Municipal tariffs: where to from here?

Transcription

1 Municipa tariffs: where to from here? by Hendrik Barnard, Eexpert Municipa eectricity tariffs are in a shambes: Nersa tariffs (IBT) have created chaos beyond comprehension. Eectricity is being sod at prices beow the Eskom purchase cost. More and more ow usage customers are increasing the subsidy burden. High usage, overcharged customers are converting to aternative energy soutions. Nersa is stipuating arge customer tariffs at Eskom pus 2, thus depeting any option of making a surpus. Despite a of this, arge profits are being hidden. This paper wi describe these probems and propose an approach in ine with the government 's Eectricity Pricing Poicy, where a fair dea is given to a customers and yet the municipaity is ensured of a fair income and profit. Domestic cost of suppy Before assessing various issues, I wi do a short cost of suppy (COS) study for typica domestic customers in a municipaity. The figures used are averaged from a range of municipaities, which I have undertaken tariff studies for during the past five years. It is aso important to note that this is not a comprehensive COS study. The inaccuracy of the study ies mainy in one aspect, namey that average network costs are used instead of differentiating the costs at the various generic points on the network. That means that the costs of domestic networks, which are much higher than that for arge customers suppies, at higher votages or higher up in the suppy network, are understated. This shows that the domestic suppy costs are understated. Tabe 1 shows the tota costs for a typica municipaity. The purchase cost, administration and customer service costs are deducted to obtain the network costs ony. The ast coumn shows the costs, excuding capita which is to be the minimum for poor customers. Tabe 2 shows the cacuation of the average network cost per kva for the whoe municipaity. This figure shoud be much higher for domestic networks. Fig. 1: Tota cost at various consumption eves. Cost of suppy 2012/13 finances Genera % of cost Nersa benchmark Poor Purchases R ,6% 7 R Saaries and wages R ,9% 1 R Maintenance R , 4% R Capita charges R , 6% Other R ,6% 1 Tota cost R , 100, R Revenue R Net income R ,9% Tabe 1: Tota costs for a typica municipaity. Network costs (genera) Genera Units Poor System ADMS kva Sod ADMS (LV equivaent) kva Customer services costs R Rand/year R Costs excuding purchases and service R Rand/year R Network cost average R64,21 R/kVA/month R19,82 Tabe 2: Cacuation of average network cost per kva for the whoe municipaity. Tabe 3 shows the cacuation of the unit and tota cost for domestic customers at various consumption eves. Whenever these figures are shown, it seems that this is a set of compicated cacuations which are incorrect. For this reason, I have aso incuded an aternative cacuation method. Tabe 4 shows the various cost components. It is cear that it yieds the same resuts as the other approach. Fig. 1 shows the tota cost at the various consumption eves. The foowing very important observations can be made from this: The fixed costs associated with 100 kwh/month are cose to R85/month. The average price reduces from 171 to 115 c/kwh at 100 vs kwh/month. Based on my experience, I woud estimate that the average costs woud not differ by more than pus or minus 2 for the different municipaities in South Africa. This gives a good basis to start anaysing some of the current practices in municipaities. Incining bock tariffs (IBT) The appication of IBT has been controversia since it has been forced down by Nersa. The issues reating to process wi not be covered here, except to say that Nersa has never answered the questions raised by AMEU/Saga. Various workshops were set up by Nersa to discuss this, but these were either canceed or ony issues of practica impementation were aowed. Besides the many concerns with the IBT, the key probems that the industry now faces in respect of IBT, are as foows: The fact that the IBT tariff does not cover the operating cost of eectricity suppy. This means increasing cross-subsidy requirement th AMEU Convention 2014

2 Design of Spu tariff Domestic characeristics Genera Units Poor Annua LF 26% 35% 39% 26% Average monthy LF 42% 51% 55% 42% Average usage kwh/month 100 Annua MD 0,53 1,96 3,51 kva 0,53 Average monty MD 0,33 1,34 2,49 kva 0,33 Instaed capacity A 20 Domestic network cost R64,21 R64,21 R64,21 R/kVA/month R19,82 Eskom access R17,27 R17,27 R17,27 R/kVA/month R17,27 Eskom demand R21,85 R21,85 R21,85 R/kVA/month R21,85 Ratio: Instaed Amp/access MD 37,96 30,66 34,16 Ratio 37,96 Ratio: Instaed Amp/monthy MD 61,32 44,68 48,18 Ratio 61,32 Tota domestic demand/access R2,50 R3,15 R2,84 Rand/A R2,50 Eskom energy cost 63,00c 63,00c 63,00c c/kwh 63,00c Losses at LV 14% 14% 14% % purchases 14% Surpus 15% 15% 15% % of cost Basic cost R36,00 R36,00 R36,00 R/cust/month R36,00 Cost refective charges Basic charge R41,40 R41,40 R41,40 R/cust/month R36,00 Network charge R2,44 R2,44 R2,44 R/A/month R2,50 Energy cost 81,27c 81,27c 81,27c c/kwh 71,82c Cost refective revenue Basic charge R41,40 R41,40 R41,40 R/cust/month R36,00 Network cost R48,74 R146,23 R292,45 R/cust/month R50,05 Energy cost 81,27c 81,27c 81,27c c/kwh 71,82c Tota energy cost R81,27 R406,35 R812,70 R/cust/month R71,82 Tota cost R171,4 R594,0 R1146,6 R/cust/month R157,9 Average cost 171,4c 118,8c 1147,7c c/kwh 157,9c The on-going ow increases for the first bocks, beow the Eskom/average price increases. The emergence of renewabe energy and the eroding of the municipa revenue base from high users. The practica probems associated with IBT are on both conventiona and pre-paid. Negative financia impact Tabe 3: Cacuation of unit and tota cost for domestic customers. Domestic cost summary kwh/month Eskom access R9,10 R16,32 R22,18 R33,80 R47,95 R60,66 Eskom MD R7,13 R13,30 R18,71 R29,34 R42,36 R54,42 Municipa MD R33,83 R60,66 R82,46 R125,65 R178,29 R225,52 Customer services R16,00 R16,00 R16,00 R16,00 R16,00 R16,00 Vending R20,00 R20,00 R20,00 R20,00 R20,00 R20,00 Energy R63,00 R126,00 R189,00 R315,00 R472,50 R630,00 Surpus R22,36 R37,84 R52,25 R80,97 R116,56 R150,99 Tota R171,41 R290,12 R400,59 R620,76 R893,66 R1157,60 Nersa recenty sent out a questionnaire where the status of IBT impementation is requested. One of the eading questions is what successes have been achieved with IBT and what the revenue impact was. These impacts shoud now be known and hopefuy Nersa wi make these avaiabe to the industry. Tabe 4: Various cost components. The negative impact on some of the municipaities are extreme: Municipaity A in Gauteng, ost R53-miion with the introduction of IBT tariffs. Four years ater this municipaity now owes Eskom cose to R200-miion. Municipaity B in the Free State ost R75-miion due to the impementation of IBT. Municipaity C in Eastern Cape wi ose R15,5-miion, cose to 14% of tota revenue, which wi wipe out the tota surpus income on eectricity. A sma municipaity in the Western Cape wi ose R8,6-miion or 16% of tota revenue and wipe out any surpus income. Despite the massive reduction in charges to poor customers, non-payment is growing at an even faster. A it has caused is a non-appreciation for a very scarce resource and on-going increased usage. The osses incurred have either put municipaities in a very serious financia shortfa situation, or the brunt of the burden has been paced on arge customers. It must be understood that this burden is showing its impact in many ways such as: Mines not being abe to pay their workers propery Factories and businesses cosing down and jobs being ost Cost vs. revenue The reasons for a ot of the revenue osses are because municipaities were appying tariffs that are coser to cost refective than the IBT. I wi iust this by comparing it with the COS study resuts. Remember that these are the most conservative figures possibe. In the rea situation the costs woud be much more. This is shown graphicay in Fig. 2. The foowing observations can be made from this comparison: At 100 kwh/month the shortfa is R101 per customer per month and at 350 kwh/month it is R70/month. Customers with 40 A circuit breakers typicay use ess than 600 kwh/month and no surpus is made from these customers Customers with 80 A circuit breakers wi break even with cost cose to 900 kwh/month. To understand the impact of these tariffs, we need to know how many customers are using at the different consumption eves. The tabe beow shows the situation for a typica municipaity. The foowing can be concuded from this in respect of the financia impact: customers use 350 kwh/month or ess and are subsidised by on average R80 per month which is equa to R4,5-miion. There are 3982 customers which use more than 900 kwh/month. They woud need to be overcharged by R1135 per month each, to make up for the shortfa. This woud be cose to a 10 overcharge. Surey this is not sustainabe. An even bigger concern reates to the fact that these shortfas are going to increase over time because of the foowing: The number of poor (ow usage) customers are increasing. The tariff increase aowed by Nersa on the first IBT bocks are beow the average cost increases. 64th AMEU Convention

3 Tariff Capacity Basic Capacity Energy Per month Per kva (instaed) Bock 1 Domestic tariff Bock 1 kwh a R/m R/kVA/m c/kwh kwh/m c/kwh kwh/m c/kwh kwh/m c/kwh Cost 20 R41,40 R13,51 81,27 A Cost 40 R41,40 R16,65 81,27 A Cost 80 R41,40 R15,33 81,27 A IBT 20 74,00 50,00 93,00 350,00 126,00 600,00 148,00 Revenue kwh/m Cost R101 R183 R264 R345 R427 R508 R589 R670 R752 R833 R Cost R189 R271 R352 R433 R514 R596 R677 R758 R840 R921 R Cost R314 R395 R476 R558 R639 R720 R802 R883 R964 R1045 R IBT R0 R84 R177 R270 R379 R505 R631 R779 R927 R1075 R1223 Bock 2 Tabe 5: Costs vs. tariffs. Bock 2 kwh Bock 3 Bock 3 kwh Bock 4 (i) tariffs that cover ony operating and maintenance costs; (d) tariffs must refect the costs reasonaby associated with rendering the service, incuding capita, operating, maintenance, administration and repacement costs, and interest charges; Tariffs must be set at eves that faciitate the financia sustainabiity of the service, taking into account subsidisation from sources other than the service. (i) the extent of subsidisation of tariffs for poor househods and other categories of users shoud be fuy discosed. Fig. 2: Domestic revenue vs. cost. Fig. 3: SEC S1 domestic PP stats. This means that the cross-subsidy impact is continuing to increase exponentiay and unsustainaby. Compiance with LGMsa Loca government is governed inter aia by the Loca government Municipa Systems Act of 2000 which makes the foowing stipuations: In the introduction: Ensure that municipaities put in pace service tariffs and credit contro poicies that take their needs into account (2) A tariff poicy must refect at east the foowing principes, namey that: Poor househods must have access to at east basic services through: (h) The economica, efficient and effective use of resources, the recycing of waste, and other appropriate environmenta objectives must be encouraged. The question that needs to be answered is whether the current tariffs being enforced by NERSA, appies with the ega requirements. This wi be tested beow: In respect of points (i) and (d). Tabe 3 shows that the average cost (excuding capita) of a poor customer using 100 kwh/m with a 20 A CB is 157 c/kwh. This is more than doube the NERSA IBT first bock and 7 more than the second bock. In respect of point (i). With the IBT tariff it is very difficut to quantify the subsidies as there are no cost refective tariffs in pace to compare it with. None of the NERSA documents even request this. Because the energy price for the high IBT bock at 148 c/kwh is more than doube the energy cost at 63 c/kwh, inefficient energy usage is encouraged and customers are moving to aternatives when eectricity shoud sti be used. renewabe energy The emergence of affordabe renewabe energy sources are beginning to make big 34 64th AMEU Convention 2014

4 Measure kwh MD 1 LED/efficient ights Soar water geysers PV systems Gas for cooking Gas for space heating Genera awareness 10 8 Tabe 6: Profie impact of efficiency measures. inrushes in South Africa. Peope are beginning to undertake many actions to reduce their eectricity consumption. This trend for more efficient use is wecomed and must be encouraged. The probem is that the municipa revenue base is being eroded by far more than the cost savings, which is causing a financia squeeze. Each of these measures has an impact on the consumption eve and on the maximum demand (MD) of the municipaity. The impact of each is shown in Tabe 6. A of these wi impact the kwh used to the fu extent of the efficiency impact. The impact on system MD is however very different for each: Efficient ights The ights are used to some extent during the eary hours of the day, where it has a very sma impact on system MD, or argey in the evening, where it wi have a fu impact on the system MD. Soar water geysers These wi have a significant impact on reducing the MD on the system during the morning and evening system MD. Provided the system is set up for the eement not to be on during these times. The genera advise shoud be to boost the system with eectricity: - From 04h00 to 06h00 before system demand starts cimbing and then there wi be hot water for morning activities. - From 16h00 to 18h00 before the system starts going into its highest peak. These times shoud be adjusted between summer and winter. If the systems are not set up ike this, it coud impact the system MD negativey. - If the eement comes on from 18h00 to 20h00, which by the way is the idea from a tota kwh usage perspective, because then the sun is fuy set. - This coud even cause the MD to be higher than when a norma geyser is used during a coudy day. PV systems The PV systems mosty instaed are without battery storage and thus wi ony impact eectricity profie whie generating. PV systems wi reduce the demand, based on the typica profie of a PV system, which is iustd in Fig. 4. It is important to note that this appies to most of the country, but in the Western Cape, the output wi be on average up to one hour earier. This means that with the evening peaks (18h00 to 20h00), the impact wi be minimum, except for the three summer months in the Western Cape, where ess than 2 of demand wi be impacted. We can thus concude that PV systems wi in itsef have a minima impact on system evening peak demand. If customers move some of their oads to the daytime to maximise the usage of the PV system, the system peak demand woud be reduced. The rea probem comes on very coudy days when it is mosty aso cod, the PV system output wi be reduced significanty, thus requiring the customers to make fu use of grid eectricity. The customers can thus aso not reduce their own circuit breaker sizes significanty, if they want to avoid being without eectricity during these critica days. The concusion is that PV systems wi not reduce the system peak MD significanty and aso not the customer s required circuit breaker capacity. This is more a reaity in the Western Cape, when due to the rainy season, have a ot of coudy days. Fig. 4: kw out of 100 kw PV system in Cape Town. Gas for cooking Using gas for cooking is very good for the eectricity system, because it reduces the system MD more than it impacts the kwh used. This happens because it is argey used during the system peak times (18h00 to 20h00). Gas for space heating When customers use aternatives for space heating, incuding gas, it is very good for the system. The typica annua oad factor for space heating is ess than 4% (three months for four hours per day). At east two of these hours are during the system peak times. This shoud thus be wecomed by utiities, provided the tariffs are set correcty. Genera awareness Tabe 7: Load reduction impact. Genera awareness shoud impact the kwh and system impact to a simiar extent, except when the customers experience an extreme cod spe or having a big function at home. This may resut in peope to ignore a savings and fa back into od habits and thus not reducing the system MD. The impact of reducing kwh and reducing MD is shown in Tabe 7. EE impact Lights Soar PV Cooking Heating Awareness Totas kwh reduction MD reduction kw 0,20 0,20-1,20 2,00 0,17 Eskom access R3,45 R3,45 - R20,72 R34,54 R2,96 Eskom MD R4,37 R4,37 - R26,22 R43,70 R3,75 Municipa MD R12,84 R12,84 - R77,05 R128,41 R11,01 Customer service Vending Energy R121,91 R243,81 R406,35 R121,91 R125,97 R40,64 Surpus R21,39 R39,67 R60,95 R36,88 R49,89 R8,75 Tota R163,96 R304,15 R467,30 R282,78 R382,51 R67,10 Revenue IBT R222,00 R444,00 R740,00 R222,00 R229,40 R74,00 Revenue COS R124,10 R246,00 R406,35 R135,07 R147,90 R42,52 Net impact IBT tariff R(58,04) R(139,85) R(272,70) R60,78 R153,11 R(6,90) R(263,60) COS tariff R39,86 R58,14 R60,95 R147,72 R234,61 R24,59 R565, th AMEU Convention 2014

5 The foowing shoud aso be considered in this respect: In Tabe 7, the effect that the energy cost is more expensive during peaks and especiay during high demand period, has not even been considered. This wi make the impact of ights, cooking and especiay space heating, much better. It has been assumed that if customers introduce these measures and at the same time downgrade their circuit breaker sizes. If they do not, the COS tariff option wi ook even better. The foowing can be concuded from this: The big reason why the introduction of renewabe energy wi be negative is because of the appication of the IBT tariffs and thus the very high prices for margina saes (the highest of units per month). The negative impact can totay be overcome, and in fact be turned into a positive impact, if COS tariffs are appied. In cases where power is injected into the system from PV systems, a further benefit can be enjoyed by the municipaity provided: - The COS tariffs are appied - Energy is purchased from the customer in TOU basis equa to the Eskom energy charges, pus evies When a customer's consumption reduces, they wi eventuay move to the scenario where they wi not contribute to the cross subsidies, but wi not even cover their own costs. Nersa s whoe cross subsidy pan wi thus not succeed. Large customer cost of suppy A simpified cost of suppy (COS) study is done here as a basis for the anaysis of arge customer tariffs. Tabe 8 shows a simpified COS study for arge customers. Tabe 9 continues this anaysis by adding the surpus and osses and comparing the cost with current charges. A fact that has a major impact on the resuts of these anaysis, reate to how the Eskom MD and access charges are appied as either: An access charge or MD charge to customers As part of the energy cost as a c/kwh charge The method used here, is to use it as appied to the municipaity and thus expose customers to the same signas. This is the recommended method. The foowing can be said in this respect: The energy charge is ess than cost The demand charge is by far overstated The tota revenue exceeds the cost, pus a surpus of 16% by a further 17% It is thus cear that arge customers cross Network costs (genera) Fu cost Units System ADMD kva Sod ADMD (LV equivaent) kva Customer service costs R Rand/y Costs excuding purchases and service R Rand/y Network cost average R64,21 R/kVA/m Large customer anaysis Access Demand Average MD network cost R64,21 R/kVA/m R25,68 R32,10 Eskom MD charge R21,85 R/kVA/m R21,85 Eskom access charges R17,27 R/kVA/m R17,27 Tota arge customer demand costs R103,32 R/kVA/m R42,95 R53,95 LPU co-insidence factor of MD 65% Tota LPU MD cost R72,53 R/kVA/m R30,15 R37,87 subsidise domestic customers, especiay at ow usage. Large customer time of use The next issue that needs debate is the time of use (TOU) tariffs for arge customers. The EPP stipuates the foowing on this issue in December 2008 (6 years ago): Poicy position: 31 Tariffs must incude TOU energy s as foows: a customers suppied at MV or above within two years; a customers above 100 kva within five years; a cases where the metering provides such features withing five years; and a other customers where it is warranted. Many municipaities have progressed far in this respect and more and more TOU meters are being instaed for arge customers. These meters are expensive and many municipaities have taken the route of providing communications to the meters, which makes sense, but is even more costy. I want to address the probem of tariff structure and eves. Based on years of experience, the foowing is proposed for the design of the TOU tariffs, which is very simiar to the Eskom Megafex (MF) tariff: Tabe 8: Simpified cos study for arge customers. Demand Energy R/kVA/month c/kwh Current charge R181,38 59,49c Access/MD Energy Cost R72,53 56,74c Losses 8% 8% Surpus 17% 17% Cost R90,57 70,85c Differences Overcharge Undercharge 100,3% -16, Large customer characteristics Ave LF 45, Ave price at cost c/kwh 98,42c Ave price at tariff c/kwh 114,70c Overcharge c/kwh 16,28c Overcharge % 17% Tabe 9: Large customer anaysis at MV for 2014/2015. Basic charge This is appicabe per point of suppy and shoud be as cose as possibe to the customer s services costs incuding the cost of metering. It shoud be differentiated by: Customers suppied at ow votage (LV) Customers suppied at medium votage (MV) 6,6 kv to 22 kv. This charge shoud be higher, because more attention is given to these customers and a more expensive metering instaation, which incudes a VC/CT unit and in some cases a dedicated ring main unit or T-switch. TOU periods The seasons and time of day periods shoud be simiar to that of Eskom even if the oca peaks are different from the Eskom peak periods. Access charge An access charge shoud be appied to cover the dedicated part of the network cost and the Eskom access charges. It shoud be based on the highest of the notified demand or the previous 12 months highest demand. Maximum demand (MD) charges A maximum demand charge shoud be retained, but ony appicabe in the peak and standard times. It is to cover the rest of the 64th AMEU Convention

6 The ony way recommended for impementation, is to do a arge customers on an invountary basis. First the MV customers, then the other arge customers which can be phased in those with MD > 200 kva, then > 100 kva and then the rest. The reason for this is to ensure that the municipaity s revenue base is not eroded, due to ony those customers paying ess when converting. network cost and Eskom MD charges, and be as cose to cost as possibe. Active energy charges The energy s shoud be set equa to: The Eskom TOU energy s (the basic s pus the c/kwh and a the other Eskom c/kwh evies) Pus a fixed c/kwh mark-up. This ensures that when customers shift oad to cheaper energy periods, the municipaity does not ose any money by incurring a savings in Eskom purchase cost equa to the reduction in revenue. The c/kwh shoud be set by undertaking an impact study for as many as possibe of the arge customers invoved and ensuring that the revenue on the new MD tariffs equa that on the new TOU tariffs. Reactive energy charges These shoud be appied simiar to Eskom, to aso provide a signa for customers to contro their power factor during a peak and standard periods, even if it is not during their own system peaks. In the absence of a study in this respect, a charge simiar to Eskom is proposed. Differentiation between MV and LV customers These need to be set equa to that found in a COS suppy study. In the absence of this, the same percentages for the maximum demand tariffs can be appied, but this shoud be cose to 5% higher on energy and at east 1 higher on demand for LV customers. This Fig. 5: Od MD to new TOU. shoud be appied to the access charges, MD charges, and the active energy s. Pubic hoidays These shoud be treated as foows: The same as Eskom in cases where the meters are equipped with remote communications and can be programmed remotey. As norma week or weekend days with no ateration. The tariff s must be set to ensure fair compensation. This is to avoid the onsite reprogramming of the meters annuay. An exampe of such an impact study is shown in Fig. 5. It shows the annua impact of a the MV customers in a municipaity. Athough it ooks ike many customers wi be ess, the average impact was equa to the average increase of 7,39% required by the municipaity. The reasons for higher and ower payments are as foows: Higher oad factors (LF): generay increase more than average Very high MD for ony few months: generay have higher than average increase Extensive usage during peak times: generay have higher than average increase A customers: Big increase for June, Juy, August and a very sma change in other months Average price increase Nersa guideine Cost ine item Percentage of municipaity cost Purchases 70, Saaries and wages 10, Maintenance 6, Capita charges 4, Other 10, Surpus 20, Tota revenue 120, Revenue markup on purchases 71,4% Seing price/purchase price 1,71 Tabe 10: Effective mark-up on Eskom tariff when appying Nersa guideines. This wi ensure that the current eve of cross subsidisation by arge customers is retained, but at east not increased and aowing them to reduce their bis through oad shifting. Nersa TOU tariffs The biggest probem starts when the required anaysis has been done and you appy to Nersa for approva. NERSA has a standard that says TOU tariff must be equa to Eskom pus 2. Nersa was chaenged on this basis, but no repy was ever received. Tabe 10 shows the effective mark-up on the Eskom tariff when appying the Nersa guideines. This shows that if the Nersa benchmarks are used as a basis, an average mark-up of 71% shoud be aowed on the purchase price. Furthermore it shows that the ratio of seing price to purchase price shoud be 1,71 compared with its own benchmark of 1,6. In assessing this figure the foowing shoud be recognised: If tariffs were cost refective, the mark-up for arge customers shoud be ower than for sma customers due to the ower cost. With the massive cross subsidies to domestic customers, argey because of Nersa s IBT tariffs, arge customers have to pay more than cost, thus requiring a higher mark-up. This first section shows that a mark-up of 2 does not aign with Nersa s other benchmarks. There is great sympathy and agreement with Nersa s stgy to reduce the overcharging of arge customers. It can however not be done in the way they propose because: It is ony enforced for new TOU tariffs. This means that existing serious discrimination of 85% mark-up is unaffected in any of the Nersa stgies. This means that municipaities simpy cannot appy the new TOU tariffs at the Nersa eves, because they wi ose too much revenue which means TOU is not progressing. If it is Nersa s stgy to reduce the overcharge of arge customers a proper stgy much be deveoped which must: - set target reduction of tariff eves for the arge customers paying the subsidies 38 64th AMEU Convention 2014

7 64thA M E U C on v e n t i o n High TOU charges High: Peak High: Concusions Low High: Off-Peak Low: Peak Low: Low: Off-Peak Eskom MF MV (c/kwh) 211,54c 67,87c 39,33c 72,66c 51,70c 34,78c Proposed TOU (c/kwh) 227,53c 83,86c 55,32c 88,65c 67,69c 50,77c % markup c/kwh mark-up (c/kwh) Fixed % mark-up (c/kwh) Load shift impact 8% 24% 41% 22% 31% 46% c 48,33c 15,51c 8,99c 16,60c 11,81c 7,95c Peak to off-peak Peak standard - off-peak Peak to off-peak Peak standard - off-peak c/kwh mark-up (%) % mark-up (%) % Loss ,34% 32,82% 6,52% 8,65% 4,79% 3,87% 19% 48% 17% 12% 9% 11% Tabe 11: Affect of NERSA TOU tariffs. - and target increase of tariffs for the domestic customers receiving the subsidies - with a phase in pan. Another probem with the way in which Nersa is appying the benchmark, is that it is proposing the same percentage mark-up be appied on a the Eskom s. This is a major probem and wi cause massive distortions from cost refective, because of the foowing: municipa network cost, typicay more than 10 mark-up. If a fixed percentage mark-up is appied to the energy s, the c/kwh mark-up on the most expensive s woud be as much as four times more than on the cheaper s. This means that when customers shift oad from the expensive, to the cheaper time, as it is one of the objectives, the municipaity wi ose much more revenue than the savings in Eskom bi and thus net revenue. This is iustd in Tabe 11. The mark-up shoud be based on cost and energy mark-up shoud ideay be in c/kwh except in case of osses. If the same percentage mark-up is appied to the Eskom s, a major distortion wi take pace and the tariff wi not be cost Nersa shoud thus rather deveop a proper refective. This is because the mark-up ARINT_AMEU 1 to 2014/11/12 8:39 AM on the Eskom network costs, advert shoud90x120mm.ai be a basis determine benchmarks for municipa much higher percentage to cover a the TOU tariffs. It is cear that the industry is facing serious chaenges from a tariff point of view: IBT tariffs that are appied are causing ongoing escaating cross-subsidies, causing ost revenue and both of these are not sustainabe and are impractica. If TOU tariffs for arge customers are set according to the Nersa benchmark, municipaities wi ose revenue when customers convert to TOU and when customers shift oad to the cheaper periods. The chaenge that Nersa faces when municipaities do not provide adequate information and submit their tariff appications ate is recognised. This wi contribute to Nersa having to make hasty decisions, without aowing adequate time to anayse the municipa proposas and get into meaningfu debate with the municipaities. On the other hand however, there have been many incidents where such opportunities did exist and Nersa has been unmoveabe, despite sound arguments being made. Where to from here In view of these probems the foowing processes is proposed for municipaities: Municipaities must deveop tariffs which compy with the EPP. These tariffs must aso compy with the MFMA. Tariff appications need to be made to Nersa in time. Municipaities must not accept approvas which do not take their needs into account and appea the Nersa decision. Nersa must deveop benchmarks that have been propery anaysed and consuted on. Nersa must negotiate with municipaities as they know their oca circumstances best. Municipaities are thus encouraged to do the foowing in terms of tariffs: C M Appy cost refective charges for a their sma customers with a basic charge, and Amp charge and energy charges (possiby seasonay differentiated) Make avaiabe a ife ine tariff with a singe energy, restricted to 20 A maximum, which equas the operating cost. Large customer TOU tariffs must be based on cost and must initiay ensure revenue neutraity, with existing tariffs, with energy s, with a fixed c/kwh surcharge. If arge customer cross subsidies are to be reduced, it needs to be targeted as a specific stgy and it must be cear to everyone and not hidden behind a TOU tariff. Y CM MY CY CMY K Contact Hendrik Barnard, Eexpert, Te , hbbarnar@mweb.co.za 40 64th AMEU Convention 2014