Proposed new residential Electricity Tariff, the Home User Tariff to include a R242 per month service fee for Cape Town households as of 1 July 2017.  Note that the City has put this service fee on hold for 2017 /18 due to the high level of objections. (Update: a service fee of R130.44 excluding Vat is being charged to residential homes valued at more than R1 million as of 1 July 2018.)

Background: Many households responded to the above inflation increases in electricity in the past years by reducing consumption and/ or investing in energy saving technologies (e.g. solar geysers). According to Ald. Ian Nielson the City’s electricity consumption peaked in 2009.  As a result, revenue from electricity sales is reducing and the City is looking at new pricing models. Revenue from electricity sales has traditionally been used to subsidize electricity to lower income households and other City services. If it were all to come from property rates, that would be a skewed burden.

While revenue is down, the costs to the City are increasing as ESKOM electricity escalates and the number of citizens in need of a range of subsidized services increases.  The City’s solution is to reinstate an infrastructure or service fee in the form of its proposed Home User Tariff.  This tariff will apply to home owners and includes a monthly infrastructure or basic service fee to be added to the rates account along with the other monthly services such as refuse removal.  So the City plans to charge R242.70 per month for the access to electricity. Table of charges below based on the 2016 /17 budget. Actual charges from 1 July will be based on the 2017 /18 budget which is published for comment in April / May each year.

Consumption Home User Tariff

per kWh incl. VAT

Domestic Tariff

per kWh incl. VAT

below 600kWhs R1.47 per kWh. R1.87 per kWh.
above 600kWhs R2.28 per kWh R2.28 per kWh

Below are extracts from a letter to City of Cape Town Manager objecting to the proposed new Home User electricity service charge on the 2016/17 Draft budget with reply from Mr Kevin Jacoby, the Chief Financial Officer. 

1 I believe that the draft 2016/17 Cape Town residential electricity tariffs include punitive measures for energy efficient households in the form of the proposed new Home User residential tariff. This tariff includes a separate monthly service fee of R242.73 irrespective of how much electricity you use.  Energy efficient and single person homes will pay the same service fee as energy hungry homes.   This is not equitable. 

Understanding the challenges to the city of providing reliable services and wanting to live in a functional city, the principle of a charge for infrastructure is reasonable.  It is the application of the service charge 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 & technology, or homes with single occupants.  The table below shows that households using below 600 kWhs (units) will experience the biggest increase in electricity expenditure.  Households using more than 600 kWhs per month will experience no difference.  How can this be fair?

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
0 0 242,73 242,73          100%
150 281,31 463,35 182,04 64,71%
250 468,85 610,43 141,58 30,20%
300 562,62 683,97 121,35 21,57%
600 1125,24 1125,21 -0,03 0,00%
750 1467,33 1467,3 -0,03 0,00%
900 1809,42 1809,39 -0,03 0,00%
1000 2037,48 2037,45 -0,03 0,00%

City Reply:  “The home user tariff serves to cover the fixed costs of rendering the service (costs of capital and salaries being major contributors), and do not vary at all with energy consumption.  As such whether the household is large or small, efficient or inefficient, they place the same load on the business and should pay their share of the costs. The benefit to the customer comes from the energy charges where a lower user will pay less and a higher user would pay more.” 

Comment on above. Except that the table shows that this is not true.

While consumers over 600kWhs are paying a higher per kWh charge there are additional costs associated with high consumption such as:

  • Higher bulk purchases from Eskom which contradicts the City’s Game Changer Strategy of reducing its dependence on ESKOM.
  • Ongoing high carbon emissions with the resulting Climate Change impacts and in contradiction with City policies on environmental sustainability.

Service fee tariff blocks rather than one fee for all would be more equitable. This will ensure that low electricity consumers do not carry a service charge burden out of proportion to their energy consumption. 

City Reply: “On the current Domestic Tariff the higher users are currently paying more than their fair share of the fixed costs and are subsidizing the lower users.  While in principle this is acceptable, in reality it presents affordability challenges, and results in an unsustainable solution for higher users and the utility (City) itself. “

Comment on the reply above.  The City is nervous of more higher income households going off grid as the cost of renewables comes down. This is likely to happen anyway unless the City can provide incentives for these households to become part of the energy generation supply.

2 How will the service charge will be levied?  City officials 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 those property owners in the city who do pay rates.  It would be more equitable for every residential consumer not on Lifeline to contribute to the costs of electricity infrastructure?  I have heard about the complaints the City had to deal with when the previous service fee was included in the pre-paid electricity vendor system.  However, 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.

City Reply:  “By far the majority of ratepayers are homeowners resident on their premises.  As such the point about each consumer paying the service charge becomes irrelevant. However, in situations where there are tenants, we anticipate that the service charge will simply become an item in the lease agreement and the tenant will pay the charge.  In terms of the City’s Electricity supply by-law, the property owner is the customer and as such, it is right that they are billed for these costs.”

Interesting times indeed.  We need creative solutions to the changing energy market and models not just more expensive services.

Kim Kruyshaar  February 2017