1. www.salga.org.za Portfolio Committee on Energy Update on the 2013/14 NERSA determinations on Municipal Tariffs 30 July 2013

2. www.salga.org.za Presentation Content 1.SALGA Response to NERSA’s 2013/14 Municipal Tariffs Determination 2.Outcomes and Implications of the 2013/14 Municipal Tariffs Determination 3.The Effect of the 2013/14 Municipal Tariffs Determination on Municipalities in terms of Budgeted Income. 4.Challenges & Action Plan

3. www.salga.org.za SALGA RESPONSE TO NERSA’S 2013/14 MUNICPAL TARIFFS DETERMINATION

4. www.salga.org.za SALGA Response to NERSA’s Municipal Tariff Guideline, Benchmarks and Proposed Timelines for Municipal Tariff Approval Process for the 2013/14 Financial Year  NERSA Process –NERSA’s National Municipal Tariff Guideline, Benchmarks and Proposed Timelines for Municipal Tariff Approval Process for the 2013/14 Financial Year released on 19 November 2012 does not preclude a distributor from the legal obligation to apply to the Energy Regulator for tariff increases before implementation. –NERSA also reviews the Tariff Benchmarks on an annual basis, and recommends new benchmarks to be used in the evaluation of the municipal tariffs. –Licensees that require increases that are above the guideline are required to present/provide a detailed motivation for the above-guideline increase. 4

5. www.salga.org.za SALGA Response to NERSA’s Municipal Tariff Guideline, Benchmarks and Proposed Timelines for Municipal Tariff Approval Process for the 2013/14 Financial Year  Recommendations: - –NERSA’s review process is supported with regard to municipal tariffs and the development of benchmarks, however variations will exist (different munics will have different funding models, circumstances, etc.). –SALGA acknowledges NERSA’s attempt to cater for the difference between municipalities in case of deviations by way of public presentations. –NERSA should classify municipalities into groups according to their underlying operating circumstances such as the consumer mix and customer numbers (Segmentation should exist between Metros and smaller munics). –There is a need to have comparable tariff policies and structures, these should be for groups of distributors that have comparable underlying circumstances. –NERSA must ensure that all municipalities that house medium to large scale industrial customers must introduce Energy & Demand tariffs that are time and seasonally differentiated.

6. www.salga.org.za SALGA Response to NERSA’s Municipal Tariff Guideline, Benchmarks and Proposed Timelines for Municipal Tariff Approval Process for the 2013/14 Financial Year  Recommendations: - –In prior discussion with NERSA the principled agreement was that the NERSA’s municipal tariff approval process and timelines should be completely aligned to the MFMA prescribed budgetary planning process (SALGA needs to work closer with NERSA to achieve this in- principle agreement). –SALGA also recognized and appreciated the fact that the 2013/14 indicative guideline were not the final approval of the Energy Regulator, given the fact that the determination on Eskom’s MYPD3 application was to be done on 28 February 2013. –The tariff benchmarking process as introduced by NERSA creates a stable platform to regulate municipal finances and tariffs. We encourage an open and on-going relationship with NERSA in this regard to change and optimise the process as and when necessary.

7. www.salga.org.za OUTCOMES AND IMPLICATIONS OF THE 2013/14 MUNICIPAL TARIFFS DETERMINATION

8. www.salga.org.za Outcomes and Implications of the 2013/14 Municipal Tariffs Determination  ESKOM Average Price Increase –SALGA noted with relief that the efforts of many stakeholders, including SALGA, of persuading the National Energy Regulator of South Africa (NERSA) that the electricity price increase of 16% that was requested by ESKOM in its MYPD 3 application was going to be very harmful to the country’s socio-economic development and was avoidable, had paid some dividends. –NERSA at its meeting held on Thursday, 28 February 2013, approved an ESKOM electricity price increase average of 8% per annum for the next five years. –The average electricity price for electricity purchases from ESKOM increased to 65.51c/Kwh in 2013/14 up to 89.13c/kWh in 2018.

9. www.salga.org.za Outcomes and Implications of the 2013/14 Municipal Tariffs Determination (Cont…)  Municipal Electricity Tariff Increase for 2013/14 Financial Year  When NERSA developed the percentage increase guideline for the 2013/14 financial year, the following issues were considered:- –The approved 8% average electricity price increase per annum for ESKOM for the next five years (2013/14 – 2017/18). –The average electricity price increase of 65.51c/Kwh in 2013/14 up to 89.13c/kWh in 2018 for Bulk Electricity Purchases from ESKOM. 9

10. www.salga.org.za Outcomes and Implications of the 2013/14 Municipal Tariffs Determination (Cont…)  Municipal Electricity Tariff increase for 2013/14 Fin. Year (Cont..) –On 04 April 2013, the National Energy Regulator of South Africa (NERSA) approved a 7% guideline increase for municipalities. The guideline increase were based on the following assumptions:-  Bulk Purchases have been increased by 7.3% in line with Eskom’s electricity tariff increase to municipalities;  A Consumer Price Index (CPI) of 5.5%;  Salary and Wage increases of CPI plus 1.25%, as indicated in Circular No.6/2012: Salary and Wage Collective Agreement;  Repairs and Maintenance, Capital Charges and other costs have been increased by the CPI. –SALGA is in general agreement with the methodology and the assumptions used for this determination. 10

11. www.salga.org.za Municipalities that Applied above the 7% Guideline Increase for 2013/14 Fin. Year 11 Name of Municipality Municipal Approved Percentage for Increase for 2013/14 Motivation provided by municipalities for above Guideline Increase 1. Baviaans LM 16% To recover from 3 years below guideline increases that impacted negatively on the financial viability of the municipality 2. Buffalo City Metro10%Capital projects to strengthen the electricity network 3. City of Cape Town 7.86% To service upgrades in the Notified Maximum Demand to Eskom; to continue with the implementation of the apprentice program and funding of street lighting 4. Kwa-Dukuza LM 11% Infrastructural refurbishment 5. Laingsburg LM 14.40% Due to increase on the Ruraflex tariff from Eskom and to assist with the deficit of the municipality 6. City of Matlosana LM35% Refurbishment of infrastructure to improve reliability and availability of supply 7. Matzikama LM12% To assist with the deficit of the municipality 8. Overstrand LM12.4%To assist with the surplus levels of the electricity department 9. Witzenberg LM8%To assist with the surplus levels of the electricity department 10. Umvoti LM8%Infrastructural improvement (fitting tamper proof kiosks)

12. www.salga.org.za Municipalities that Applied above the 7% Guideline Increase for 2013/14 Fin. Year (Cont…) 12 Name of Municipality Municipal Approved Percentage for Increase for 2013/14 Motivation provided by municipalities for above Guideline Increase 11. Blue Crane Route LM8.3% The 1.3% above revenue will be used to implement a strategic metering system on the medium voltage Network(Replace infrastructure) 12. Lekwa Teemane LM10%Tariff Restructuring (to accommodate Eskom’s high season tariffs) 13. Abaqulusi LM18% Infrastructure upgrade and to recover Eskom charges. Revenue losses and electricity theft 14. Endumeni LM13%Electricity theft and revenue losses. 15. Emalahleni LM (MP)13.40% Alignment of tariffs with NERSA benchmarks 16. Msunduzi LM10% Huge maintenance backlog, Network rehabilitation plan. Funding of new metering technologies to deal with electricity theft. 17. Umtshezi LM12%Additional revenue to cover Eskom additional charges and levies 18. City of Umhlathuze LM8.96%Additional revenue to recover Eskom low voltage subsidy charge 19. Stellenbosch LM7.3%Increased Maintenance and Operational Costs

13. www.salga.org.za THE EFFECT ON MUNICIPALITIES IN TERMS OF BUDGETED INCOME FOR 2013/14 FINANCIAL YEAR

14. www.salga.org.za The Effect on Municipalities in Terms of Budgeted Income for 2013/14 Financial Year 14 METRO Projected 2013/14 Electricity Income Based on the Initial 16% Eskom’s MYPD Application Budgeted 2013/14 Electricity Income Based on the NERSA Approved 8% for Eskom’s MYPD Application (Municipal 7%) Difference in Budgeted 2013/14 Electricity Income Based on the NERSA Approved 8% for Eskom’s MYPD Application (Municipal 7%) Average % Difference (Projected v/s Budgeted 2013/14 Electricity Income) R'000 City of Johannesburg13 969 261 13 276 206693 055 4.96 Ekurhuleni11 666 839 11 068 434 598 4065.13 City of Tshwane9 597 732 9 209 536 388 1964.04 Ethekwini10 808 297 10 311 803 496 4944.59 City of Cape Town11 188 63410 585 713602 9215.39 Nelson Mandela Bay3 457 825 3 219 354 238 4716.90 Buffalo City1 175 6141 094 53781 0776.90 Mangaung2 301 363 2 125 684 175 6797.63 TOTAL64 165 56541 369 9283 274 2995.10

15. www.salga.org.za The Effect on Municipalities in Terms of Budgeted Income for 2013/14 Financial Year (Cont…)  The lower tariff increase was welcomed by municipalities as it allowed for more affordable tariff rates to be past on to its end customers.  SALGA would like to place on record their appreciation to key decision makers as they have taken due cognisance of the impacts of the higher than average tariff increases and have limited the burden placed on the citizens/business/industry of the country.  HOWEVER, of concern is the ability of Eskom to operate a sustainable network with the reduced increase. NERSA/Eskom must quantify the direct and indirect consequences to the Eskom business as a result of the reduced increase.  This report must be made available to SALGA/other stakeholders. The associated risks need to be understood. The short term tariff relief could have drastic long term economic effects should it be found that security of supply is compromised. 15

16. www.salga.org.za CHALLENGES & ACTION PLAN

17. www.salga.org.za Challenges  SALGA noted with concern a letter from NERSA dated 06 June 2013 and subsequent press notices in the Sunday papers of 09 June 2013, raising grave concerns about a number of municipalities that had not complied with its Tariff Application processes as stipulated in the Electricity Regulation Act. –In that regard a total of 31 municipalities across 6 provinces were affected by the notice. –SALGA got in touch with NERSA and the affected municipalities; and as of 28 June 2012, all 31 municipalities have submitted all the necessary information to NERSA.  The growing strength of the relationship between SALGA and NERSA was demonstrated with the speedy resolution that resulted in all municipalities applying for 2013/14 tariff increase and submitting the relevant D-Forms 17

18. www.salga.org.za Action Plan  In an effort to assist and support affected non-complying municipalities, SALGA has put in place the following Short-Term (immediate) and Long-Term (incremental) Action Plan:- –Provision of hands on support through the SALGA/AMEU National Electricity Technical Task Team and the CoGTA Municipal Infrastructure Support Agency (MISA) (Short-term); –Engage NERSA on the improvement of its D-Forms questionnaire and ensure that its interaction with licensees be incorporated into its strategy and information sharing/marketing plans for the financial year 2014/15 and beyond (Short-term); –On-going workshops in collaboration with NERSA on the completion of the D- Forms, Tariff modelling and Tariff Increase Application processes (Long- term); –The need to strengthen collaboration between NERSA, SALGA, CoGTA, DoE, National Treasury and AMEU in addressing challenges experienced by municipalities; 18

19. www.salga.org.za Action Plan (Cont…) –Improving coordination between municipal Finance and Electricity departments (Long-term); –Alignment of municipal Finance department’s systems to NERSA’s and National Treasury’s reporting requirements to enable municipalities to extract the required information timeously (Long-term); –Encouraging Metros and other performing secondary cities to partner with and support struggling / smaller municipalities (Long-term); –Partnering with Provincial CoGTA to disseminate relevant information to Municipalities (Long-term); –Dealing with the human resource constraints within municipalities by initiating accredited training in partnership with the Energy and Water Sector Education and Training Authority (EWSETA) and other relevant Electrical Engineering Training institutions (Long-term); 19

20. www.salga.org.za THANK YOU