Cosatu members march in Johannesburg. (Delwyn Verasamy/M&G)
Trade union federation Cosatu is planning a protest against the City of Cape Town’s 17.6% electricity tariff hike, its “unregulated” additional levy and the debt collection practices it uses to deduct funds from prepaid electricity purchases.
But the city’s MEC for finance, Siseko Mbandezi, has defended the tariff adjustment and debt collection policies, saying that unlike other municipalities, it does not simply cut off household water and electricity services for non-payment of property rates and utility bills.
Cosatu’s Western Cape secretary, Malvern de Bruyn, said they would protest because of the “inadequate response from the City of Cape Town, after numerous efforts from our members to get answers on the transgressions of the city with respect to its electricity tariff increases”.
Initially scheduled to take place on Wednesday 9 August, the protest has been postponed to 26 August because of the ongoing taxi strike that has left two dead and at least 10 buses burnt over the past week.
He said the city had agreed to send three mayoral representatives to collect Cosatu’s memorandum but mayor Geordin Gwyn Hill-Lewis had declined an invitation to attend in person.
De Bruyn said the main issue of concern was that the city had ignored the National Energy Regulator of South Africa (Nersa) by implementing an electricity tariff increase of 17.6% instead of the recommended 15.1% hike for municipalities.
“The unregulated 37.6 cents added to each unit we purchase also overrules Nersa and should be removed immediately. Property values should not determine what we pay for electricity,” he said.
“The city’s debt collection policy needs to be urgently revised. Taking up to 90% from prepaid electricity for arrears in water and rates is atrocious.”
He added that the process for pensioners, the disabled and indigent to apply for reduced rates was “tedious” and involved “reams of paperwork”.
“The stepped tariff system should be collapsed and the home user charge removed. There should be one tariff for all residential customers. Every person that buys electricity is affected by the city’s transgressions when setting their electricity tariffs,” De Bruyn said.
But Mbandezi said the hike was necessary to cover service delivery costs.
“The city’s electricity tariff is approved by the council in terms of the Municipal Finance Management Act. It is highly determined by Eskom’s enormous 18.5% tariff hike. It must be remembered that this Eskom hike of 18.5% remains, irrespective of Nersa’s recommendations,” he said.
“It thus costs the city 18.5% more to buy power from Eskom. About 70% of the city’s tariff income is used to buy bulk power from Eskom. The rest is used for reliable service delivery, including maintenance, repairs, investment in ending load-shedding. The city is in contact with the energy regulator.”
Mbandezi said Nersa must, by law, recommend a tariff increase that covers the cost of service provision.
“Two high courts have ruled Nersa’s methodology to be unlawful. At Nersa’s current recommendation, the city’s energy service would run a shortfall of more than R500 million in the 2023-24 financial year, placing service delivery and the ending load-shedding programme at severe risk,” he said.
He added that the 37.6 cents levy is part of the overall tariff the council had approved, according to the Municipal Finance Management Act, to cover the cost of shared services and indigent support.
Mbandezi conceded that tariffs could be delinked from property values. Residents would have to apply for a subsidy benefit and be subjected to an income check.
“It could likely result in a significant reduction in those receiving the benefit though, as the benefit would be targeted at those unable to afford the service only — at the energy poverty level, that is only those where a basic service as defined exceeds a percentage of household income would be eligible. All others would move to home user which is a category where the user is not destitute,” he said.
“To implement, monitor and control this would, however, be administratively onerous, both to the customer and the city, and would likely hold negative cost implications for the tariff, likely driving up the fixed cost of the tariff.”
Mbandezi said the city’s debt management policy had been in place for a long time because debt recovery is vital for service delivery.
“Without debt recovery, one has the dire state of affairs that are visible in other metros, Eskom and other authorities in South Africa,” he said.
He said municipal debt is deducted through the electricity prepaid vending system according to the city’s credit control and debt collection policy.
“The deductions range from 30% to 90% depending on the valuation of the property. All due processes are followed and debtors are informed of all responsibilities and actions.
If the accounts are not settled after the due date, appropriate debt collection actions must be taken.”
He said most people settle their bills after receiving notifications about their outstanding debt, payment plans and the collection process.
“Instead of the disconnection of the electricity supply — no electricity as is the practice elsewhere in some cases — the city in the case of pre-paid electricity meters, recovers between 30% to 90% of electricity purchases towards the arrears when the property owners have made no payments.”
Mbandezi said the various tariff bands are to ensure cross-subsidisation to pay for services, depending on if one is indigent or has the ability to pay. “One tariff would make it completely unaffordable for the majority of customers.”
He added that the city’s application process for pensioners and the indigent is “robust and proactive” and pensioners renew their applications every three to four years.
Energy analyst Chris Yelland said it may be a matter for the court to decide whether municipalities can ignore Eskom’s recommended tariff increases.
“Ultimately, as I understand it, Nersa is given the role of approving municipal tariffs and municipalities operate within a distribution licence issued by Nersa, so if they are in breach of the rules of their licence, in theory, the regulator has the power to not give them a licence,” he said.
“But frankly that is just something that would never happen in the case of an entity such as the City of Cape Town or any municipality, except in the most dysfunctional municipalities, and there are a few of those that are no longer capable of meeting their service delivery obligations. The City of Cape Town is meeting its service delivery obligations but seems to feel it can set its own tariffs, and there must be some justification for those thoughts.
“If there was a court challenge it would be one of these long complicated technical things that get carried out, but I don’t think it would come to that. Nersa won’t make an issue of it and the city will tell it to take a hike.”