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City of Cape Town Submission on EDIR

City of Cape Town Submission on EDIR. Challenges, Successes and Proposals 27/07/2012. Content. Background Challenges, Successes (Cape Town) Alternate models Proposals. 1. 2. 4. 3. 7. 8. 5. 10. 6. 11. 12. 9. 15. 14. 16. 13. 17. 18. 19. 20. 23. 26. 22. 25. 27. 28.

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City of Cape Town Submission on EDIR

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  1. City of Cape TownSubmission on EDIR Challenges, Successes and Proposals 27/07/2012

  2. Content • Background • Challenges, Successes (Cape Town) • Alternate models • Proposals

  3. 1 2 4 3 7 8 5 10 6 11 12 9 15 14 16 13 17 18 19 20 23 26 22 25 27 28 24 54 29 35 55 31 33 32 34 30 36 56 41 42 37 40 38 M 39 48 43 47 49 50 44 45 46 52 53 51 1. Background

  4. 2. Challenges, Successes Challenges EDIR was to address • Electricity tariffs • Ageing networks and capital requirements • Ageing skilled workforce • Importance/impact on Local Government finances • Legislative environment

  5. 2.1 Electricity tariffs • Rand difference in bills between equivalent CT and Eskom consumers in CT metro becoming significant • Increasingly serious developmental and societal impacts

  6. 2.1 Electricity tariffs • Increasing IBT cross subsidies are unsustainable • Ability to cross subsidize within the tariff is limited by customer base. • National re-look at level, targeting and source of subsidy within IBT • New alternative technologies undermine ability to cross subsidize • Impact of IBT on resellers leading to pressure on municipalities to take over responsibility for metering end users in, for example, sectional title schemes

  7. 2.1 Customer Mix and Subsidies Within the tariff Eskom can subsidize residential customers with a relatively small impact on Commercial and Industrial customers. For every R1/kWh of subsidy given to Eskom residential customers, C&I customers need to contribute 4.93c/kWh For the City, this figure is 67.2c/kWh

  8. 2.1 Bulk Subsidy & Surcharge • Cross-subsidy in the municipal bulk tariff (to other Eskom customers) • Removal of this cross subsidy in review of municipal tariffs • Eskom’s CT customers don’t pay for street-lighting • Eskom’s CT customers don’t contribute to City for other services (municipal surcharge) • These services are beneficial to EDI and customers – roads, traffic services, fire & emergency services • Municipal Surcharge be introduced for Eskom customers • All CT metro customers supplied directly by same distributor

  9. 2.1 Comparative impact of 10% surcharge on Eskom’s CT customers

  10. 2.1 Comparative impact of 10% surcharge on Eskom’s CT customers

  11. 2.2 Ageing networks and capital requirements • National Infrastructure backlog • (R27bn+R2.5bn pa EDIH 2008) • Valuation of assets • Implementation of Enterprise Asset Management (EAM) on SAP Plant Maintenance Module • R100m pa MV switchgear programme • On-going ability to raise and recover capital through ring-fenced Electricity Services and tariffs • Capex requirements determined through EAM

  12. 2.2 Ageing networks and capital requirements Infrastructure investment Capital requirements for electrification not covered by grant funding

  13. 2.3 Ageing skilled workforce • Average age • 84 Engineers – average age 49.92 • 146 Technicians – average age 40.5 • 316 Artisans – average age 40.19 • Apprenticeship program • Technician internships • ECSA EIT accreditation • Comparative inability of municipalities to compete successfully for scarce skills

  14. 2.4 Importance/impact on Local Government finances • Importance of electricity cash-flows • Importance of asset base for raising capital • Importance for credit rating • Importance for collection ratios: prepaid & 98% • Importance of debt management for other municipal debt • Importance of 10% “surcharge” • 25 deal breaker issues - EDIR

  15. 2.5 Legislative environment • Electricity reticulation is an exclusive Local Government power and function (Constitution of SA) • Tariff approval (Nersa vs Council) • Approval timeframes • Eskom has not signed SDA with municipalities • RRM vs NT chart of accounts

  16. 3. Alternate EDIR models • Note National Planning Commission model • In current form, Eskom and most metros have best chance for sustainability • Can smaller munic’s be allowed to fail? • Should electricity distribution be excised from all munics except metros? • Should there be consolidation within metro’s? • What about Energy Intensive Users • Constitution of SA

  17. 4. Proposals on Way Forward • National re-look at level, targeting and source of subsidy • NT, DoE, SALGA, NERSA • Removal of Eskom cross subsidy in review of Eskom bulk tariffs for municipalities • NERSA • Municipal Surcharge be introduced for Eskom customers • DPE to compel ESKOM to enter into SDAs with municipalities • NT to introduce norms as per S8.1 of MFPFA. • Consider municipal take over of Eskom distribution in metros. • Capex requirements determined through EAM

  18. Thank you

  19. 2.6 Losses & vandalism • Energy used in distributing electricity to end users (technical losses) should be compensated for in tariffs • Non technical losses – estimations, metering faults, electricity theft • Revenue Protection • Vandalism and infrastructure theft • Cost of replacement and un-served electricity • Copperheads (metro police)

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