Chapter 5: Regimes and values in the Global South
5.2. Results
5.2.3. Systemic tensions and opposing values in the incumbent electricity regime
104 It is clear that the manner in which the City’s electricity regime has been configured demonstrates features of a social contract, defined as an ‘implicit agreement among the members of a society to cooperate for social benefits, by sacrificing some individual rights in exchange for mutual welfare’
(Kinnear, 2000:2). Across interviews and observations the social inclusion and welfare principles embedded in the City’s electricity regime were of paramount importance to the Electricity Department. These participants highlighted the important function of the grid in facilitating sharing and providing public goods in general. According to the Head: Green Energy:
The distribution grid and tariffs are a way to ensure social development and redistribution. Our grid was built for all Cape Town citizens and we will hold them to the responsibility to cover the costs of it no matter what. Part of staying in a city means paying a fair share for its infrastructural costs (Interview 11. 04 December 2012).
Similarly the Head: Pricing and Regulation said:
The wealthy cannot simply opt out of the grid. We need to ensure sharing of costs and a pro-poor policy. If the rich try and ‘opt out’ the City will just get that revenue from them in another way, such as transfer the electricity loss onto rates. Citizens get benefits from public infrastructure; they cannot pick and choose what they will pay for (Interview 16.
16 September 2013).
The above underscores that the Electricity Department regards and conceptualises the City’s electricity regime as a compact built for the benefit of citizens. For instance, during a Workshop on Urban Energy Policy Development the Head of Green Energy stated that customers that make use of and benefit from the grid implicitly ‘contract to uphold the principles that underpin it’ (Meeting 40. 19 November 2012). This framing is not only apparent from the positions of Electricity Department officials, but is also explicit in policy and reports developed by the department, that stress the role of the grid in redistribution (CCT, 2011f). Eberhard (2010) emphasises that, following the collapse of apartheid, national and municipal distribution grids were re-conceptualised with principles of social inclusion and re-distribution in mind. Therefore, a social contract was entrenched in national energy policy and legislation, which equally laid the foundation for the City’s incumbent electricity regime.
105 energy, SSEG, energy efficiency and demand-side management technologies into the incumbent regime50.
Figure 5.10: Environmental regime values related to City of Cape Town electricity regime
This section highlights the ways in which integrating these environmental values may result in fissures in the regime related to reproduction of development values, such as collapsing a business model based on redistribution. These may be regarded as systemic tensions in the City’s electricity regime related to opposing values.
Several City reports including the City’s Budget (CCT, 2012b) and Electricity Department Business Plan (CCT, 2011f) indicate that electricity sales form the backbone of revenue. In order to understand the extent of this contribution, multi-year data on electricity revenue, sourced from a range of documents, was analysed. Figure 5.11 indicates that the contribution of electricity sales to total revenue has increased steadily between 2008 and 2015. Although, across all years, electricity provides the largest contribution to total revenue, its percentage contribution is also escalating.
Moreover, the surcharge and hence the City’s profit on sales has also increased rapidly (CCT, 2012b).
50 See Section 5.3.4
Values
•Moral responsibility to mitigate climate change
•Efficient use of resource
•Environmentally friendly supply
•Decentralisation of supply
•Energy autonomy
•Low carbon development
Mechanisms of integrating
values
•Energy efficiency
•Demand-side management
•Behaviour change
•Integration of renewable and clean supply
•Integration of SSEG
•Resource efficiency in development
106 Figure 5.11: Revenue contributions by source in Rands (Thousands)
Source: Data sourced from City of Cape Town Annual Budgets (2008/09--2014/15)
The City’s significant dependence on electricity revenue provides an institutional motivation to increase electricity consumption. During interviews and observations, officials in ERMD repeatedly stressed the resultant lack of support for efforts to reduce electricity consumption (Principal Engineer: Energy and Climate. Interview 20. 23 August 2013). Notably, this ‘perverse incentive’
extends across the entire administration due to electricity revenue subsidising the general municipal fiscus. The extent of this ‘disincentive’ is further documented in independent research by Sustainable Energy Africa (SEA, 2013a) and research by officials in the Energy and Climate Change Unit (Laurent and Trollip, 2013).
As indicated, the ability of the City to provide affordable energy services to low-income households is dependent on its ability to not only maintain a continued revenue stream from mid- to high- income households and businesses but to increase this revenue. The IDP (CCT, 2012a) highlights that the demand and backlog of service delivery for low-income households, including electrification and the number of FBE recipients is increasing (see Figure 5.8). Provision of these expanding service needs is in turn dependent on extracting increasing revenue from the wealthy.
Conversely, it is evident that tariff increases are already ‘providing an incentive’ to wealthy households and businesses to reduce consumption. As represented in Figure 5.12, analysis of tariff
0 2 000 000 4 000 000 6 000 000 8 000 000 10 000 000 12 000 000 14 000 000 16 000 000
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Service charges – electricity revenue Property rates
Service charges – water revenue Service charges – sanitation revenue Service charges – refuse revenue Transfers recognised
operational
107 increases across multiple years (2008-2015), for households according to income levels, indicate a steep increase for mid and high-income electricity users.
Figure 5.12: Impact of tariff increases on households (monthly account) by income
Source: Data sourced from annual electricity tariffs published on the Electricity Department website (2008- 2015).
This is articulated by the Head of Pricing and Regulation:
So what’s happened in the past is that your wealthier customers have been paying extra to subsidise the system. Now, thanks to solar water heater, etc. it’s possible to dramatically lower your electricity account. We’ve seen, over the past couple of years, about 300 million units knocked off the top of our domestic sales. The price has gone up to a point where it’s a no-brainer (Interview 16. 16 September 2013).
In triangulation, research by officials in ERMD (Laurent and Trollip, 2013; Trollip et al., 2012) outline the extent of potential impacts of EE and SSEG on the City’s capacity to cross-subsidise the poor.
The results indicate that within the next decade uptake of energy efficiency technologies are expected to be high and hence,
[u]p to 80% of the cross subsidisation of the low income tariff could be affected, or up to half of the total amount of revenue allowed to be transferred to the rates account (Laurent and Trollip, 2013).
From the above it is evident that the City is in the midst of a situation comparable to a utility death spiral, namely revenue loss resulting from a unique combination of technology change, price elasticity and behaviour change (Felder and Athawale, 2014). However, the features of a ‘death spiral’, occurring in South African municipal electricity distribution networks are further
0 200 400 600 800 1000 1200 1400 1600 1800 2000
2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Monthly account (Rand and cents)
Middle-income range Affordable range
Indigent household receiving free basic services
108 accompanied by a ‘double whammy’ (Janisch et al., 2012) where they threaten not only the revenue models of utilities, but also the development values that underpin them. Thus, rather than a ‘death spiral’, these systems could be regarded as in ‘life support'. In the language of the MLP, private green niche innovations underpinned by environmental values are increasingly acting as a landscape pressure on the incumbent municipal revenue and business model and consequently the developmental values that are embedded in the City’s electricity regime.