Tariffs and charges

ESKOM annual price increase and tariff rates 2012/13

NERSA approved the Eskom annual average price increase of 16% and tariff rates for 2012/13 on 9 March 2013 (attached is the decision).

It is to be noted that there are different price increases mentioned that provide different information:

a)      The annual average increase is the increase taking into account the revenue from the tariff rates plus the environmental levy charge for all tariffs combined.  This was given as 16%.  This increase includes the impact of the environmental levy charge - it is not the increase applied to the tariffs rates.

b)      The annual average increase per tariff category is the increase applicable to each tariff category, including volume variance, the environmental levy and adjustments such as for subsidies or the MFMA (see table below).  This constitutes the total annual (1 April 2012 – 31 March 2013) financial impact on the customers’ bills and is also not the increase applied to the tariffs rates.

c)       The tariff rates increase is the increase applied to the tariff rates, excluding the impact of the environmental levy charge (see table below).  The tariff rates in last year’s Tariff Book will therefore increase at this rate and not at the average increase.  The increase after taking into account the environmental levy charge revenue and the tariff rate revenue will be the annual average increase per tariff category.

The increases approved are as follows:

Note the following:

a)      The increase to be applied to the tariff rates is based on the revenue to be recovered through the tariff rates, after excluding the environmental levy charge revenue.  The tariff rates % increase is different from the average increase as the environmental levy charge does not increase at the same rate or at the same time as the average increase.

b)      The increases to the urban non-local authority tariffs is higher than the average due to these tariffs’ contribution to subsidies.

c)       The increase to residential tariffs is lower than the average due to the introduction by NERSA of the inclining block tariff starting in 2010 - providing subsidies to the residential tariffs to protect the poor.

d)      For the local authority increase please note the following:

i.  The annual average increase 1 April 2012 to 31 March 2013 is 16.09% taking into account first 3 months at the prevailing tariff rates and 9 months at the 13.5% increase.

ii. NERSA, in their media briefing, gave the annual average increase as 13.5%.  However this is not the annual average increase (1 April 2012 – 31 March 2012), the annual average as stated is 16.09%

iii. The 13.5% refers to the average increase applicable from 1 July 2012 including the environmental levy charge. 13.5% is therefore the average increase, including the environmental levy charge that will be applicable to the local authority tariffs  from 1 July 2012.

iv. The reason why the effective munic increase is lower than 16% this year is because of the MFMA timing and volume variance.  In years of high price increases, it means that we have more to catch up in the last 9 months and therefore the increase to the munic  tariffs is usually higher.  However, this year we are going from a high increase year to a lower increase.  The munic tariffs are based on 3 months of lower and 9 months of higher tariff rates.  The 9 months’ tariffs however extend into the first 3 months of the next year.  Last year the increase applied to the munic tariffs was more than the average.  This means for the first 3 months the tariff rates were higher than they should have been.  We take the revenue from the prevailing tariffs  and the volume growth into account when calculating the increase for the last 9 months.  For this year this means a lower increase was needed for the last 9 months than the average in order to get to a 16% average annual increase for the Eskom financial year .

v. The increase applicable to the tariff rates, excluding the environmental levy charge from 1 July 2012 is 10.98%. 

2.      The environmental levy and its impact on the tariff rates and annual increase

The Minister of Finance, recently in his Budget Speech, announced an increase in the environmental levy (tax payable by non-renewable generators) from 2.5 c/kWh to 3.5c/kWh from 1 July 2012.  This increase was not intended to increase electricity tariffs or impact the annual average tariff increase (16%) as the mechanism to recover this cost was already included in NERSA’s approved revenue requirement.  However, the increase in the environmental levy did impact the increases to the tariff rates. The reason for that is that in addition to the tariff rates, there is a charge called the environmental levy charge which contributes towards the cost of the environmental levy tax.  This charge does not increase at the same rate as the other tariff charges.

Except for the residential tariffs, one set of rates was calculated per tariff assuming revenue from an environmental levy charge of 2 c/kWh from 1 April 2012 to 30 June 2012 and 3.5 c/kWh from 1 July 2012.   This means that two environmental levy charges will be applicable for 2012/13, with the tariff rates calculated accordingly.   From 1 July 2012, the amount paid for energy will increase by 1.5 c/kWh to 3.5 c/kWh due to the increase in the environmental levy charge.  It is stressed that even with the increase of the environmental levy charge in July, the annual average increase per tariff category will remain the increases given in the table above.

For residential tariffs, the IBT rates including the environmental levy charge will be the same throughout the year.

3.      Residential tariffs

Homelight and Homepower tariffs from 1 April 2012 (excl VAT)