Municipal Tariff Benchmarks

Report
OVERVIEW ON THE MUNICIPAL GUIDELINE,BENCHMARKS
& PROPOSED TIMELINE FOR THE 2015/16 FINANCIAL YEAR
PRESENTATION TO SALGA, AMEU & NT
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02 DECEMBER 2014
Contents
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Mandate and legal requirements
NERSA’s municipal tariff approval process
Determination of the tariff guideline increase
Requirements for tariffs above guideline
Development of the municipal tariff benchmarks
Stakeholder consultation process
Proposed timelines
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Mandate and legal requirements
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The Electricity Regulation Act
– Section 4 (a) (ii) The Regulator must regulate prices and tariffs
– Section 15 (1) A licence condition determined under section 14 relating to the
setting or approval of prices, charges and tariffs and regulation of revenues –
a) Must enable an efficient licensee to recover the full cost of its
licensed activities, including a reasonable margin or return
– Section 15 (2) A licensee may not charge a customer any other tariff and make
use of provisions in agreement other than that approved by the Regulator as part
of its licensing conditions
– Section 45 (1) (b) For the purposes of this Act, any person authorised thereto in
writing by the Regulator may require any person to furnish to the Regulator such
information, returns or other particulars as may be necessary for the proper
application of this Act
– Section 45 (2) the Regulator may require that the information, return or
particulars furnished under subsection (1) be verified on oath or by way of
solemn declaration
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NERSA’s Municipal tariff approval
process
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Currently municipal tariffs are approved on an annual basis upon application by the
licensees
Licensees apply to NERSA for the approval of their tariffs – this must be supported by
information pertinent to the individual municipality
There are 186 licensed distributors - 174 municipalities and 12 private distributors
The process is dependent on the approved Eskom prices under the Multi-year Price
Determination (MYPD) process
– NERSA approved the Eskom prices/revenues on 27 November 2014
In accordance with the MFMA the municipal tariff application process must be
finalised by 15 March annually , to allow for the municipal budgetary processes and
public consultations
Approved tariffs are communicated to the municipalities and are published on the
NERSA website
SALGA and other stakeholders to encourage municipalities to apply on time for the
2015/16 financial year tariff review in order to meet the 15 March deadline
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Municipal Tariff Guideline
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Determination of the tariff guideline
• When determining the guideline percentage increase the
following issues were considered:
– The information from the 2012/13 distribution forms
was used to determine the changes of the cost
structures.
– The selection of the D-forms was based on the
availability of the required data used in the model for
the revision of the municipal cost structure weights.
– A stratified random sampling of municipalities was
used to determine the weights of the cost structures.
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Determination of the tariff guideline cont….
• The table below represents the revised weights of the cost drivers
used in determining the electricity costs of supply:
Cost Category
% of total costs
Energy Purchases
73
Salaries & wages
10
Repairs & Maintenance
6
Capital Charges
4
Other costs
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Determination of the tariff guideline
cont….
• Assumptions made on the weighted average cost
increases:
– Bulk purchase based on Eskom’s approved price
increase of 14.24% to municipalities
– CPI ( As indicated in the Medium Term Budget Policy
Statement 2014)
– Salary & Wages (As indicated in Circular No. 6/2012:
Salary and Wage Collective Agreements indicated in
the wage settlement agreement)
– Repairs and maintenance, capital charges and other
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costs have been increased by CPI
Determination of the guideline cont.
–The formula used for calculating the guideline
MG = (B x BPI) + (S x SI) + (R x RI) + (C x CCI) +
(OC x OCI)
Where:
– MG = Municipal guideline increase
– B & BPI = Municipal bulk purchases and its increase
– S & SI = salaries & salary increase
– R & RI = repairs & maintenance and its increases
– C & CCI = capital charges & its increases
– OC & OCI = other costs and its increases
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Requirements for tariffs above the
guideline increase
• Municipalities applying for an increase that is above the guideline
have to justify their increases to the Energy Regulator and the
following actions would be expected:
– a detailed plan on the additional funds requested needs to be
presented to NERSA as part of the motivation for above
guideline increase.
– the approved funds must be ring-fenced to ensure that it is
strictly utilised for the identified projects;
– municipalities must report to NERSA on a six-monthly basis on
how the additional funds are utilised;
– funds not utilised for the purpose for which they were approved
for will be clawed back in the following financial year.
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Municipal Tariff Benchmarks
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Municipal Tariff Benchmarks - Purpose
• NERSA develops benchmarks in order for municipalities
to charge reasonable prices
• The benchmark levels are developed in order to ensure
that tariffs across municipalities are not vastly different
• This assists in the rationalisation of prices
• Eskom’s tariffs were considered in developing the
benchmarks and a mark-up added where necessary
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The municipal tariffs and customer
categories
For the purpose of benchmarking NERSA considers the following customer and
tariff classes:
• Domestic Tariffs ( with IBT & without IBT)
– Domestic Low : low residential consumption users
– Domestic High : high residential consumption users
• Commercial Tariffs
– Prepaid: business customers that are connected on single and three phase
– Conventional : business customers that are connected on conventional phase
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Industrial Tariffs
– Based on Eskom’s Nightsave
– Based on Eskom’s Megaflex
– Time of Use ( TOU)
• Agriculture
– Prepaid : customers with single phase metered supplies
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– Conventional: customers with dual or three phase metered supplies
The municipal assumed consumption
levels
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The review of the municipal tariff
applications
– Municipal tariffs are approved on an annual basis
– On reviewing tariff applications, NERSA considers
• The current municipal tariff levels
• The tariffs in comparison to NERSA approved benchmarks
• The efficiency of municipal operations (technical and
financial). All this information is from the municipal dforms
• The proposed municipal tariff structures and the level of
cross-subsidisation
• Any assistance that may be necessary to be provided to the
municipalities
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NERSA’s financial benchmarks
• Municipalities are currently regulated using the following predefined financial and technical benchmarks
• These ratios/benchmarks give a view on the overall performance of the municipality
• They also allow one to determine the efficiency within which the applicant is performing
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Revised and New benchmarks
• The 2014/15 average tariffs were increased by the
municipal tariff guideline increase
• NERSA has developed new benchmarks for the threephase commercial tariffs, holiday homes, churches,
schools, halls, clinics, old age homes and similar
supplies.
• A formula together with Eskom’s respective rates were
used to determine the average consumptions and
benchmark levels.
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Revised and New benchmarks Cont.
• The formula used for calculating the average consumption
levels:
AC= (LF*A*V/1000*1.732*24*30.34)
Where:
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AC = Average Consumption
LF = Load Factor
A = Ampere
V = Volt
1.732= Square root of 3
24 = Hours in a day
30.34 = Number of days in a month
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Stakeholder consultation process
• The determination is done in consultation with the
following stakeholders:
– A meeting was held with National Treasury
– Publication of the consultation paper for stakeholder
comments
– Workshops with AMEU , SALGA & National Treasury
– Consideration of stakeholder comments
– Energy Regulator approves the guideline,
benchmarks and proposed timelines
– Decision communicated to all stakeholders
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Proposed Timelines
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Timelines for municipal tariff Guideline &
Benchmark
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Timelines for municipal tariff approval process
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Timelines for municipal tariff
approval process cont.
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Questions
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Thank You
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