Changes in Electricity distribution in Cape Town

News:

Cape Town's electricity could go up by 65% - May 06 2008 at 09:46AM
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History:

This web site was built in 2005, it was largely succesful in thwarting the changes in the Electricity distribution in Cape Town at the time. Subsequently there have been other changes around the country. This is what happened.

Call for input advertised in December
The City of Cape Town has asked for public input to decide the most appropriate form of electricity distribution. The downloadable document details a brief outline on current activities in electricity restructuring and an argument on why the Regional Electricity Distribution (REDs) option is a very bad option for the City of Cape Town.

Concerns
Why has the City not provided any background material or documentation to enable the public to make an informed input into the process?
Why has it has asked for public input during the Christmas recess – a tactic often used by those seeking minimum feedback and input from the public?

The major area of concern is that restructuring in the electricity sector, is an enormously complex business (as recognised by the Department of Minerals and Energy - restructuring documents here). The risks associated with the changes are very high, and as such, it is appropriate that policy decisions be taken only after due care and analysis. The need for additional generation capacity in South Africa, especially Independent Proven Producer (IPP’s), by about 2007, means that investors need the confidence now that reform and restructuring of the industry is taking place timeously; hence there is little room for manoeuvre.

In a summary of the key findings identified in a report by Price Waterhouse Coopers, they state that:
“Our initial analysis indicates that a broadly viable distribution industry as a whole can be achieved, but that this depends crucially on … key assumptions: o Prices: financial viability requires significant price increases (around 50%) for domestic (conventional credit) customers, in most REDs. Such tariffs would be in line with our initial estimates of the “correct” LRAIC prices for such customers. o Generally prices to commercial, agricultural and industrial customers should remain broadly at current levels (in real terms) or, in some cases, should initially decrease from the average tariffs currently charged by some municipal distributors. However, for most REDs over the period from 2001 to 2010 prices are expected to increase in real terms though only to a relatively minor extent. This is explained by the fact that for most REDs the average cost of distribution is increasing in real terms as more low consumption “electrification” customers are added.

We believe that the REDs should be opposed for the following reasons:
  1. The City of Cape Town has a well functioning electricity department, unlike many other municipalities, and provides a good service.
  2. The income from electricity is a major source of revenue for the City, and is used to cross–subsidise many other public good services.
  3. The REDs will result in a new entity, which will have to invest in systems, procedures, people and a new operating model. All of these cost money and resources, which is ultimately paid for by the customers of the REDs, namely the citizens of Cape Town.
  4. The ongoing revenue to the City from the RED is uncertain as it is dependent on dividends from the RED, which in turn pays tax (reducing the dividend). The RED cannot use its income for any other city services and hence tax reductions are impossible.
  5. Without an details on rates, we have to use the PWC report as the basis of argument- in which it is clearly stated that domestic consumers in the middle range will be those who bear the brunt of the rates increase – which is envisaged as being considerable.
  6. The City has not provided any level of detail on how the assets of the City are to be alienated and the future relationship with the RED-aside from a shareholding.
  7. The RED is clearly a precursor to privatisation of the distribution of electricity- which has not been successful in many parts of the world and is likely to lead to higher costs and larger numbers of disconnections.

What can you do?

  • Send us an that includes your name, email address and telephone number, and we will add your name as a supporter of "Electricity 4 All".
  • Send an email to Don.Early@capetown.gov.za directly or to your local councillor stating that you are not in support of the REDs until further information is provided for consideration.
  • Send an email to your friendliest journalist telling them what you think of this.
  • Tell all your friends to tell their friends about this activity

Please send us an email for any reason to:

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