. Herein lays the problem; running accounting for such refunds is complex and almost impossible without error and high costs in for such operations.
 
However, all said and done there is one case where “capping” may be legal. Each year when electricity price increases occur, some consumers attempt to purchase electricity in large amounts, considered bulk purchased to avoid paying the price increases for a very long time. For this reason there are systems in place that prohibit abnormally large purchases. Purchases that are intentional for avoidance to pay the correct tariffs disenfranchise the utility supplier, municipality, bulk meter owner such as a body corporate and the landlord. Therefore, such purchase can be seen as illegal due to their intent to disenfranchise the providing party.
 
Landlords and body corporates are advised to seek legal counsel when engaging in various activities which may be perceived as disenfranchising consumers in terms of utilities provision.
 
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