The Legality of Pre-paid Electricity Deductions towards Utility Arrears | Legal Articles


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The Legality of Pre-paid Electricity Deductions towards Utility Arrears

In an effort to recover utility arrears, some municipalities have had to resort to unconventional methods of debt recovery.

This has primarily been due to the fact that the recovery rates of outstanding rates arrears have been poor, and avenues afforded to ratepayers to make payment arrangements with the municipal councils have largely been underutilized.

debt recovery on electricity

Debt Recovery on Electricity

In response to curb this hazard it has been reliably reported that some municipalities have resorted to deducting pre-paid electricity purchases and contributing them towards other utility arrears.

In some instances, the accounts being deducted are in the name of a tenant whereas the landlord is in actual fact the one who owes utility rates at the municipality. This prompted some residential housing forums to rise in arms against the municipalities questioning the legality of such actions.

Are such actions by the municipality legal at all?

Prepaid Consumers in for a Shock if their Municipal Accounts are in Arrears

"Emalahleni Local Municipality is pulling out all the stops to collect what is owed to them. “Only 53% of residents are paying their service delivery fees. That is one of our major concerns especially with the winter consumption that also plays a huge role,” said the chief financial officer of the municipality Ms Jabulile Hlatshwayo. One of the strategies the municipality is going to implement in July is pre-paid customers who are in arrears will only receive a certain percentage of pre-paid electricity bought. For accounts owing between 30 and 60 days 20% of the tendered amount will be deducted and allocated towards their municipal account that is in arrears. Between 61 and 90 days will see 40% deducted, for accounts in arrears for 91 to 120 days a 50% will be deducted. Accounts that are in arrears between 121 and 150 days will only get 40% of their prepaid purchase as 60% will go towards their municipal account. Accounts owing between 151 and 180 days will see 70% go towards the arrears municipal account and residents who are in arrears for more than 181 days will only receive 20% of the pre-paid amount purchased."


Witbank News, July 10, 2020

Municipal Debt Collection Procedures – Law versus Constitution

The concept of legality should never be confused with the notion of constitutionality. Whilst the notion of constitutionality refers to the measuring of laws and regulations against the spirit and purport of the constitution, legality simply refers to whether any provision is law or not.

This is why there are some laws in existence, which are only taken down as unconstitutional upon challenge. That said, Section 2 of the Municipal Systems Act 32 of 2000 affords municipalities both legislative and administrative/executive authority in their areas of demarcation. The laws and regulations they make are called by-laws, and are binding. 

Electricity Debt Recovery

It is in this framework that, for example, the City of Cape Town came up with the CREDIT CONTROL AND DEBT COLLECTION POLICY 2020/21 (POLICY NUMBER 21144D).

In terms of 11 (4)(a) and (b) of this policy framework, the municipality is allowed to offset rates arrears by available means, even pre-paid electricity deductions.

The requirement needed as per the Municipal Systems Act is that of just administrative action, whereby section 115 requires that notice be given to the debtor to notify them of possible limitation of services due to non-payment, and inviting them to come up with a payment arrangement to forestall the limitation of services.

Should the municipality act within these parameters, then their actions will be legal as they are consistent with the regulatory frameworks in place.

The only time it will be illegal is when the debtor’s payment arrangement has been accepted by the municipality and the debtor has not defaulted. In this case should the municipality persist with deducting from pre-paid electricity purchases then such action will amount to violation of the payment agreement and is, therefore, unlawful.

In terms of 11 (7) of the same framework, the City Manager is authorized to effect the change of name on an account in arrears from the, say a tenant, into the names of the property owner.

This is so as to avoid the entry of an adverse listing on the credit profile of a tenant whose payments to the landlord are up to date, to the benefit of the landlord who is not servicing the municipal account. In fact, some municipalities do not allow tenants’ names on the account anymore as before.

Civil Litigation, Pre-Paid Electricity and Utility Arrears

In instances where the tenant is up to date with rentals but the pre-paid electricity purchases are being deducted to cover the utility arrears owed by the landlord at the municipality then in such case the tenant must request credit from the landlord to cover up for the loss.

Some situations might even result in undesirable consequences e.g purchased electricity credit is recouped by the municipality, causing damages to the tenant e.g refrigerator, then the normal civil litigation recovery procedures may be utilized.

Van Deventer & Van Deventer Incorporated – Property Attorneys Johannesburg

It is advisable to seek legal assistance before signing contracts such as lease agreements as they mostly have far reaching consequences.

The legal advisor may upon instructions request that the Rental Agent be the one responsible for rental collection and settlement of the municipal account to avoid scenarios as per above.

Our attorneys are experts in the field of property law. Contact us for legal assistance with unlawful debt recovery on electricity.

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