NATIONAL ENERGY REGULATOR OF SOUTH AFRICA

Transcription

1 In the matter regarding NATIONAL ENERGY REGULATOR OF SOUTH AFRICA DETERMINATION OF THE MUNICIPAL TARIFF GUIDELINE FOR THE FINANCIAL YEAR 2013/14 AND THE REVISION OF MUNICIPAL TARIFF BENCHMARKS DECISION On 26 March 2013 the National Energy Regulator of South Africa (NERSA or the Energy Regulator ) decided as follows: 1. That a guideline increase of 7% be approved for the 2013/14 municipal tariff review process. The guideline increase is based on the following assumptions: 1.1 bulk purchases have been increased by 7.3% 1 in line with Eskom s tariff increase to municipalities; 1.2 a consumer price index (CPI) of 5.5% 2 ; 1.3 salary and wage increases of CPI plus 1.25% 3 ; and 1.4 repairs and maintenance, capital charges and other costs have been increased by the CPI. 2. That the following benchmarks be approved for implementation: Table 1: The 2013/14 average municipal tariff benchmarks based on the 7% guideline Domestic Inclining Block Tariffs (IBTs) Commercial 2000kWh Industrial Block 1 Block 2 Block 3 Block kWh kWh kwh >600 kwh Prepaid Conventional kwh The decision is in line with Eskom s Standard Retail Tariff for the 2013/14 financial year as approved by the Energy Regulator 2 The Consumer Price Index is 5.5% in line with the Medium Term Budget Policy Statement 2012 ( MTBPS) 3 As indicated in Circular No.6/2012: Salary and Wage Collective Agreement. Page 1 of 13

2 3. Alternative IBT structures and benchmarks 3.1 The domestic low tariff will comprise of the energy charge. Table 2: Domestic Low Domestic Inclining Block Tariffs (IBTs) Block 1 Block kwh > 350kWh The domestic high tariff will comprise of the energy charge plus a basic charge. Table 3: Domestic High Domestic Inclining Block Tariffs (IBTs) Block 1 Block kwh > 350kWh Basic Charge (R/month) 4. That the Industrial Time of Use (TOU) tariff be benchmarked with the approved Eskom s Megaflex tariff plus a maximum of 20%. 5. That NERSA acknowledges that municipalities should recover its costs from somewhere; e.g demand charge, but is also mindful that these charges should not be excessive such that they do not incentivise the customers. 6. Municipalities are required to undertake Cost of Supply (CoS) study in the 2013/14 financial year. This requirement is in line with the Electricity Pricing Policy (EPP). The study will assist municipalities to develop appropriate tariff structures and tariff levels to ensure sustainability and send the correct pricing signals to influence customer behaviour. 7. That the costs deemed not to be in the direct supply of electricity will be dealt with on a case-by-case basis from each municipality. These will be determined by comparing the municipalities average cost to supply electricity to the average price charged by the municipalities. The difference will then be used to adjust the overall increase awarded to the municipality. In determining the average cost to supply the following, among others, will be taken into account: 7.1 bulk purchases; 7.2 bad debts; 7.3 reasonable energy losses; 7.4 salaries and wages; and 7.5 capital charges Page 2 of 13

3 8. Furthermore, the municipalities overall financial and technical performance will be reviewed prior to a final decision on the overall increase. Indicators to be considered in this regard mainly include: 8.1 percentage surplus; 8.2 percentage energy losses; 8.3 percentage power costs; 8.4 bad debt provision; and 8.5 average purchase price/average selling price ratio. 9. Municipalities applying for an increase that is above the guideline will have to justify their increases to the Energy Regulator and the following actions would be expected: 9.1 a full analysis of additional funds requested needs to be presented to NERSA as part of the motivation for the above-guideline increase (the municipality must give a detailed revenue analysis where it indicates the revenue when using the approved guideline percentage increase and add the revenue and list of items, i.e. repairs and maintenance, where the extra funds will be allocated); 9.2 the approved funds must be ring-fenced to ensure that it is strictly utilised for the identified projects; 9.3 municipalities must report to NERSA on a six-monthly basis on how the additional funds are utilised; and 9.4 funds not utilised for the purpose for which they were approved will be clawed back in the following financial year. 9.5 any other reasons not indicated above may be considered by the Regulator e.g historical low tariffs. 10. Municipalities applying for tariffs that are outside the approved benchmarks must justify such increases and the following information must be submitted: End the total number of customers per tariff category municipalities that do not have an appropriate customer base must submit the full detail of its customer profile, as well as the associated revenues; 10.2 expected revenues per tariff category; 10.3 the forecasted total sales; 10.4 the average maximum demand per tariff (where applicable); 10.5 the average load factor (where applicable); and 10.6 The load profile in percentages (both summer and winter, where applicable). Page 3 of 13

4 REASONS FOR DECISION BACKGROUND AND INTRODUCTION 1. The National Energy Regulator of South Africa (NERSA or the Energy Regulator ) calculates an appropriate tariff guideline increase on an annual basis, which is then communicated to municipal distributors as a guide in determining their annual electricity tariff increase. 2. This guideline does not preclude a distributor from the legal obligation to apply to the Energy Regulator for tariff increases before implementation. 3. NERSA also reviews the tariff benchmarks and recommends new benchmarks that will be used in the evaluation of the municipal tariff evaluations. 4. On 02 March 2012, Eskom requested a review of the 2012/13 approved price increase of 25.9% downwards to 16%. 5. On 09 March 2012, the Energy Regulator approved that the price increase be adjusted from 25.9% to 16%. This consequently led to a reduction of bulk electricity purchases from 26.06% to 13.5% for municipalities. 6. The Energy Regulator subsequently approved a tariff guideline of 11.03% and the following benchmarks on 09 March 2012: Table 4: Current Benchmarks Domestic Inclining Block Tariffs (IBTs) Commercial 2000kWh Industrial Block 1 Block 2 Block 3 Block kwh kwh kwh >600 kwh Prepaid Conventional kwh THE DECISION-MAKING PROCESS 7. As mentioned before, NERSA calculates an appropriate tariff guideline increase on an annual basis, which is then communicated to municipal distributors as a guide in determining their annual electricity tariffs. 8. On 18 October 2012, the Energy Regulator received Eskom s Revenue Application: Multi-Year Price Determination 3 ( MYPD3 ) and Eskom s Retail Tariff Structural Adjustments ( ERTSA ). Eskom applied for annual price increases of 16% per annum over the MYPD3 control period. 9. The Electricity Subcommittee of the Energy Regulator approved the publication of the municipal tariff guideline, benchmarks and proposed Page 4 of 13

5 timelines consultation paper on 14 November This was published on the NERSA website on 20 November 2012 with an invitation to stakeholders for comments. The closing date for comments was 20 December On 28th February 2013 the Energy Regulator approved an 8% increase for Eskom s tariff over the period of 5 years for the period 01 April 2013 to 31 March The Energy Regulator conducted a public hearing on 15 March 2013 to afford interested and affected stakeholders an opportunity to submit their views, facts and evidence. THE OBJECTORS AND OTHER INTERVENING PARTIES 12. On 20 November 2012 the Energy Regulator published on the NERSA website the consultation paper on the municipal tariff guideline and benchmarks for written stakeholder comments. 13. Written comments on the published NERSA consultation paper were received from a total of ten stakeholders, among others: Overstrand Municipality, Utility Services, Institute for Municipal Finance Officers (IMFO), Swartland Municipality, City Property, Pick n Pay, South African Local Government Association (SALGA), Scaw Metals Group, Chamber of Commerce and ethekwini Municipality. 14. Verbal representations were made by The Afhco Group - Developing Inner City Communities, PEC Metering (Pty) Ltd, National Foundry Technology Network, Nelson Mandela Bay Business Chamber(NMBBC) and South African property owner association(sapoa) during the public hearing held by NERSA on 15 March The Energy Regulator appreciates the stakeholder participation in the municipal tariff guideline and benchmarks decision making process and would like to thank the individuals and organisations for their valuable comments and inputs. 16. The key comments received have been summarised in Annexure 1. APPLICABLE LAW 17. The legal basis for the Energy Regulator to approve electricity prices is derived from the Electricity Regulation Act (Act No. 4 of 2006) ( the Act ) and the National Energy Regulator Act, 2004 (Act No.40 of 2004) ( the Energy Regulator Act ). The procedure to be followed in deciding the price is derived from the Promotion of Administrative Justice Act, 2000 (Act No.3 of 2000) ( PAJA ). Page 5 of 13

6 METHOD USED IN DETERMINING THE MUNICIPAL GUIDELINE Municipal Tariff Guideline 18. The guideline for the 2013/14 financial year has been calculated after taking into consideration the approval of Eskom s Retail Tariff Structural Adjustments (ERTSA). On 28 February 2013, Eskom was granted an average increase of 8% for the 2013/14 financial year. This increase amounts to an average increase of 7.3% for municipalities. The difference is due to the three months lag effect. This subsequently amounts to an average municipal tariff guideline increase of 7%. 19. When determining the percentage guideline increase for 2013/14, the following issues were considered: 19.1 The municipalities were divided into three different groups, based on their MWh purchases from Eskom. The three groups were small (0 50 MWh)/annum, medium ( MWh)/annum and large (>750 MWh)/annum The grouping of the municipalities was used to determine whether the cost drivers would indicate whether a one size fits all approach is still possible. The results showed that within all three groups, the average bulk purchase percentage remained at 70%. The median of the analysis therefore indicates that NERSA can still continue with one group instead of the different sizes as indicated above. Table 5: The guideline cost attributes % Bulk % Salaries & Wages % Repairs %Capital % Other Purchase Charges Costs In determining the guideline, the cost attributes in Table 5 were increased by the following assumptions: 20.1 bulk purchases have been increased by 7.3% in line with Eskom s tariff increase to municipalities; 20.2 a consumer price index (CPI) of 5.5%; 20.3 salary and wage increases of CPI plus 1.25%; and 20.4 repairs and maintenance capital charges and other costs have been increased by the CPI. Page 6 of 13

7 21. The guideline is then calculated or determined as follows: Table 6:The calculation of the municipal tariff guideline for the 2013/14 financial year COST LINE ITEM MUNIC % OF EXPECTED TOTAL COST INCREASE % WEIGHTED AVERAGE EXPECTED INCREASE Energy Purchases Salaries and wages Maintenance/Refurbishment/ recapitalisation 0.33 Capital charges in total Other costs Municipal tariff % increase 7% 22. The formula for calculating the guideline: Where: 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) + (10x5.5) = = 7% MG = % Municipal Guideline increase B = % Bulk purchases BPI =% Bulk purchase increase S = % Salaries SI = %Salary increase R = % Repairs RI = %Repairs increase C = % Capital charges CCI =% Capital charges increase OC = % Other Charges OCI =% Other Charges increase Municipal Tariff Benchmarks 23. The existing benchmarks are based on five assumed tariff/customer categories and average consumption levels for these categories. It should be noted that these are average consumption levels and that there may also be other tariff classes at various municipalities which will cater for other customer classes or consumption levels that are very different from the ones that are Page 7 of 13

8 assumed. Where such anomalies exist, the applications will be treated on a case-by-case basis. 24. For the purposes of benchmarking, the following customer classes are assumed: The municipal customer categories 25. In developing the benchmarks, NERSA has been assuming the following customer classes: 25.1 Domestic Tariffs - Block 1 (1 50 kwh); - Block 2 (51 350kWh); - Block 3 ( kWh); and - Block 4 (> 600kWh) 25.2 Alternative IBT Structure Domestic Low - Block 1 ( 0 350kWh); and - Block 2 ( > 350kWh). Domestic High - Block 1 ( 0 350kWh) - Block 2 ( < 350kWh) - Basic Charge 25.3 Commercial (small business) single phase tariff An average consumption level of 2000kWh per month Commercial Prepaid An average consumption level of 2000kWh per month Industrial/Large user tariff A 30.00% load factor (LF) and a maximum demand (MD) of 200kVA, which would give an average consumption level of kWh Industrial Time-of-Use (TOU) A 30.00% LF and an MD of 200kVA, which would give an average consumption level of kWh (i.e. peak, standard, and off-peak). Page 8 of 13

9 26. When developing the benchmarks for the domestic blocks, commercial and industrial the following issues were taken into consideration: Current IBT Structure 26.1 Block 1 - The 2012/13 benchmarks were increased by the CPI inflation of 5.5% Block 2 - The 2012/13 benchmarks were increased by the CPI of 5.5% plus 1% this results in a total increase of 6.5% Block 3 & 4 - The 2012/13 benchmarks were increased by the municipal tariff guideline increase of 7%. Alternative IBT Structure 26.4 The alternative IBT structure was developed in order to assist the municipalities that are unable to implement the current structure The determined rates for the alternative structure were derived by comparing the bills on the assumed consumptions (i.e 350kWh, 400kWh and 800kWh) The assumed consumption patterns and the determined rates between the two IBT structures do not disadvantage the customers, should the municipality decide to choose the alternative IBT structure since the difference in the bill will be minimal A basic charge has been introduced for the domestic high tariff. The average price increase for the residential customers inclusive of the basic charge should be 7%. 27. The 2012/13 commercial and industrial benchmarks were increased by the municipal tariff guideline of 7%. 28. The proposed municipal electricity tariff benchmarks for 2013/14 are as follows: Table 7: The 2013/14 average municipal tariff benchmarks based on the 7% guideline i Domestic Inclining Block Tariffs (IBTs) Commercial 2000kWh Industrial Block 1 Block 2 Block 3 Block kwh kwh kwh >600 kwh Prepaid Conventional kwh Page 9 of 13

10 29. Alternative IBT structure and benchmarks 29.1 The domestic low tariff will comprise of the energy charge. Table 8: Domestic Low Domestic Inclining Block Tariffs (IBTs) Block 1 Block kwh > 350kWh The domestic high tariff will comprise of the energy charge plus a basic charge. Table 9: Domestic High Domestic Inclining Block Tariffs (IBTs) Block 1 Block kwh > 350kWh Basic Charge: R/month Financial Benchmarks 30. When revising the cost structure weights using the various municipality sizes, the percentage power cost remained at 70%. This figure is still within the range that was calculated in the previous tariff adjustment process. The revision of cost structure weights had no impact on the financial benchmarks. Table 10: Financial benchmarks Current Benchmarks Average Revised Average Benchmarks Financial Benchmarks (Tolerable Range) Percentage Power 70% 70% 58% - 78% cost Percentage Surplus 15% 15% 10% - 20% System losses 10% 10% 5% - 12% Average Purchase Price/ Average Sales Price ratio 1: 2.1 1: NERSA is in the process of gradually reducing the average purchase price and average sales prices ratio. Due to the double digit increases, the high price variations between the municipal and Eskom tariffs have become noticeable. In revising the Average Purchase Price/Average Selling Price Page 10 of 13

11 (APP/ASP) ratio, a sample of 115 municipalities was used to determine an average APP/ASP ratio. The information from the 2011/12 distribution forms was used to determine this average. Policy Issues 32. During the MYPD3 process, a number of policy issues requiring consideration have been raised. Amongst others, the following identified issues have been raised A funding model is needed to ensure municipalities do not have to depend on electricity revenues for their finances A national subsidy and cross-subsidy framework is required by the industry The lack of alignment of financial years of Eskom and municipalities is causing cash flow problems for municipalities. This is due to Eskom tariff increases being effected in the winter months when the high season tariffs are applicable There is a need for coordination between NERSA, the Department of Energy (DoE) and National Treasury on taxes, levies and surcharges. 33. These policy issues will be channelled to the relevant Government departments to ensure further deliberation. CONCLUSION 34. On the conspectus of the facts and evidence presented to the Energy Regulator, it is appropriate that: 34.1 A tariff guideline of 7% be approve for the municipalities for the 2013/14 municipal financial year; and 34.2 The benchmarks be approved as follows: Domestic Inclining Block Tariffs (IBTs) Commercial 2000kWh Industrial Block 1 Block 2 Block 3 Block kwh kwh kwh >600 kwh Prepaid Conventional kwh Page 11 of 13

12 34.3 Alternative IBT structure and benchmarks The domestic low tariff will comprise of the energy charge. Domestic Low Domestic Inclining Block Tariffs (IBTs) Block 1 Block kwh > 350kWh The domestic high tariff will comprise of the energy charge a basic charge. Domestic High Domestic Inclining Block Tariffs (IBTs) Block 1 Block kwh > 350kWh Basic Charge: R/month End. Page 12 of 13