The City of Cape Town responded to local stakeholders’ complaints and criticism of a 17,6% electricity tariff increase. Local stakeholders hold this increase will leave the poorest residents worse off.
The City’s response to the memorandum:
1. Revert to 15,1% tariff increase, and use ‘surplus’ bank balance
The City’s tariff increase is driven by Eskom’s 18,5% increase. That is the starting point of all electricity price increases in SA. Had the Eskom increase been, say, 7%, the City’s increase would have been near-to or less-than 7%.
The attempt to focus attention on the City’s tariff decision rather than the cause of electricity price increases in South Africa – Eskom – belies the true intent of the objectors. After Nersa approved this unacceptably high Eskom increase, Nersa then took an irrational decision to disallow the flow-through of this increase from municipalities to customers.
The City’s tariff decision is based on a detailed Cost of Supply calculation to ensure the tariff covers the cost of providing an electricity service, investment in infrastructure, and plans to end load-shedding.
As per the Electricity Regulation Act, tariffs must be set to recover costs and a reasonable margin to maintain and invest in infrastructure.
The City is seeking judicial review of Nersa’s unlawful and irrational decision not to take into account the detailed cost of supply information provided to the regulator for the 2022/-’23 and 2023/-’24 tariff applications.
Regarding the City’s operating cash bank balance, this is what municipalities are all required by law to have to maintain a cost-coverage guarantee at a rate of between one and three months.
The operating cash account is necessary and used to keep the organisation running on a monthly basis, to pay for services and suppliers to deliver services. Therefore, the City’s bank balance in question is not a surplus in the sense of retained profit, but a prescribed public-finance management requirement and vital to the proper functioning of the City.
By not passing the full Eskom increase on in 2023/-’24, the City did however take the decision to absorb R50 million in additional costs without passing these on to customers.
2. Remove unregulated 37,6c
A portion of electricity sales is ring-fenced as a contribution towards streetlights and other rates-funded services under s229 of the Constitution. This amounts to 37,57c per unit on the Domestic and Home User tariffs.
Ceasing this contribution would require the recovery of these costs via significantly increased property rates.
The City’s overall electricity tariffs remain competitive compared to other metros, and significantly cheaper for lower income households.
3. Abolish property values and remove block tariffs, making these the same for all non-indigent users
The vast majority of municipalities have “inclining block” tariffs, which increase at high usage levels based on a “use less, pay less” principle.
The first block of Cape Town’s tariff is up to 600 units, which is within the monthly average usage for most households.
Regarding property value as a determinant of which tariff category a household falls into, the following is relevant:. Of all cities, Cape Town has the widest qualifying criteria for subsidised “lifeline” electricity, including both the highest property value threshold (R500 000) and the highest income threshold (R7 500) monthly household income, applies if property value exceeds R500 000.. All properties under R1 million are deemed not able to afford a fixed electricity charge, this being applied only to the Home User tariff for properties above R1 million (and with a lower per unit charge)
4. Pensioners to receive auto rebates, cut red tape and long queues
Pensioners are only required to apply for benefits once every General Valuation cycle (3-5 years).
Beneficiaries 60 years of age or older who would like to re-apply for the benefits do not have to visit the City’s contact centres. A renewal SMS is sent to applicants from the Consumer Profile Bureau, with a link to complete a declaration form via cellphone. Beneficiaries can then confirm their financial status and upload photographs of their original required documents.
The City is always looking for ways to improve its customer-facing service and welcomes suggestions in his regard. The elderly and frail are expected to receive caring, priority service at all municipal offices.
It must also be noted that applications may be submitted online, or with the assistance of a local councillor.
Of SA’s cities, Cape Town also has the highest threshold for pensioners to qualify for rates rebates and the lifeline tariff (R22 000 monthly income).
5. Do away with Domestic and Home User, pay the same with no fixed charge
Customers on the Home User tariff (property value over R1 million) pay a fixed electricity charge, but also pay less per unit.
Fixed charges are vital to a sustainable electricity service, as it ensures a degree of fixed revenue without vulnerability to declining electricity sales, an inevitable trend due to the rise of diverse renewable energy sources, which the City is actively encouraging.
An element of fixed revenue strengthens the ability to budget for, and carry out, the planning and investment programmes that are essential to maintaining the electricity service at acceptable standards.
6. Scrap 12-month usage criteria for lifeline, and additional criteria that applicant must have a Sassa grant to qualify
It is incorrect that a person must have a Sassa grant to qualify.
Comparing the indigent policies of various cities on Free Basic Electricity and subsidised tariffs, Cape Town has SA’s highest:. Property value qualifying threshold: R500 000 . Monthly household income threshold: R7 500 (if property value >R500k). Pensioner & grant recipient criteria:
Cape Town already has the most generous package of subsidised electricity in the country, but it is neither sustainable nor affordable for subsidised electricity usage to be unlimited.
Cape Town’s wide qualifying criteria – to reach as many households as possible – would not be possible without limits on subsidised electricity usage too.
What the City has done is raise the number of cheaper, subsidised units that can be purchased on lifeline from 350 to 600 units in a month. This helps lower income households using more in winter especially, while a 450 unit 12-month average applies to remain on lifeline, which is within the average usage of most qualifying households.
It should be noted that several of the political party signatories to the memorandum are in government in municipalities where the number of subsidised units the poor can buy in a month were actually cut, e.g. with Theewaterskloof’s lowering of subsidised units from 350 to 250 monthly for 2023/-’24.
7. Stop huge deposits for debt arrangements and the continuing of deductions after arrangements are made
This is inaccurate.
Prepaid electricity purchase deductions do not continue after a payment arrangement is made, nor are “huge” deposits required. Arrangements are a negotiated settlement and are applied based on what is affordable for the customer.
Multiple notifications are sent to avoid deductions from prepaid electricity purchases, which is only a measure of last resort if all notifications are ignored.
8. Stop cutting water for any reason
The City never cuts water supply. There is always the option to enter into a payment arrangement to prevent any reduction in water pressure to a trickle-flow, and the City goes to great lengths to notify customers on how to avoid this entirely.
9. Illegal connections should be removed and electricity metered to all areas
Agreed.
The City makes every effort to combat illegal connections and offers a reward for the public to help bring those responsible to book. The City would be grateful for the help of the signatories in mobilising communities against illegal connections.
10. Residents wishing to go off grid should not be forced to pay fees
For as long as a resident is connected to the grid and has the opportunity to use it, they are required to pay their fair share of the costs of maintaining that network in a functional condition. The grid must be maintained irrespective of how little or how much is used, and for customers who use solar, and switch to municipal supply – the grid must be maintained as well.
11. All items on municipal bills should be zero VAT rated
This is not within the City’s power to change as VAT is a national government competency. Political parties, which are signatories to this memorandum, are in government nationally and can make changes to this.
The City wants to see VAT removed especially from lifeline electricity purchases and calls for those in positions of power to change this to take action.
Several of the signatories are themselves part of the national government. They should take this issue up.
12. Streetlights should be switched off during day to save costs
Street lights are kept on to prevent cable theft. The savings in preventing cable theft outweigh the associated energy costs.
13. Households be given a choice to buy from City or Eskom directly
Eskom and City supply areas are nationally legislated and not interchangeable.
The supply areas are established under the National Electricity Regulation Act via National Energy Regulator of South Africa (Nersa) issued Distribution Licenses.
The Eskom distribution licence defines the Eskom supply area within the City of Cape Town and the City’s distribution licence defines the City’s supply area.
City customers benefit from high levels of repairs and maintenance as well as additional protection against load-shedding from the well-maintained Steenbras plant, which provides protection against up to two stages of load-shedding where possible.
14. Working class not to be exploited to fund non-service delivery expenditure
It is unclear what is meant by this. Cape Town is a leader in indigent relief and support for lower income households.
The metro is also known for clean governance and is making unrivalled infrastructure investments while delivering reliable services. In 2023/-’24, 74% of the City’s infrastructure investment will directly benefit lower income households.
15. Reward incentive (like free units) if electricity is used sparingly
This is already the case for lifeline customers who receive 60 free units if usage is less than 250kWh in a month. Per unit costs are also lower up to 600 units used in a month.
