The City of Cape Town’s 2016/17 electricity tariffs increased on 1 July by 7.78%. This is a heavy burden on top of the fuel and food price hikes hitting consumers as a result of the weak rand and drought inflated food costs. It is however consistent with the National Energy Regulator’s ( NERSA’s) approval of the price municipalities have to pay ESKOM. While this new electricity price hike seems unavoidable, it is not the whole story.
The 2016/17 Cape Town residential electricity tariffs include a new residential tariff – the Home User – which includes a separate monthly service fee. This fee is R242.73 per month irrespective of how much electricity you use. Energy efficient and single person households will pay the same service fee as energy hungry homes. Do you think this is fair? This tariff is likely to replace the current domestic tariff for people who own property in the future and will not impact on lifeline consumers. Have a look at the residential tariff table below which compares last and this year’s tariffs. These tariffs do not apply to areas supplied by ESKOM.
Electricity tariffs for the 2016/17 financial year in the City of Cape Town.
|Tariff||Blocks||No of Units||2015/16 incl VAT||2016/17 incl VAT||Increase per kWh|
|Lifeline||Block 1 (60 kWhs free electricity)||0 – 350kWhs||103,81 (R1.03)
|110.68 (R1.11)||8 cents|
|Block 2 (25 kWhs free electricity)||350 +||287,42 (R2.87)||306,44 (R3.06)||19* cents|
|* Lifeline provides a subsidy for basic electricity to lower income households. The more electricity consumed over 350kWhs, the lower the subsidy. Consumers over 450kWhs per month do not get free basic electricity.
NB: Lifeline customers on pre-paid meters whose property is valued at over 1 million will be shifted to the Domestic tariff as of 1 October 2016. These households do not qualify for the government’s Free Basic Electricity subsidy.
|Domestic||Block 1||600kWhs||175,90 (R1.76)||187,54 (R1.87)||12 cents|
|Block 2||600 +||213,90 (R2.14)||228,06 (R2.28)||14 cents|
|Home User**||Block 1||600kWhs||0||147,08 (R1.47)|
|Proposed||Block 2||600 +||0||228.06 (R2.28)|
|Monthly service fee||242,73 (R242.73)|
|** Households on Domestic will not be moved to the Home User tariff in 2016 /17.|
For detailed explanation of the Lifeline Tariff benefits and beneficiaries go to:
Proposed new Home User tariff
The Home User tariff is a clear demonstration of where Cape Town residential tariffs are heading. Apparently no households currently on the Domestic tariff will be shifted to the Home User tariff in 2016/17, although it is possible that new homes may be put on the Home User tariff. Many municipalities have a fixed service charge in addition to their energy charge. The energy charge is the kWh or unit charge and is essentially determined by the cost of ESKOM electricity while the infrastructure charge is the cost of maintaining the transmission network to our homes. Cape Town had a service fee in the past embedded in the kWh charge. As households reduce their electricity consumption, so the revenue to maintain the infrastructure and to cross subsidise other city services is being squeezed.
The City’s electricity sales peaked in 2009 (pers comm Ald. Ian Nielson). The economic downturn has reduced demand while the rapidly rising electricity price has encouraged efficiency and the uptake of alternatives such as solar water heating and PV. Balancing decreasing revenue with the need to provide electricity to a growing number of households and especially households needing a lifeline subsidy is a significant challenge for the city.
Understanding the context and wanting to live in a functional city, many domestic electricity consumers may accept the principle of a charge for infrastructure. It is the application that is problematical. The one size fits all approach will significantly increase the electricity cost to lower consumers of electricity, be they households that have invested in energy efficient behaviour or technology, or homes with single occupants. The table below shows that households using below 600kWhs (units) will experience the biggest increase in electricity expenditure. Households using more than 600kWhs per month will experience no difference.
Table 2: Comparison of charges on Domestic and the proposed Home User Tariffs.
|Consumption level in kWhs||Rand Cost on Domestic Tariff||Rand Cost on Home User incl service fee||Cost Difference||Percentage Difference|
The sums in the table beg the question: Is this fair?
It may be tempting to argue that consumers over 600kWhs are paying a higher charge per kWh: namely R2.28 as opposed to R1.47. This contradicts a cost of service approach which looks at separate infrastructure and energy charges. It also needs to be seen in the context of:
- the City’s policy to reduce bulk purchases from Eskom to better manage its expenses and
- its policies to be an environmentally sustainable city with reduced Climate Change impacts.
One option for an equitable service fee would be service fee tariff blocks rather than the same charge for all. This will ensure that low electricity consumers do not carry a service charge burden out of proportion to their energy consumption.
How will the proposed Home User tariff be implemented?
City sources have not confirmed how the service charge will be levied. They favour including it on the rates account as an additional service levy along with the refuse, sewage and water charges. This places the burden on the property owners in the city who pay rates. It would be more equitable for every domestic consumer not on Lifeline to contribute to the costs of electricity infrastructure? City officials explain that in the past the service fee was included in the pre-paid electricity vendor system. This created confusion and hardship as consumers did not understand that part of their payment was a service charge. As a result they bought electricity but often ended up with less units than expected or none at all because of the outstanding service charges. Education and pro-active messages on the pre-paid receipts warning about the remaining service charges for the month in question could address this. Loading ratepayers with the full cost of service fees may be an easy option for the city but it is not a fair one.
The new Home User Tariff has been approved for the 2016 /17 financial year even though it may not be implemented in full. It will be back for discussion on the 2017 /18 draft budget in March April 2017. If you are concerned about this proposed new tariff, you need to address your concern to the City Manager on email@example.com within the April / May 2017 comments period. In the meanwhile lets put our thinking caps on and come up with options that are more equitable but also keep our City functioning.
Kim Kruyshaar July 2016