Electricity tariffs: What the City of Cape Town is not saying

In the face of protest action on 26 August, the City of Cape Town fiercely defended its 17.6% increase in electricity tariffs but conveniently left out crucial information.

The increase exceeds the 15.1% guideline set by energy regulator Nersa for all municipalities, and a specific decision by it not to grant the city a bigger increase.

More than 500 fuming residents showed up at the Civic Centre, where a memorandum of demands was presented to three city officials.

“Mayor Geordin Hill-Lewis was apparently too busy to receive it personally, which angered the protestors,” says Sandra Dickson, founder of the organisation Stop City of Cape Town, one of 23 represented at the rally.

Read:
Nersa proposes 15.1% hike in municipal electricity tariffs
City of Cape Town snubs Nersa

They have given the city until 2 September to respond to 15 demands, including a reduction in tariffs to comply with the 15.1% increase Nersa approved, a removal of the 37.6c/kWh surcharge levied on each unit sold, a delinking of property values and electricity tariffs, and that pensioners will automatically qualify for rebates, instead of having to repeatedly queue to reregister.

‘Legal council-approved tariff’

In a press release also issued on 26 August, the city defended its tariffs as “a legal council-approved tariff in terms of the Municipal Finance Management Act (MFMA)”.

While council approval of electricity tariffs as part of the budget process is a legal requirement, the city is quiet about the further legal requirement of Nersa approval. Over and above Nersa’s legal mandate in terms of the Electricity Regulation Act (ERA) to regulate tariffs and pricing, it is also a condition of all municipalities’ distribution licences that they may only charge Nersa-approved tariffs. 

Complying with the MFMA does not mean the city is free to ignore the ERA and its licence conditions. 

The city pointed to the fact that the benchmarking methodology Nersa uses to determine municipal tariffs has been “reviewed and ruled unlawful in two high court judgments”.

It is, however, quiet about the remedy the two courts decided on. 

The one case referred to is that of the business chambers of Nelson Mandela Bay and Pietermaritzburg, supported by Eskom, where the methodology was reviewed and set aside in October last year. The court gave Nersa 12 months to develop a new methodology that complies with the ERA. 

The other, barely a month later, declared Joburg electricity utility City Power’s 2019/20 tariffs unlawful because they were not based on the cost of supply as the ERA requires and sent the matter back to Nersa for reconsideration if the parties could not reach a settlement.

In neither of these cases did the court give municipalities the freedom to do as they see fit and ignore Nersa – as the City of Cape Town is doing.

The city did disclose that it is taking Nersa’s determination of its tariffs for 2022/23 and 2023/24 on review. It did not however explain how challenging these decisions gives it the right to ignore them before the case has been decided. The ruling may favour Nersa – and in the meantime, Cape Town residents are being overcharged.

Lifeline tariff

In its statement, the city went to great pains to show that it has, in fact, reduced its Lifeline tariff, which is aimed at poor households, and that its indigent policies, which give electricity users access to discounted tariffs, are the most inclusive in South Africa. 

These include: 

• Property value qualifying threshold – R500 000;
• Monthly household income threshold if property value is greater than R500 00 – R7 500;
• Pensioner and grant recipient criteria – monthly income less than R22 500; and
• Subsidised units purchasable – 600 per month (450kWh 12-month average).

Moneyweb previously reported that new and much-increased property valuations have, however, placed the benefits of the Lifeline tariff out of reach for a large number of previous beneficiaries.  

The city’s comparisons of electricity costs to other categories of electricity users are more limited, with no mention of industrial and commercial tariffs.

Deficit or surplus?

It stated that the tariffs approved by Nersa are unsustainable and that implementing them would cost the city more than R500 million.

In their memorandum, the protestors pointed out that the city’s July 2023 Financial Monitoring Report shows a provisional R4.5 billion surplus for 2022/23. “We therefore demand that the city immediately desist from alienating and exploiting the public,” the group said.

The city is also quiet about the surcharge it levies on electricity tariffs, which is not subject to Nersa approval but significantly increases the burden on electricity users.

Read:
The revolt of the ratepayers
Why it’s ‘cheaper’ to buy prepaid electricity at the beginning of the month

The protesters have asked for a formal channel of communication to be set up with the city’s administration to resolve the matter.

“We demand that the city put forward a senior-level panel with in-depth knowledge and the necessary authority to champion the remedy of these grievances. These persons must be knowledgeable in the city’s budget setting process, tariff setting and debt collection policies to engage with our group to resolve the issues in this memorandum.”

The push-back by residents against the city’s flouting of Nersa’s tariff determination comes hot on the heels of the taxi strike. Hill-Lewis got support from many quarters for his insistence on the rule of law. In the current dispute, he is being accused of quite the opposite – flouting the law by implementing a tariff increase despite it being rejected by the lawful regulator Nersa.

* A report was served before the eThekwini council on 24 August to adjust the city’s budget to reflect the 15.1% increase in electricity tariffs approved by Nersa instead of the 18.49% the metro applied for and based its budget on. The City of Tshwane also earlier adjusted its budget downward to reflect the Nersa guideline of 15.1%.

Read:
Some metros want eye-watering rates, tariff hikes
Homeowners storm out of tense meeting with metro over rates hike