Richards Bay Government Levy

Project details

  • Date

     November 2, 2014

  • Client

     City of Umhlathuze

  • Task

     Investigation of local government levy on Eskom Customers

  • Category

     Case Studies

The Solution

Our solution was based on assessing the current (2013-14) tariff structure of the City of uMhlathuze. The assessment looked at the following aspects of the tariff. Namely the different line items that are charged as well as the actual amounts charged for the line items. It also compared the tariff with Eskom one to understand the effect (to customers) of taking electricity from Eskom as opposed to taking from the Municipality.

We then did a customer analysis of the Municipal customers as defined by the different tariff bands to establish the extent of cross-subsidy between customers classes/tariff bands. The objective of this analysis was to establish whether there is a case for imposition of the similar charge to the current municipal customers as required by the project scope.

We also analyzed Customer and Billing Data as well as servitudes (spatial data) to determine if there are no obvious revenue leaks within the rates and taxes revenue base, which could soften the demand for a levy on Eskom (and municipal) customers.

Next was development of a business case to levy the Eskom customers and this was based on whether or not electricity income surplus is used to cross-subsidise other services that are enjoyed by everyone within the city of uMhlathuze. To determine this, all major services had their income and expenditure compared to determine which ones (if any) generate a surplus and which ones generate a deficit.

Based on the above analysis, we conducted a legal research in terms of what is permissible in law for municipality to impose a surcharge on customers.

Related methods were used to complete the rest of the scope items, which were basically secondary to the legal and business case to impose a levy.

The Ntyiso Effect

From this analysis we not only proved that there is an indeed cross-subsidization of other services by electricity income, but also determined the extent of such cross-subsidisation. This allowed us to model the levy which Eskom customers are to be charged. The latter was based on simulation of the Eskom customer bill into a municipal customer bill using the tariff comparison analysis stated above. From the simulation, and the extent of the cross-subsidization already determined (as percentage of the electricity revenue), we were able to arrive at the charge Eskom customers must be levied.

With regards to the legal case, we were able to arrive at a positive legal position allowing the municipality to impose such charge, in the end. We also provided solutions for the rest of the scope items, part of which showed that it is not possible to charge Eskom servitudes for the power lines even if they run on municipal land, among other conclusions. The study is now at its final phase to present the legal finding to the client, with the rest of the scope items, save for the communication strategy which was meant to come last, having been completed.