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Municipality Tariff Rationalisation
Eskom made a submission to NERSA on 6 November 2017 for approval of the rationalised municipality tariffs called Megaflex Munic (“Municflex”) for points of delivery on large power use (LPU) tariffs and Businessrate Munic (“Municrate”) for points of delivery on small power use (SPU) tariffs. The full submission can be found here and the NERSA consultation paper can be found here. Further information can be found on NERSA's website: www.nersa.org.za
 
1.    NERSA PUBLICATION
NERSA published the Eskom submission for comments based on the following timelines:
​Action Timeframe​
NERSA received the application from Eskom​ ​6 November 2017

Aproval by Electricity sub committee (ELS) of Eskom's appication , consultation

 paper and note the proposed timelines​

​5 April 2018

Submission to Energy Regulator (ER) requesting publication of Eskom's

application and approval of the proposed timelines​

​25 April 2018
Publication of the application and consultation paper for stakeholder comments​ ​6 June 2018
Closing date for stakeholder comments​ 29 June 2018

NERSA staff to consider stakeholder comments and further analysis of

Eskom's submission​

​2 - 27 July 2018
Public hearing on Eskom's application​ August 2018
ELS panel debriefing​ August 2018
ELS meeting to consider the Reasons for Decision (RfD)​ 12 September 2018
 
​ER decision on Eskom's application 26 September 2018​
Communication of decision to Eskom and keygovernment departments​ 26 September 2018
Publication of NERSA decision​ 26 September 2018
 
2.   SUBMISSION PROPOSALS
The submission proposes the following:
a)      The number of tariff options available to municipalities will be reduced to three tariffs options, as follows:
b)      All existing municipal points of delivery currently allocated to the existing municipality tariffs shall be reallocated to either of the two proposed tariff options based on their existing tariff and supply size.
c)      Megaflex, Miniflex, Nightsave Urban Small and Nightsave Urban Large, Ruraflex, and Nightsave Rural shall be combined into one tariff, to be called “Municflex”, for all municipality large power use points of delivery.
·         The Municflex tariff option shall have the same tariff characteristics as the predecessor local-authority Megaflex in terms of tariff structure and rates, with the exception that the tariff shall now be applicable to points of delivery with an NMD of 25 kVA and above.
d)      The Businessrate, Landrate, and Homepower tariff options shall be combined into one tariff, to be called “Municrate”, for all municipality small power use points of delivery.
·         The Municrate tariff shall have the same tariff characteristics as the predecessor local-authority Businessrate tariff structure and rates.
e)      The Public Lighting tariff will remain as a non-metered tariff for existing public lighting supplies.
f)       The new tariff options will result in the following tariff characteristics being applicable to municipality customer categories:
g)      There shall no longer be an urban/rural differentiation for municipality points of delivery.
h)      As is currently the practice, once the initial reallocation to the new municipal tariffs has been completed, municipal points of delivery between 25 kVA and 100 kVA will continue to have a choice between being on the Municflex and Municrate tariffs subject to the payment of the applicable conversion charges.
i)        Any revenue impact resulting from the municipality tariff rationalisation will be recovered through the annual price adjustment.
j)        Policies: all Municflex and Municrate customers shall be subject to the existing policies relating to urban customers and any other applicable policies for similar-size customers.
k)      The target implementation date of the tariffs is 1 July 2019.
 
3.    MOTIVATION
The motivations for the proposed changes are as follows:
1.   Providing two tariffs will simplify municipality tariffs in terms of the following tariff features:
·      There will be one tariff for large power users.
·      There will be one tariff for small power use.
·      There will no longer be an urban/rural tariff differentiation for municipality tariffs.
2.   Two tariffs will simplify the sales and revenue forecasting process in both Eskom and municipalities:
·      Two tariff options simplify the process of determining the purchase cost for municipalities.
·      Eskom also benefits in terms of its sales and revenue forecasting process, as it will have fewer tariff variations for municipalities.
3.   Tariff signals will be retained by:
·      the Megaflex tariff structure and rates and time-of-use (TOU) pricing signals for large power users; and
·      the Businessrate tariff structure and rates for small power users.
4.   Compliance with NERSA requirements:
·      This proposal is aligned with NERSA’s objective of simplifying municipality tariffs.
 
 
4.    MODELLING OF IMPACTS
 Because the Eskom submission was in 2017, the impact and rates shown in the submission are still in 2017/18 rand values. Eskom has developed two models for your use, where you can input actual consumption data to assess the impact in 2018/19 rand values.
 
Click here for the comparison tool for Municflex vs original tariff.
Click here for the comparison tool for Municrate vs original tariff.
 
 
 
5.    CONTRACTING IMPLICATIONS
Existing contracts will not be amended, as Eskom’s schedule of standard prices (referenced in all contracts) shall include the cessation of the tariffs that fall away as a NERSA-approved amendment.
All customers initially moved to the proposed tariffs shall be regarded to have been moved to the successor tariff as per Eskom’s schedule of standard prices. The move is NOT a tariff conversion.
Notices shall be completed for all customers allocated to the proposed tariffs, and new customer agreements shall reference the new tariffs.
 
6.    CONCLUSION
Municipalities are encouraged to support the changes proposed by submitting such support to NERSA. The proposed implementation date is 1 July 2019, subject to NERSA approval, and may be subject to Eskom’s proposed tariff restructuring plan for 2019/20, still to be submitted to NERSA.
The proposed municipal tariff rationalisation was done comparing like for like, that is, based on existing tariffs, and not through a new total tariff restructuring and cost of supply study, which would have an impact on all tariffs, not just municipal tariffs.
In 2018, Eskom will be submitting tariff changes to NERSA based on an updated cost-of-supply study, which will affect all Eskom tariffs. The purpose of the study will be to align the energy, network, and retail charges with the energy, network, and retail costs. In this exercise, Eskom will update the TOU ratios and periods.
The proposed rationalisation will result in a revenue shortfall for Eskom, mainly due to the removal of the rural tariffs, which will require an upward price adjustment to all tariffs to ensure revenue neutrality. Eskom does not propose that this will be addressed in the RCA, but rather through the Eskom annual price increase adjustment (called ERTSA by NERSA).
No volume response has been built into the modelling, as this is not known and can only be substantiated after the fact. Volume variance will, therefore, be dealt with on actual numbers in compliance with the MYPD rules.
Also find here the presentation on the Eskom submission.