1. Tariff Determination CFO Forum - 6 September 2013 Shireen de Visser

2. Overview 1.Usefulness of the tariff determination tool? 2.Information required to capture the modelling tool? 3.Information constraints 4.Other key revenue management processes 5.Best Approach to Revenue Management 6.Tariff setting support to the Western Cape

3. Usefulness of the tariff determination tool Will help the municipality determine the most appropriate tariff to cover costs of providing the key services. Ensure cost recovery when setting tariffs, i.e. ensure a close correlation between annual tariffs and the costs of providing services. Proper costing of service provision: direct, indirect and hidden costs of services (operating and capital). Allow for transparency of costs. Enable improved cost efficiencies. Will assist the municipality, once tariff modelling commences, to correct the revenue value chain as data constraints are corrected. Tariff modelling does not solve all of the issues in the revenue supply chain, but instead relies on the statistics emanating from the system to inform the most appropriate tariff.

4. Information needed for proper tariff modelling Demand Users Costs Strategic Decisions Affordability variables

5. Information needed for proper tariff modelling DEMAND Consumer per category, classification, block, type, time of use for each service. Time of use Consumption statistics (historical, anticipated) i.t.o. units of demand Current tariff per unit disaggregated for each category, classification, block, type. (Process must be repeated for each service (electricity, water, sanitation, refuse)

6. Information needed for proper tariff modelling USERS Stands per type, category, size of consumption Stands should be known per consumer type and category/block. Units consumed should be broken down per type and category/block Costs per unit for the different types and categories/block of consumers Types of charges - one-part (Service charge only) - two-part (Service charge and energy charge) - three-part (service charge, energy charge and demand charge) Tariff Charges (Process must be repeated for each service (electricity, water, sanitation, refuse)

7. Information needed for proper tariff modelling COSTS Bulk Purchases Employee related costs, e.g. salaries, social contributions (medical aid, pension, workmen’s compensation) Equipment Interests Repairs and Maintenance Contribution to capital reserves Other Costs, e.g. general costs, collection commission, contracted services, contribution to provisions, debt impairment, motor vehicle provisions, etc. Cost’s apportionment. Process must be repeated for each service (electricity, water, sanitation, refuse)

8. Information needed for proper tariff modelling STRATEGIC DECISIONS Indigent support Affordability threshold Level of free services to be provided Scale of free services to provided Types of services for which free service should be provided Beneficiaries of free services Tariff to be charged AFFORDABILITY INDICATORS Total populations and total households Number of households on valuation lists (verified with property register) Number of households below affordability threshold Affordability threshold Household income Approach to indigent support

9. Information Constraints Demand information broken down at a stand level per consumer category, type, block. Full costing items and accuracy to reflect the true expenditure requirements. User information not available per service category or per block Accuracy of metering is sometimes a challenge Strategic decisions not clear. Reconciliation of service information between municipality and Eskom re Eskom service area. Municipal consumption not tracked and reported.

10. Other Key Revenue Management Processes Property valuations and registrations – ensuring that the system is regularly updated. Track development plans through the planning department and approvals. −ensure that new properties and property improvements to existing properties are correctly valued, updated and used to update billing records accordingly; −Ensure good working relations between the municipality’s town planning, valuations and revenue management functions; Accurate metering and billing – requires good functioning of meters and widespread metering. −Should be fortified with meter inspections and regular audit on metering system. Reconcile billing data to: −The Deeds Registry to confirm the accuracy of property ownership information; −The Valuation Rolls to confirm the accuracy of the property values and the land use categories of different properties. Efficiency controls, e.g. tracking devises to monitoring movement of refuse vehicles. Protection and growth of the revenue base. Please refer to NT MFMA Circular 64

11. Revenue Management Solutions Tariff modelling should be driven by the municipality – its an internal process. PT can support but as external body does not have access to relevant information and cannot manage the process of tariff determination. The tariff determination tool is easy user friendly, but is dependant on internal processes of the municipality, e.g. accuracy of data (incl. demand, user and costs at the appropriate disaggregated level), buy- in. Inaccurate data has the potential to skew the final tariff recommendation. Where data integrity is questionable, tariff modelling should be preceded by correcting the revenue value chain, fixing the controls and re-building the database. The process requires a champion from within the municipality in a position of authority.

12. Tariff Setting Initiatives and Support for 2013 Engage NT re their approach to Tariff Modelling. Best Practice - Cape Agulhas, Stellenbosch, Theewaterskloof and Swartland Assist the following municipalities with implementation of P3: - Cape Agulhas, Mossel Bay, Hessequa 1 Training session The model is available on the Western Cape website. http://www.westerncape.gov.za/eng/pubs/guides/M/262316

13. Thank you