MUNICIPAL TARIFF DETERMINATION PROCESS PRESENTATION TO PPC ON ENERGY 24 MAY 2013

Transcription

1 MUNICIPAL TARIFF DETERMINATION PROCESS PRESENTATION TO PPC ON ENERGY 24 MAY

2 1. Purpose and mandate 2. The tariff approval process and information requirements 3. Municipal Tariff Guideline and financial considerations 4. Energy Efficiency & Demand-side Management 5. Conclusion remarks 2

3 Mandate and legal requirements The Electricity Regulation Act Section 4 (a) (ii) The Regulator must regulate prices and tariffs Section 15 (1) A licence condition determined under section 14 relating to the setting or approval of prices, charges and tariffs and regulation of revenues a) Must enable an efficient licensee to recover the full cost of its licensed activities, including a reasonable margin or return Section 15(2) A licensee may not charge a customer any other tariff and make use of provisions in agreements other that that approved by the Regulator as part of its licensing conditions Section 45 (1) (b) For the purposes of this Act, any person authorised thereto in writing by the Regulator may require any person to furnish to the Regulator such information, returns or other particulars as may be necessary for the proper application of this Act Section 45 (2) the Regulator may require that the information, return or particular furnished under subsection (1) be verified on oath or by way of solemn declaration 3

4 Tariff approval process Eskom s revenues - MYPD Cat. 3 Cat. 18 Cat. 19 Cat. 17 Cat. 2 Cat. 16 Cat. 15 Cat Cat. 14 Cat. 13 Cat. 12 Cat. 11 Cat. 10 Eskom s standard tariffs Cat. 9 Cat. 4 Cat. 5 Cat. 6 Cat. 8 Cat. 7 Involves Tariff design Tariff structures Result = Suite of tariffs 3 Cat. 3 Cat. 18 Cat. 19 Cat. 17 Cat. 2 Cat. 16 Cat. 15 Cat. 1 Municipal and private distributor tariffs Cat. 3 Cat. 18 Cat. 19 Cat. 17 Cat. 2 Cat. 16 Cat. 15 Cat. 1 Cat. 3 Cat. 18 Cat. 19 Cat. 17 Cat. 2 Cat. 16 Cat. 15 Cat. 1 Cat. 3 Cat. 18 Cat. 19 Cat. 17 Cat. 2 Cat. 16 Cat. 15 Cat. 1 3 Eskom s direct customers Cat. 14 Cat. 13 Cat. 12 Cat. 11 Cat. 10 Cat. 9 Cat. 4 Cat. 5 Cat. 6 Cat. 8 Cat. 7 Cat. 14 Cat. 13 Cat. 12 Cat. 11 Cat. 10 Cat. 9 Cat. 4 Cat. 5 Cat. 6 Cat. 8 Cat. 7 Cat. 14 Cat. 13 Cat. 12 Cat. 11 Cat. 10 Cat. 9 Cat. 4 Cat. 5 Cat. 6 Cat. 8 Cat. 7 Cat. 14 Cat. 13 Cat. 12 Cat. 11 Cat. 10 Cat. 9 Cat. 4 Cat. 5 Cat. 6 Cat. 8 Cat. 7 4 Municipal and private customers 4

5 Summary /14 Approved Eskom Tariffs Tariff Category Percentage Increase 1. Local Authority Tariffs (Effective 01 July 2013) 7.3% 2. Non Local Authority Tariffs (Effective 01 April 2013) 8.4% Urban Tariffs 9.6% Rural Tariffs 9.3% Residential IBTs 5.0% Overall Average (All Tariff Categories) per MYPD3 8.0%

6 NERSA Municipal tariff approval process Currently municipal tariffs are approved on an annual process Process involves approx. 190 municipal, Eskom and private distributors Process is required to be finalised by 15 March of every year prior to implementation on 1 July of that year (MFMA) The process is dependent on the approved Eskom prices under the Multiyear Price Determination (MYPD) process NERSA approves the Eskom prices/revenues this determines to average increase to municipalities and other customers but may be different for each customer/municipality NERSA determines the Municipal tariff increase guideline and benchmarks (based on generic assumptions) Licensees apply to NERSA for approval of their tariffs this must be supported by information pertinent to the individual municipality NERSA reviews the applications and makes a determination on each application 6

7 Municipal guideline and benchmarks Municipal tariff increase guideline and benchmarks are determined based in the Eskom approved prices and revenues together with expectations on other economic indicators (inflation, salary increases etc.) The guideline is meant to assist municipalities in preparing their tariff applications licensees are therefore expected to provide NERSA with quality information that supports their applications Guideline is not a final determination Licensees must still apply On reviewing applications, NERSA considers The current municipal tariff structure and levels The tariffs in comparison to NERSA approved benchmarks The efficiency of municipal operations (technical and financial). All this information is from the municipal d-forms The municipal tariff structures and the level of cross-subsidisation Any programmes that the municipalities may be involved in (eg. infrastructure refurbishment etc.) Any assistance that may be necessary to be provided to the municipalities 7

8 NERSA financial benchmarks Financial indicators Benchmark Financial benchmark Tolerable range Percentage surplus: Percentage Power Cost: (%) 15% 70% 10 20% 58% - 78% APP/ ASP Ratio: Percentage 1:1.64 1:1.5 1:2.1 System Losses: (%) 10% 5% - 12% Other considerations: The level of debt collections Additional projects the municipality may be involved in Infrastructure repairs and maintenance The municipal customer mix (ability to cross-subsidise) Municipal size economies of scale (operations) Any Cost of Supply (CoS) studies that may have been performed by the municipality 8

9 Determination of the guideline The table below represents the analysis of costs as a percentage of total costs of municipalities (based on sample): Cost Category As % of total costs Energy Purchases 70 Salaries & wages 10 Repairs & Maintenance 6 Capital Charges 4 Other costs 10 9

10 Determination of the guideline (cont..) Assumptions made on the approval of the municipal guideline: Bulk purchases increased by 7.3% in line with Eskom s tariff increase to municipalities CPI of 5.5% (As quoted in the Medium Term Budget Policy Statement 2012 (MTBPS) Salary & Wages CPI % (As indicated in Circular No.6/2012: Salary and Wage Collective Agreement) Repairs and Maintenance, capital charges and other costs of CPI of 5.5% (as per inflation) 10

11 Determination of the guideline (cont..) The formula used for calculating the guideline MG = (B x BPI) + (S x SI) + (R x RI) + (C x CCI) + (OC x OCI) = (70 x 7.3) + (10 x 6.9) + (6 x 5.5) + (4 x 5.5) + (10 x 5.5) = 7% Where:» MG = Municipal guideline increase» B x BPI = Municipal bulk purchases times Eskom increase» S x SI = salaries times associated salary increase» R x RI = repairs and maintenance times associated increases» C x CCI = capital charges times associated increases» OC x OCI = other costs times associated increases 11

12 Approved Benchmarks The benchmarks were approved as follows: Domestic Inclining Block Tariffs (IBTs) Block 1 Block 2 Block 3 Block 4 Commercial 2000kWh Industrial 0-50 kwh kwh kwh >600 kwh Prepaid Conventional kwh (c/kwh) (c/kwh) (c/kwh) (c/kwh) (c/kwh) (c/kwh) (c/kwh) NERSA also approved a revision of IBT structure and Benchmarks as follows: Domestic Inclining Block Tariffs (IBTs) Block 1 Block kwh > 350kWh (c/kwh) (c/kwh) Domestic Inclining Block Tariffs (IBTs) Block kwh (c/kwh) Block 2 > 350kWh (c/kwh) Basic Charge (R/month) 12

13 Table1:Overall approved IDM Costs for MYPD3 Funding ` 2012/13 Approved Expenditure 2013/ / / / /18 MYPD3 Total Applied for Approved Applied for Approved Applied for Approved Applied for Approved Applied for Approved Applied for Approved Programmes - Peak Demand Savings(MW) Programmes - Annualised Energy Savings(GWh) Programme Costs Operating Costs including Depreciation Other costs R/MW R/kWh (183) - (191) - (204) - (205) - (2) - (785)

14 Table 1 explanatory notes: Eskom requested R13bn and was allowed R5bn. Eskom requested costs were adjusted based on MYPD2 historical performance and then escalated by inflation. 3

15 Table 2: Allowed IDM programmes costs R'm IDM Applied for IDM Adjustments Approved IDM Lighting & Heating, Ventilation, and Air Conditioning HVAC (Industrial & Commercial) 1800 (621) 1179 Lighting (LED - Residential) 886 (52) 834 Process Optimisation (1 219) 131 Compressed Air 696 (496) 200 Heat Pumps 619 (619) - Demand Reduction (1 828) 203 Shower Heads 159 (151) 8 Solar Water Heaters (SWH) (2 410) - Sustainability Programmes 339 (323) 16 Greenfields & Renewables (533) 524 Power Alert 390 (117) 273 Total (8 369)

16 Table 2 explanatory notes: Waste Heat Recovery(WHR) and Cogeneration projects applied for under process optimisation were disallowed since these programmes target large industrial enterprises that can self-fund improvement for their energy intensity resulting in turn in higher economic efficiency. 5

17 Solar Water Heaters (SWH) are disallowed as the MYPD2 M&V history proved that these programmes achieve little demand savings at high cost. All SWH shall be funded through the fiscus. National Treasury allocated funds for SWH in Medium Term Expenditure Framework FYE

18 Table 3 :Approved Demand Market Participation (DMP) Expenditure for MYPD3 2012/13 Approved Expenditure 2013/ / / / /18 R'm DMP and Power buy-back Applied for Funding Demand Savings(MW) R/MW DMP and Power buy-back Adjustments Funding (75) (2108) (1285) (1972) (1835) (2001) (9201) Demand Savings(MW) (97) (1618) (3355) (3855) (3855) (12781) R/MW (0.65) (0.19) (0.59) (0.48) (0.52) (0.24) Approved DMP Funding Demand Savings(MW) R/MW MYPD Total 7

19 Table 3 explanatory notes: According to the IRP 2010, beyond 2016 there will be enough capacity due to the introduction of Medupi and Kusile power stations on the national grid. Therefore it was necessary to adjust the DMP and power buy-back programmes accordingly. It should be noted that the power buy-backs programme is disallowed as the initiative is covered by the DMP. 8

20 Conclusion NERSA, through its mandate of tariff/pricing, has a critical role to manage the price paths migration during this period of necessary high capital investment in South Africa; Pricing decisions will continue to balance between sustainability of the utilities and affordability for the consumers. NERSA will continue to conduct its business in fair and transparent manner, within published government policy and legislation in exercising its mandate. 20

21 Thank You Tel: Fax: Website: Physical Address: Kulawula House 526 Madiba Street Arcadia,0083 Pretoria 21