Residential tariff increases and restructuring for MYPD3 explained Brochure November 2012 Residential brochure for MYPD3 changes Page 1
PART 1: ESKOM REVENUE REQUIREMENT Introduction Eskom applies for a price determination or revenue requirement (put simply, a budget) from the National Energy Regulator of South Africa (NERSA) in order to operate normal Eskom business, build new power stations, and diversify the country s energy mix through the encouragement of renewable energy into the market via independent power producers (IPPs). The current Multi-year Price Determination (MYPD2) revenue cycle ends on 31 March 2013. Eskom is proposing a five-year determination for MYPD3, running from 1 April 2013 to 31 March 2018. This is to ensure a more gradual and predictable price path for households, businesses, investors, and the country as a whole. Eskom s MYPD3 application aims to strike a balance between the possible short-term negative effects of increasing electricity prices, the sustainability of the industry, and South Africa s long-term economic and social needs. The submission of this MYPD3 application is the beginning of a public process to address the issues raised in Eskom s application. NERSA is an independent regulator and will follow a process of public consultation prior to making its decision on Eskom s MYPD3 application. Stakeholders are encouraged to participate in this process, give their views, and let them be heard before a decision can be made. Also refer to Eskom s website for more information on Eskom s revenue requirement application. What are the building blocks of Eskom s revenue requirement? Eskom s application for revenue over five years translates into an average price increase of 13% for Eskom needs, plus 3% to support the introduction of independent power producers (IPPs), giving a total of 16%. This is a nominal price increase of 67 cents per kilowatt-hour from the current average of 61 c/kwh in 2012/13 to an estimated average price level of 128 c/kwh in 2017/18. Average price increase for Eskom s revenue application (own needs) 13% Support for the entry of IPPs 3% + = Total price increase of 16% (yoy) The cost components of Eskom s revenue requirement application to NERSA are shown below: Residential brochure for MYPD3 changes Page 2
PART 2: PROPOSAL TO RESTRUCTURE ESKOM S RESIDENTIAL TARIFFS Eskom has three residential tariff categories: Homelight 20A caters for customers with very low consumption (typically indigent). Homelight 60A caters for customers with low to medium/higher usage (typically supplying suburban higher-usage households (can also be applicable to NGOs, government facilities, churches, schools, halls, clinics, and old-age homes) in urban areas with a number of electrical appliances, including a geyser). Homepower range of tariffs catering for higher-consumption residential supplies (typically supplying higher-consumption households with many electrical appliances). These tariffs are all currently on the same inclining block tariff (IBT) structure (a tariff that has rates that increase as you consume more) with four blocks. Reasons for the changes to the residential tariffs: To simplify the tariffs and make them more understandable. To optimise the protection of the poor (limiting the price increase to the poor). To base the tariffs on cost, adjusted with quantifiable subsidies. To ensure that high-usage residential customers pay more cost-reflective prices. What is Eskom s proposal? Eskom is proposing that we have different tariff structures for the different tariff categories discussed above: Homelight 20A: to be a single energy rate lifeline tariff to cater for the poor. This tariff will ensure that the poor are protected against high price increases, with a single-digit increase for the average poor customer. Homelight 60A: a revised IBT with only two blocks Block 1 for consumption up to 600 kwh and Block 2 for any consumption above 600 kwh per month. This tariff will see, on average, a 5% increase indicating that, at lower consumption levels, Eskom has limited the increase. Homepower suite of tariffs; Homepower 1, 2, 3, and 4: a single energy rate plus a fixed network charge based on supply size for higher-consumption supplies. This tariff will see, on average, a 14% increase. (The three tariffs offers can be compared to cell-phone pricing options. Prepaid has no fixed charge, but has high usage charges suitable for low or limited usage whereas customers with a contract have high monthly fixed charges, but the usage rates are lower than prepaid suitable for high usage.) Free Basic Electricity (FBE) FBE will still be applicable to customers who qualify. Eskom is a service provider in this instance and merely implements the FBE based on the criteria set by local government. The change in tariff structures does not discard the FBE portion of qualifying customers. FBE will form part of the first block for the customers on the Homelight 60A tariff, that is, the first 50 kwh of the 600 kwh will be free. Residential brochure for MYPD3 changes Page 3
Homelight 60A versus Homepower 4 Homelight 60A and Homepower 4 are tariffs that cater to the same supply size. Depending on consumption, customers can opt for either tariff. If you consume more than 1 000 kwh per month, then Homepower 4 would be cheaper than Homelight 60A. Currently, customers selecting Homelight 60A can opt for a prepaid meter or to receive a monthly bill. At the moment, however, Eskom is not able to offer Homepower 4 on a prepaid meter, as this tariff has fixed charges, and the Eskom prepaid vending system does not offer fixed charges. The current 2012/13 tariff rates All rates below are inclusive of the environmental levy. The current 2012/13 IBT tariff (applicable to all residential tariffs) IBT Block 1: 50 kwh/month 2012/13 60.83 Block 2: 50 350 kwh/month 75.09 Block 3: > 350 600 kwh/month 111.42 Block 4: > 600 kwh/month 122.21 The proposed new tariffs for Eskom direct residential customers for (excluding VAT) are as follows: Homelight 20A Tariff Homelight 20A 75.58 Homelight 60A Block 1: 600 kwh/month 81.98 Block 2: 600 kwh/month 178.65 Homepower network charge R/account/day Homepower 1 for 25 kva three-phase supplies R3.76 111.90 Homepower 2 for 50 kva three-phase supplies R7.03 111.90 Homepower 3 for > 50 kva and 100 kva threephase supplies R14.51 111.90 Homepower 4 for 16 kva single-phase supplies R2.29 111.90 It should be noted that the above tariffs are proposals to the National Energy Regulator of South Africa (NERSA), and the structure and the increases to be applied will depend on its final decision in February next year. Residential brochure for MYPD3 changes Page 4
For additional information on the Eskom MYPD3 submission, please visit www.eskom.co.za. Impact of the proposed tariff restructuring on the residential tariffs All three residential tariffs will see increases below the average price increase, summarised as follows: The picture below shows the increases per tariff category for all Eskom tariffs. Residential tariffs see the lowest increases. The above graph shows the price increase per tariff category. Urban tariffs will be paying more than the average price increase, as they contribute to subsidising the residential tariffs. Residential brochure for MYPD3 changes Page 5