CITY OF CAPE TOWN’S SUBMISSION ON ESKOM’S MULTI-YEAR PRICE DETERMINATION – 2010/11 – 2012/13 (MYPD 2)

City of Cape Town represented by :

Alderman Ian Neilson

Deputy Executive Mayor and Mayoral Committee Member for Finance

NERSA Hearings

20 January 2010

Overview of Presentation

City Submission to NERSA on the “NERSA’s Issues Paper”

Further City Concerns

1. Infrastructure Investment

2. Cross-subsidisation of Tariffs

3. Impact of Artificially Suppressing Tariffs

4. Municipal Impact of Application from Eskom for an Increase in Tariffs

Conclusion

NERSA’s Issues Paper

The City of Cape Town made a submission to NERSA on

the 42 Stakeholder questions raised in the “Issues Paper”

These points will not be raised in this presentation

This presentation must be seen as ADDING to the concerns

already raised

Further Concerns from the City1. INFRASTRUCTURE INVESTMENT

The City accepts that:

• Investment in generation infrastructure is critical to the future of our country;

• Investment in transmission infrastructure is critical for the future of our City and all other cities and towns in South Africa;

• Municipal investment in distribution is critical;

Further Concerns from the City1. INFRASTRUCTURE INVESTMENT (cont)

The City contests that:

• The rate of investment MUST be tempered;

• Must allow for other infrastructure to also receive investment;

• Must allow for municipal investment in distribution;

• Investment in electricity cannot unbalance the

• Comprehensive electricity infrastructure investment programme , NOR the

• Comprehensive service infrastructure investment programme

Further Concerns from the City1. INFRASTRUCTURE INVESTMENT (cont)

IF INVESTMENT IS NOT BALANCED,

other services will become the limits to economic growth.

Further Concerns from the City2. CROSS-SUBSIDISATION OF TARIFFS

The City accepts that:

• Cost-reflective tariffs (reflecting REAL costs) are required;

• The poor must be protected.

Further Concerns from the City2. CROSS-SUBSIDISATION OF TARIFFS (cont)

The City contests that:

• The middle-income consumer is overburdened with the cross-subsidisation of Eskom Consumers through:

• Contracted low electricity rates to Key Industrial Consumers;

• Low tariffs for Eskom’s own Indigent Consumers.

• Eskom must ring-fence costs for each area of service provided.

Further Concerns from the City2. CROSS-SUBSIDISATION OF TARIFFS (cont)

IF CROSS-SUBSIDISATION IS NOT ADDRESSED:

• The REAL COSTS of generation, transmission and distribution of electricity are not clearly defined;

• Local Authorities consumers end up with a TRIPLE SUBSIDY load, as municipal consumers that are indigent must also be cross-subsidised.

Further Concerns from the City3. IMPACT OF ARTIFICIALLY SUPPRESSING TARIFFS

As stated previously, the City accepts that:

• The poor must be protected;

Further Concerns from the City3. IMPACT OF ARTIFICIALLY SUPPRESSING TARIFFS

(cont)

The City contests that:

• The repeatedly lower tariffs for the poorer (or low use) consumers results in a bigger gap to the next income/ consumer bracket;

• Anyone who just misses the cut-off in income/use faces a massive increase in their electricity bill

Further Concerns from the City3. IMPACT OF ARTIFICIALLY SUPPRESSING TARIFFS

(cont)

IF THE PROCESS OF ARTIFICIALLY SUPPRESSING TARIFFS IS NOT ADDRESSED:

• Certain consumers will be forced to limit consumption or change lifestyle choices due to this step in the tariff graph;

• Local Authorities and Eskom may be forced to retain indigent support for “low usage users” simply due to the tariff step.

Further Concerns from the City4. MUNICIPAL IMPACT OF APPLICATION FROM

ESKOM FOR AN INCREASE IN TARIFFS

The City accepts:

• The role granted to NERSA to oversee the setting of the generation tariff;

• The legislated process for establishing the setting of the generation (bulk supply) tariff.

Further Concerns from the City4. MUNICIPAL IMPACT OF APPLICATION FROM

ESKOM FOR AN INCREASE IN TARIFFS (cont)

The City contests that:

• Local Government must set their own tariffs based on the bulk purchase price as determined by NERSA;

• Local Government must not be penalised with a “claw-back” tariff for bulk purchases

Further Concerns from the City4. MUNICIPAL IMPACT OF APPLICATION FROM

ESKOM FOR AN INCREASE IN TARIFFS (cont)

MUNICIPALITIES MUST SET THEIR OWN RETAIL TARIFFS THROUGH CURRENT LOCAL GOVERNMENT

LEGISLATIVE REQUIREMENTS

• Determination by NERSA on municipal retail tariffs is ultra vires;

• Different nationally legislated financial years and the impact on the Eskom tariff must be factored into the application.

Conclusion

• The City has made substantial, well researched input to NERSA over the years with limited feedback or visible results.

• There is substantial scope for an integrated energy strategy for the country with the resultant benefits for all sectors (i.e. organizational efficiencies squeezed out to retain competitive edge; increased demand on alternative energy sources, potential carbon credit income streams, reduced electricity demand, reduced generation requirements)

• National government must take up the policy responsibility.

Let us work togetherfor a brighter South Africa, with a reliable, efficient and effective energy supply provided at an affordable price, with the least impact on the economy, people and environment

EnkosiThank you

Dankie

Presentation prepared by: Louise Muller