Presentation on theme: "OVERVIEW ON THE MUNICIPAL GUIDELINE,BENCHMARKS"— Presentation transcript:
1 OVERVIEW ON THE MUNICIPAL GUIDELINE,BENCHMARKS & PROPOSED TIMELINE FOR THE 2015/16 FINANCIAL YEARPRESENTATION TO SALGA, AMEU & NT02 DECEMBER 2014
2 Contents Mandate and legal requirements NERSA’s municipal tariff approval processDetermination of the tariff guideline increaseRequirements for tariffs above guidelineDevelopment of the municipal tariff benchmarksStakeholder consultation processProposed timelines
3 Mandate and legal requirements The Electricity Regulation ActSection 4 (a) (ii) The Regulator must regulate prices and tariffsSection 15 (1) A licence condition determined under section 14 relating to the setting or approval of prices, charges and tariffs and regulation of revenues –Must enable an efficient licensee to recover the full cost of its licensed activities, including a reasonable margin or returnSection 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 conditionsSection 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 ActSection 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
4 NERSA’s Municipal tariff approval process Currently municipal tariffs are approved on an annual basis upon application by the licenseesLicensees apply to NERSA for the approval of their tariffs – this must be supported by information pertinent to the individual municipalityThere are 186 licensed distributors municipalities and 12 private distributorsThe process is dependent on the approved Eskom prices under the Multi-year Price Determination (MYPD) processNERSA approved the Eskom prices/revenues on 27 November 2014In 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 consultationsApproved tariffs are communicated to the municipalities and are published on the NERSA websiteSALGA 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
6 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.
7 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 costsEnergy Purchases73Salaries & wages10Repairs & Maintenance6Capital Charges4Other costs7
8 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 municipalitiesCPI ( 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 costs have been increased by CPI
9 Determination of the guideline cont. The formula used for calculating the guidelineMG = (B x BPI) + (S x SI) + (R x RI) + (C x CCI) + (OC x OCI)Where:MG = Municipal guideline increaseB & BPI = Municipal bulk purchases and its increaseS & SI = salaries & salary increaseR & RI = repairs & maintenance and its increasesC & CCI = capital charges & its increasesOC & OCI = other costs and its increases;
10 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.
12 Municipal Tariff Benchmarks - Purpose NERSA develops benchmarks in order for municipalities to charge reasonable pricesThe benchmark levels are developed in order to ensure that tariffs across municipalities are not vastly differentThis assists in the rationalisation of pricesEskom’s tariffs were considered in developing the benchmarks and a mark-up added where necessary
13 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 usersDomestic High : high residential consumption usersCommercial TariffsPrepaid: business customers that are connected on single and three phaseConventional : business customers that are connected on conventional phaseIndustrial TariffsBased on Eskom’s NightsaveBased on Eskom’s MegaflexTime of Use ( TOU)AgriculturePrepaid : customers with single phase metered suppliesConventional: customers with dual or three phase metered supplies
15 The review of the municipal tariff applications Municipal tariffs are approved on an annual basisOn reviewing tariff applications, NERSA considersThe current municipal tariff levelsThe tariffs in comparison to NERSA approved benchmarksThe efficiency of municipal operations (technical and financial). All this information is from the municipal d-formsThe proposed municipal tariff structures and the level of cross-subsidisationAny assistance that may be necessary to be provided to the municipalities
16 NERSA’s financial benchmarks Municipalities are currently regulated using the following predefined financial and technical benchmarksThese ratios/benchmarks give a view on the overall performance of the municipalityThey also allow one to determine the efficiency within which the applicant is performing
17 Revised and New benchmarks The 2014/15 average tariffs were increased by the municipal tariff guideline increaseNERSA has developed new benchmarks for the three-phase 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.
18 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:AC = Average ConsumptionLF = Load FactorA = AmpereV = Volt1.732= Square root of 324 = Hours in a day30.34 = Number of days in a month
19 Stakeholder consultation process The determination is done in consultation with the following stakeholders:A meeting was held with National TreasuryPublication of the consultation paper for stakeholder commentsWorkshops with AMEU , SALGA & National TreasuryConsideration of stakeholder commentsEnergy Regulator approves the guideline, benchmarks and proposed timelinesDecision communicated to all stakeholders