The City of Cape Town says it uses all income from tariffs for the provision of services. It said it rejects any misinformation being spread about the city’s tariffs and rates, despite numerous efforts to correct the misinformation.
“(The city) does everything in its power to keep tariffs as affordable as possible to cover the cost of providing the services while making sure the income is sufficient to ensure the municipality can continue providing services sustainably. Without this necessary income, the city will not be able to provide services,” it said.
It said that Eskom’s massive price hike resulted in a substantial increase in the cost of electricity this year. It now costs the city 17.8% more to buy electricity from Eskom. Because of this increase, the city was compelled to implement a 13.48% electricity increase from 1 July 2021.
“Nevertheless, the city has absorbed more of the price hike than any other metro in South Africa – where the average increases are 14.59%,” it said.
“It is very clear if one actually looks at the data that the city’s tariffs are fair, as affordable as possible and at a sustainable level to ensure the municipality is healthy and can carry on delivering services, paying Eskom for electricity bulk purchases and all other major input costs.”
The city said its lowest tariff level is the cheapest among the metros. “This is due to the hard work that the city has done to keep tariffs as affordable as possible by increasing efficiencies over the years.”
Cape Town is consistently the lowest at the lower end of the usage bands. It stressed that although it is not a straightforward comparison to make as there are different tariff bands and customers bases for all these metros – however if you are supplied by the City of Cape Town, inclusive of the fixed component of the tariff, you still generally receive more units than in Joburg.
For example, for the City of Joburg, the equivalent fixed charges per month amount to R768.21 (incl. VAT). “This does result in lower per kWh charges, so which metro is cheaper depends completely on the amount of energy consumed – again, consumers who use less will pay less in Cape Town,” it said.
Note: Scenarios 1 to 3 above are for informal areas, 4 to 7 are for formal areas, with different levels of income assumed as this impacts what relief is available in many metros.
The city said that some 27.4 % or 163,335 of its average residential customer base is on the Lifeline tariff, versus the Gauteng average of 15.9%. Some 26.4% or 157,352 of the city’s average residential customer base is on the Domestic tariff.
In the 2021/22 financial year, a budgeted amount of approximately R11.2 billion (2020/21: R9.6 billion) will be spent out of a total operating expenditure of R13.8 billion (2020/21: R12.3 billion).
“A R1.6 billion increase in bulk purchases from Eskom, therefore, results in a R1.5 billion overall operating expenditure increase for the city. This means that overall, other city distribution-related costs have actually gone down for the 2021/22 financial year by R100 million.”
The city said it has done everything possible to reduce its own expenditure to keep the tariffs as low as possible, without contributing to the R35 billion-plus owed to Eskom by other municipalities and without reducing service delivery levels.
Fixed parts of the tariffs
The fixed part of the electricity and water tariffs forms part of the overall tariffs, it noted.
“This enables a service provider such as the city to provide reliable services – getting enough income to provide the service and being able to absorb shocks caused by a large drop in usage without service provision being disabled,” the city said.
Registered indigent households do not pay the fixed part of the tariff, it said.
“As it pertains to electricity, there is an erroneous assumption that all the fixed costs are recovered from customers via the fixed monthly service charges. This is not the case. The actual fixed cost attributable to residential customers amounts to around R385 per month, or roughly double the current level (R168,95 per month),” said the city’s Mayoral Committee Member for Energy and Climate Change councillor Phindile Maxiti.
“When it comes to water, the fixed part recovers approximately 20% of the fixed cost. It does, however, help to stabilise revenue streams so that changes in usage patterns, as with a drought response, do not negatively impact service operations and maintenance programmes,” said the city’s mayoral committee member for Water and Waste, Alderman Xanthea Limberg.
If the fixed portion of the tariff model were removed, the usage part of the tariff would need to be increased significantly to compensate.
Limberg said that water and sanitation revenue is used to cover the costs of delivering a reliable service and building a more resilient water service through the city’s New Water Programme, which aims to produce approximately 300 million litres (Ml) per day through groundwater abstraction, desalination and water re-use by about 2030.
The service also includes the treatment and scientific quality testing of water; operation, repairs and maintenance of infrastructure; and transport and treatment of wastewater.
Competition for Eskom would help households
The design of tariffs is no simple exercise, said the city’s mayoral committee member for finance, Alderman Ian Neilson.
“There are multiple factors that come into play in the determination of the costs. Consideration needs to be given to the requirements for all customer categories, the business’s specific needs, and what legislation and regulatory guidelines are provided in any given year.
“It is not simply a case of taking the input Eskom cost, add a percentage, and the tariff is done. Each stakeholder group has its own specific requirements in any given year, and balancing those requirements to the satisfaction of all is a near impossibility.”
Neilson said that electricity is becoming an increasingly expensive commodity. “It is only if Eskom has competition that we will see a real impact on household electricity prices.”
City water, including sanitation services, costs approximately 4c per litre compared to around R10 per litre for shop-bought bottled water – based on the first 10,500 litres used and 15mm water meter.
The city said it does not budget for a profit from the sale of water and seeks to keep service delivery costs as low as possible.
It said that as dams are now full, some residents might be questioning whether water tariffs can be lowered to pre-drought levels, when all households, both indigent and non-indigent, were provided six kilolitres of water per month, at no charge.
“Prior to the drought, water purchases by those using high volumes of water allowed for the first six kilolitres of water to be subsidised. Water usage habits have remained significantly lower than they were before the drought, and there are very few customers today who purchase the volumes of municipal water that enabled a subsidised allocation.
“The changing circumstances placed the sustainability of the previous tariff model at risk and left the water and sanitation service vulnerable to climate shocks. It was necessary to build resilience into the tariff model while adjusting the price of water to a more cost-reflective level.”
For this reason, the city introduced the tariff model comprising a fixed component and a (variable) usage component. This provides a degree of security to a sustained operation of the vast water and sanitation service.
“Also, it is important to keep in mind that the amount of water in our dams, which we share with several other municipalities, does not directly influence the cost of delivering the overall water and sanitation service. The direct impact relates to the volumes used to recover the cost,” it said.