City of Cape Town raises its concerns at NERSA hearings

Alderman Ian Neilson , the City of Cape Town 's Executive Deputy Mayor and Mayoral Committee Member for Finance, today presented the municipality's concerns regarding Eskom's application for a tariff increase to the National Energy Regulator of South Africa (NERSA), during one of NERSA's hearings conducted in the Good Hope Centre.

NERSA is currently conducting country-wide hearings on the application from Eskom for an electricity price increase over the next three years. These hearings are held in addition to the call for written submissions on the tariff increase.

The City of Cape Town had already submitted comments to NERSA on Eskom's application for a 35% tariff increase per annum over the next three years. The City's submission is one of approximately 300 submissions received by NERSA.

During his presentation today Alderman Neilson raised four additional concerns to that made in the City's written submission regarding Eskom's planned tariff increase. His concerns related to:

• The rate of Eskom's infrastructure investment,

• The effect of Eskom's cross-subsidisation of its tariffs,

• The impact of artificially suppressing tariffs; and

• The impact of the NERSA process on municipal tariffs.

Neilson warned against an abnormally high infrastructure investment to increase generation capacity at Eskom, to the detriment of investment in other services or infrastructure and in other spheres of government.

If investment in infrastructure is not balanced across all services, the shift of funding away from investment in other services would cause these services to hinder future economic growth, he said.

In addition to this concern, Neilson said that the middle-income consumer is being hard hit by tariff increases and must carry the burden of Eskom providing lower rates for key industries and indigent people. Neilson noted that it is important to provide indigent people with affordable electricity, but said that this cannot be to the detriment of middle-income consumers. "If cross-subsidisation is not addressed, local authorities' consumers end up with a triple subsidy load, as indigent municipal consumers must also be cross-subsidised in addition to Eskom's indigent consumers." The large commercial customers of Eskom must also assist in carrying the cost of cross-subsidization.

Neilson also warned that tariffs for the poor or those using a smaller amount of power must not be artificially suppressed, as this can cause a large gap between low usage tariffs and moderate usage tariffs. People who just miss the cut-off for low income households face a massive increase in their electricity bill. In this way, certain consumers will be forced to change their lifestyles due to this steep step-tariff increase.

He went on to say that NERSA must not use the Eskom application to also rule on local authorities' tariff increases. There is significant existing local government legislation that deals with tariff setting processes and NERSA must adhere to the requirements of these legal processes, which are separate from those of Eskom.

Statement issued by Communication Department, City of Cape Town, on behalf of Ald Ian Neilson, Executive Deputy Mayor and Mayoral Committee Member for Finance, January 20 2010

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