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NERSA Public Hearing Municipal Tariff Guideline, Benchmarks and Timelines - 2011/12

NERSA Public Hearing Municipal Tariff Guideline, Benchmarks and Timelines - 2011/12. Peter Fowles 7 October 2010. Contents. General Stakeholder comments #1 to #11. General.

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NERSA Public Hearing Municipal Tariff Guideline, Benchmarks and Timelines - 2011/12

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  1. NERSA Public HearingMunicipal Tariff Guideline,Benchmarks and Timelines - 2011/12 Peter Fowles 7 October 2010

  2. Contents • General • Stakeholder comments #1 to #11

  3. General • Conflicting interpretations of legislation covering legal competence to regulate municipal electricity tariffs - SALGA opinion • Initiative from NERSA to assist municipalities in meeting budget deadlines is appreciated • NERSA officials met with AMEU representatives on 21 September 2010 • Sufficient interaction with municipalities? • NERSA media statement – 24 February 2010

  4. Comment #1: Approach in determining guideline • Cost structure analysis based on sample of 60 municipalities to arrive at weighting • Results inaccurate and misleading • Significant variation due to size of municipalities • Recommend range of weights based on grouping • Eskom increase of 25.8% to result in municipal bulk tariff increase of 26.71%? • Actual cost increase not always at average level • Remove claw back mechanism

  5. Comment #2: Analysis of other costs • Benchmark level reduced from 11% to 8% to rectify a situation? • No breakdown of these costs • Services by other municipal functions –financial, meter reading, billing, legal, admin etc • Contributions to capital development • Contribution to rates (surplus?) - %age of revenue • Can NERSA regulate municipal surpluses? • Unlikely that reduction can be achieved

  6. Comment #3: Arrear (bad)debt • Assumed bad (arrear) debt at 0.5% of total revenue of municipality? • Based on Eskom’s approved arrear debt in MYPD2 • Level differs significantly among municipalities • Beyond control of distributors as decision of financial and political components • Electricity arrear debt of the order of 1% to 10%

  7. Comment #4: Cross-subsidisation • There already exists a significant level of cross-subsidisation in many tariffs • Paper quotes the range of cross-subsidisation ratios for `suitable customer base/mix’? • NERSA moving away from principle of cost reflectivity in EPP • Should NERSA be involved with socio-economic engineering • IBT – subsidising customers that do not need

  8. Comment #5: Other Issues • Cash flow – Eskom seasonal rates and differences in billing and payment policies • Theft/vandalism of cables, conductors, equipment • Pressures to introduce EEDSM initiatives – capital cost and reduction in kWh sales

  9. Comment #6: Are ranges appropriate? • Ranges quoted are for purchases, surplus, losses, cross-subsidisation ratios • Nothing for salaries, R&M, capital charges, other? • Presumably these ranges affect the benchmark limits • Not clear how if this is achieved • Suggest that these ranges may not apply to all municipalities – again suggest grouping

  10. Comment #7: Is financial analysis appropriate to determine efficiency? • What financial analysis and what is “efficiency of the municipality”? • Are “surplus percentage” or “system losses” indicators of municipal (electricity) efficiency? • Have cost of supply studies been carried out to justify cross subsidisation ratios and are these ratios used in assessing municipal applications? • What is the `appropriate customer base/mix’ to justify the ratios?

  11. Comment #8: Is approach to determine benchmarks appropriate? • No – approach is not appropriate • Uses unconfirmed bulk increase with debatable expense weightings to arrive at benchmarks for assumed group of customers • No apparent attempt to consider financial viability of distributors • 20.74% average will result in much higher increases for some customers to subsidise ±8% for IBT • Has impact of IBT been considered in proposals?

  12. Comment #9: Is benchmarking to assumed consumption per customer class appropriate? • Theoretically - Yes • Provided that these factors are reflective of the customer bases in municipalities • Emphasis would appear to be on IBT customers • Significant number of munics applied for different tariff increases in 2010 that were approved by NERSA – are benchmarks appropriate?

  13. Comment #10: Is benchmarking according to RED areas appropriate? • Understand objective to harmonise tariffs • EDI restructuring process has stalled and future uncertain • Municipalities within RED areas have different cost structures • Differences in benchmarks is minimal and not appropriate

  14. Comment #11: Timelines to assist with budget process • Appreciation for efforts to assist • Approved tariff guidelines by November is essential • Ideally, munics to submit initial applications and receive NERSA decision before end of March 2011 • Resubmissions and public hearings during April with final decisions by May 2011

  15. Thank youQUESTIONS?

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