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					COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________

AMENDMENT OF TARIFF OF CHARGES
FOR ELECTRICITY SERVICES


1.   STRATEGIC THRUST
     Service Delivery Excellence and Good Governance

2.   OBJECTIVE

     To propose electricity tariffs for approval and adoption by the City of
     Johannesburg for the 2005/2006 financial year for the City Power Johannesburg
     Pty Ltd areas of supply.

3.   SUMMARY

     A Tariff Plan in respect of the tariffs and pricing was presented to the Executive
     Committee of City Power for consideration. The National Electricity Regulator
     (NER) approved price increase for Eskom effective from January this year is 4,
     1% with an additional structural increase of 3, 39% also impacting on our cost of
     purchases. The six months lag between Eskom and City Power dates of
     implementation has an impact of 4, 1 % on City Power. City Power’s energy
     purchases make up approximately 65% of its total costs.

     Challenges:

            A) Non recovery of Eskom price increase from January 2005 which is
               7.5% compared to the budgeted 5%
            B) 4, 1% increase on energy to Eskom as approved by the NER
            C) 3, 39% structural increase to Eskom as approved by the NER
            D) 6 % increase budgeted for Eskom from January 2006
            E) Need to fund increase of capital expenditure on the network
            F) Total cost increase of approximately 10%

     City Power in consultation with the City of Johannesburg has previously
     submitted tariff documentation to the NER supporting an average cost recovery
     Tariff increase of 10%. Communication as to the actual NER approved tariff is
     expected in April.

     The amended Tariff structure proposal is submitted in compliance with a City of
     Johannesburg request for documentation supporting the average Tariff increase
     of 6.2% untilised in the financial budget indicatives for 2005/2006..This may not
     be in line with the actual NER approval.




1
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________

     TARIFF DETERMINATION GUIDELINES

     In terms of the guiding principle on tariffs, City Power tariffs comply with the
     following principles:
          1. Social
             The domestic customers will be offered free allocation of 50 kWh per
             month electricity. This is in line with the objective of striving for the social
             development of the region.

        2. Economic
           The large and industrial customers will benefit from the new tariffs by not
           realizing an increase in their demand charges, instead, they will realise a
           decrease. This will enhance growth in their production and stimulate
           economic development of the region.

         3. Financial
     City Power tariffs address the issue of cost reflectivity and efficiency
     improvements. The subsidy on the free allocation of electricity, is transparent and
     does not burden any electricity customer category.


4.   POLICY IMPLEMENTATION

     City Power tariffs principles are in line with the City of Johannesburg’s policies of
     addressing social, economical and financial imperatives.

5.   LEGAL AND CONSTITUTIONAL IMPLICATIONS


     This report has been finalised in conjunction with Legal Services to ensure
     compliance with all relevant Legislation. It must, nonetheless, be pointed out that
     in terms of Section 28 (6) of the Local Government: Municipal Finance
     Management Act, 2003 (Act 56 of 2003) the new tariffs as proposed, once
     determined in respect of the 2005/2006 Financial Year, may not be further
     increased during the said financial year, except when required in terms of a
     financial recovery plan as contemplated in the Act. For that reason it is of the
     utmost importance to ensure that the proposed increases comply with the
     budgeted needs of the Council in respect of 2005/2006 Financial year.

     It should be noted that any increases approved by Council, are subject to final
     approval by the National Electricity Regulator (NER)




2
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________

6.   FINANCIAL IMPLICATIONS

     Historically domestic customers of City Power were cross-subsidized by
     commercial customers. Domestic tariffs are significantly lower and industrial
     tariffs significantly higher than that of Eskom in the same areas of supply.

     The financial impact on domestic customers is that they will realize a shift
     towards more cost reflective tariffs resulting in higher rates phased in over a
     period.

     Please refer to Annexure A for proposed tariff increase per category


7.   COMMUNICATIONS IMPLICATIONS

     Rationalized tariffs throughout the City Power area of supply will render
     customers tariffs geared towards cost reflectivity, as required by the NER.
     The relevant information regarding the amended tariffs will be communicated to
     all role players in the manner prescribed by law.

8.   OTHER BODIES /DEPARTMENTS CONSULTED

     The bodies that have been consulted prior to the final proposal to the Mayoral
     Committee for consideration are:
        1. City Power Executive Committee
        2. Pricing and Regulatory and Customer Service Sub-committee of City
           Power Board.
        3. Contracts Management Unit of the CoJ
        4. The National Electricity Regulator (NER)
        5. Legal Services


     ITS RECOMMENDATIONS

1.    That, in terms of Sections 11(3)(i) and 75A(1) and (2) of the Local
      Government: Municipal Systems Act, 2000 (Act 32 of 2000) as amended,
      read with Sections 10G(7)(a)(ii) and (b) (ii) of the Local Government
      Transition Act, 1993 (Act 209 of 1993) as amended, the City of
      Johannesburg amends its Tariff of Charges for Electricity Services as set
      out in Annexure A with effect from 1 July 2005, subject to the approval by
      the National Electricity Regulator of the amended tariffs.

2    That in terms of Sections 21, 21A(1) and 75(3)(a), (b) and(c) of the Local
     Government: Municipal Systems Act, 2000 (Act 32 of 2000) as amended,
     read with Section 10G(7)(c) of the Local Government Transition Act, 1993


3
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________

          (Act 209 of 2003) and Sections 22(a)(i) and (ii) of the Local Government:
          Municipal Finance Management Act, 2003 (Act 56 of 2003) as amended, the
          City of Johannesburg:

    (1)      displays a copy of the resolution and notice in the manner prescribed;


    (2)      seeks to covey to the local community by means of radio broadcast
             covering the area of the City, the information contemplated in Section
             75A(3)(c) of the Local Government: Municipal Systems Act, 2000 (Act 32
             of 2000) as amended; and
    (3)      publishes the notice in the manner prescribed and invites the local
             community to submit written comments or representations in respect of
             the amended tariff of Charges


3         That, if no objections are received, the amended Tariff of Charges be
          published in the Provincial Gazette and be effective from 1 July 2005.

4         That a copy of the notice referred to in Paragraph 2 (3) above be sent
          forthwith to the MEC for Local Government in terms of Section 75 A (4) of
          the Local Government: Municipal Systems Act, 2000 (Act 32 of 2000) as
          amended, read with Section 10G (7) (e) of the Local Government Transition
          Act, 1993 (Act 209 of 1993) as amended.
5         That a copy of the finally approved amended Tariff of Charges be sent
          forthwith to the National and Provincial Treasury in terms of Section 24(3)
          of the Local Government: Municipal Finance Management Act, 2003 (Act 56
          of 2003).

6         That the City of Johannesburg supports the submission by City Power on
          the proposed tariff increases to the National Electricity Regulator.




4
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________


       “ANNEXURE A”

CITY OF JOHANNESBURG

AMENDMENT OF TARIFF OF CHARGES FOR ELECTRICITY SERVICES

In terms of Section 10G(7)(e) of the Local Government Transition Act, 1993
(Act 209 of 1993) as amended, it is hereby notified that the City of
Johannesburg has, in terms of Sections 11(3)(i) and 75A(1) and (2) of the
Local Government: Municipal Systems Act, 2000 (Act 32 of 2000) as
amended, read with Sections 10G(7)(a)(ii) and (b)(ii) of the Local
Government Transition Act, 1993 (Act 209 of 1993) as amended, amended
its Tariff of Charges for Electricity Services with effect from 1 July 2005.

The following tariffs will be effective from 1 July 2005:
Existing tariff:

    Description                                     High Season   Low Season
    Agricultural - Basic Charge (R/m)                 98.52         98.52
    Agricultural - Energy (c/kWh)                     47.23         26.28
    Domestic Life-line - Energy (c/kWh)               38.05         38.05
    Domestic single phase - Basic Charge (R/m)        67.76         67.76
    Domestic single phase - Energy (c/kWh)            27.23         27.23
    Domestic three phase - Basic Charge (R/m)         86.52         86.52
    Domestic three phase - Energy (c/kWh)             27.23         27.23
    Domestic single phase - Basic Charge (R/m)        67.76         67.76
    Domestic single phase - Energy (c/kWh)            34.99         23.25
    Domestic three phase - Basic Charge (R/m)         86.52         86.52
    Domestic three phase - Energy (c/kWh)             34.99         23.25
    Business - Basic Charge (R/m)                     86.16         86.16
    Business - Energy (c/kWh)                         47.23         31.37
    kVA LPU - Low Voltage - Basic Charge (R/m)        306.64        306.64
    kVA LPU Low Voltage - Energy (c/kWh)              19.49         12.95
    kVA LPU Low Voltage - Demand Charge (R/kVA)       51.44         51.44
    kVA LPU - Medium Voltage - Basic Charge (R/m)     613.27        613.27
    kVA LPU - Medium Voltage - Energy (c/kWh)         18.18         12.08
    kVA LPU - Medium Voltage - Demand Charge
    (R/kVA)                                           48.00         48.00
    kW LPU - Low Voltage - Basic Charge (R/m)         306.64        306.64
    kW LPU - Low Voltage - Energy (c/kWh)             20.87         13.86
    kW LPU - Low Voltage - Demand Charge (R/kW)       62.06         62.06
    kW LPU - Medium Voltage - Basic Charge (R/m)      613.27        613.27
    kW LPU - Medium Voltage - Energy (c/kWh)          19.47         12.93
    kW LPU - Medium Voltage - Demand Charge
    (R/kW)                                             57.91        57.91



Proposed tariff




5
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________
                                                                                 Low
                                                                 High Season
                                             Description                       Season
    Agricultural - Basic Charge (R/m)                               104.63     104.63
    Agricultural - Energy (c/kWh)                                   50.16       27.91
    Domestic Life-line - Energy (c/kWh)                             40.41      40.41
    Domestic single phase - Basic Charge (R/m)                      71.96      71.96
    Domestic single phase - Energy (c/kWh)                          28.92      28.92
    Domestic three phase - Basic Charge (R/m)                       91.88      91.88
    Domestic three phase - Energy (c/kWh)                           28.92      28.92
    Domestic single phase - Basic Charge (R/m)                      71.96      71.96
    Domestic single phase - Energy (c/kWh)                          37.16      24.69
    Domestic three phase - Basic Charge (R/m)                       91.88      91.88
    Domestic three phase - Energy (c/kWh)                           37.16      24.69
    Business - Basic Charge (R/m)                                   91.50      91.50
    Business - Energy (c/kWh)                                       50.16      33.31
    kVA LPU Low Voltage - Basic Charge (R/m)                        325.65     325.65
    kVA LPU Low Voltage - Energy (c/kWh)                            20.70      13.75
    kVA LPU Low Voltage - Demand Charge (R/kVA)                     54.63      54.63
    kVA LPU Medium Voltage - Basic Charge (R/m)                     651.29     651.29
    kVA LPU Medium Voltage - Energy (c/kWh)                         19.31      12.83
    kVA LPU Medium Voltage - Demand Charge (R/kVA)                  50.98      50.98
    kW LPU - Low Voltage - Basic Charge (R/m)                       325.65     325.65
    kW LPU Low Voltage - Energy (c/kWh)                             22.16      14.72
    kW LPU Low Voltage - Demand Charge (R/kW)                       65.91      65.91
    kW LPU - Medium Voltage - Basic Charge
    (R/m)                                                           651.29     651.29
    kW LPU - Medium Voltage - Energy (c/kWh)                        20.68      13.73
    kW LPU - Medium Voltage - Demand Charge (R/kW)                  61.50      61.50


        A) Domestic Tariffs

The Tariff is applicable to existing as well as new customers in the City Power area of supply.
These tariffs are applicable for the following supplies: private households, flats, boarding houses
and hostels, charity residences and caravan parks. Domestic customers have a choice of three
tariffs. Customers not exercising a particular choice will by default be on the life-line tariff. All
domestic tariffs are assumed to have Ripple Control facility built in (Domestic tariffs are
discounted for ability to do ripple control). Customers wishing to opt out of ripple control have
such an option but need to pay a miscellaneous charge for buy-out of ripple control .

Life-Line Tariff

            Current break even around 802 kWh/month
            Break Even with two part basic to be reduced to approximately 600 kWh/month, the long
             term (3-5 year plan) break even to be around 300-450 kWh/annum
            The tariff to be more cost reflective and transparent, yet taking affordability into
             consideration
            Only domestic tariff that qualifies for the 50 kWh free per month
            By default all prepaid customers will be on this tariff
            Customers wishing to migrate to prepaid tariff need ensure that they meet qualifying
             criteria for prepaid tariff. (Need to be in an approved area etc.)
            Encourage customers to migrate to Two Part Basic tariff if their monthly consumption on
             average is above the break even point (in customers interest)
            Levy a cost for conventional customers

       Proposal



6
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________
                           o    The is no change on the breakeven point at 802 kWh.


                                Lifeline and Two-part (flat):Single Phase Domestic Comparison

                           Lifeline account lower in this area                                      Two-part (flat) account lower in this area

                      R 700


                      R 600


                      R 500
    Monthly account




                      R 400

                                     Break-even point= 802 kWh's
                      R 300


                      R 200


                      R 100


                          R0
                                     0

                                           100

                                                 200

                                                       300

                                                             400

                                                                   500

                                                                         600

                                                                                  700

                                                                                        800

                                                                                              900

                                                                                                       1000

                                                                                                              1100

                                                                                                                     1200

                                                                                                                            1300

                                                                                                                                   1400

                                                                                                                                          1500

                                                                                                                                                 1600
                               kWh




                                                                     Units
                           Lifeline 2003/4 Account Free kWh 0.3983 c/kWh       consumed (kWh's)
                                                                                 Two Part 2003/4 Account Service Chg R 0.2851 c/kWh




Two-Part Domestic Tariff

                          Current break even around 802 kWh.
                          Break Even with Life-Line Tariff to remain the same at 802 kWh/month, the long term (3-5
                           year plan) break even to be around 300-450 kWh/annum
                          Energy rate of single and 3 phase will remain the same
                          Customers on this tariff do not qualify for 50 kWh free per month

                     Proposal:

                           o    This tariff is one of the lowest in the RSA compared with the rest of the
                                municipality within the RED 4.


Two-Part Seasonal Domestic Tariff

                          If customers the have ability to reduce winter consumption (e.g space heating by gas,
                           anthracite etc) then the two part seasonal tariff would be the cheaper option. Also
                           customers who have high consumption in Summer months (e.g air conditioner load) will
                           also benefit by being on this tariff
                          Encourage customers to migrate to this tariff. Migration costs will be waived (zero charge)
                           (Customer and City Power would benefit)



7
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________
       Seasonal energy rates of single and 3 phase will remain the same
       Customers on this tariff do not qualify for 50 free kWh/month
       Customers on this tariff need to remain on the tariff for a minimum period of 12 months
        before they can migrate to another domestic tariff

       Proposal:

        o   A separation of service charge and network charge based on the installed
            circuit breaker to allow cost reflectivity.

B) Agricultural Tariff
     Applicable to supplies not exceeding a capacity of 40 kVA
     The property or portion must be zoned for agricultural purposes
     Not for business purpose
     Increase seasonal differentiation (Summer to Winter energy rate) for EEDSM
     It will be assumed (basic charge calculation) that all supply will be three phase, no
       provision for basic charge single phase

       Proposal:

            o   A separation of service charge and network charge based on the installed
                Capacity to allow cost reflectivity.

C) Business Tariff

       Applicable to supplies not exceeding capacity of 100kVA
       Applicable for business purposes, industrial purposes, nursing homes, clinics, hospitals,
        hotels, recreational halls and clubs, educational institutions (including school and
        registered crèches), sporting facilities, bed and breakfast houses, mixed domestic and
        non-domestic loads, welfare organizations of a commercial nature and premises used for
        public worship and religious purposes.
       Increase seasonal differentiation (Summer to Winter energy rate)
       The tariff to be cost reflective and transparent, energy rates needs to be reviewed as
        their particular customer category tariffs are high as compared to the industry average

       Proposal:

                     o   A separation of service charge and network charge based on the
                         installed Capacity to allow cost reflectivity.

D) Large Power Tariff

       kW demand tariff will be removed and phased out as communicated in previous tariff
        reports. All customers by default would migrate to the kVA tariff
       Demand Charges need to be reviewed as they are comparatively high compared to the
        industry norm
       Increase seasonal differentiation (Summer to Winter energy rate)




8
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________
       For the tariff to be cost reflective and transparent, energy rates need to be reviewed
        upward as these particular customer category tariffs are extremely low as compared to
        the industry average
       Reactive energy charge needs to be applied to all customers where power factor is
        consistently below 0.96
       Voltage differentiated tariffs to remain

       Proposal:
                    o   That the kW demand charge is phased out and all large customers
                        be placed on kVA demand charge in the next financial year. The
                        reason for this being that the kW demand charge does not inspire
                        customers to improve their power factor.
                    o   Seasonally differentiated demand


E) Time of Use Tariff (TOU)

       Voltage categories to remain
       For customer with installed capacity of over 500 kVA
       Customers who meet the Time of Use (TOU) criteria need to be encouraged to migrate to
        this tariff. Customers who have an ability to influence the load consumption can go on
        this tariff and ultimately reduce their purchase cost
       A conversion cost needs be billed equal to the actual cost of the meter conversion etc
       Service charges would be differentiated according to the supply voltage level
       A revenue neutral conversion surcharge to limit the negative revenue impact on City
        Power when customer migrate tariffs without shifting load. Surcharge is based on the
        difference between existing customer tariffs and TOU tariff taking into account the
        customers load profile.
       Surcharge to phased out over a five year period viz
                                     st
             o 90% surcharge 1 year
                                     nd
             o 75% surcharge 2 year
                                     rd
             o 60% surcharge 3 year
                                     th
             o 45% surcharge 4 year
                                     th
             o 30% surcharge 5 year
       Reactive energy charge needs to be applied to all customers where power factor is
        consistently below 0.96
       Voltage differentiated tariffs to remain

       Proposal:
           o No conversion charge

F) Special Pricing Agreement

       Customized pricing agreements for large customers meeting City Power and the NER
        qualifying criteria are available
       Based on customer by customer application
       Application needs to be made via City Power’s Key Customer Division

G) Green Energy Tariff (Optional add-on to existing tariff)



9
COJ : COUNCIL 2005-03-17
COJ : MAYORAL COMMITTEE 2005-03-17
COJ : FINANCE STRATEGY AND ECONOMIC DEVELOPMENT 2005-03-11

CONTRACT MANAGEMENT
(CITY POWER)
______________________________________________________________________

In support of the draft Energy White paper and Renewable Energy Policy, City Power would be
offering a green energy tariff option in conjunction with the NER Green Energy Certificate process
as utilized for the World Summit on Sustainable Development. The additional cost associated
with Green Energy Certificate would be an added cost to the customers existing tariff. Application
needs to be made via the City Power Key Customer Division.

H) Other Charges

        All other charges (incl. connection charge etc) needs to be reviewed in line with cost
         reflective tariff principle

        Recommendation:
            o To increase the miscellaneous charges to be in line with actual cost.


Conclusion
The impact of the proposed structural tariff adjustments seems to be reasonable in all customer
categories. City Power is increasingly moving towards cost reflective prices in all categories
except with the added requirement of affordability for Domestic Life-Line. City Power in moving
towards cost reflective prices would endeavor to limit the increase per customer category to
maximum of 4% above the annual average increase. A phased approach of cost reflectivity would
be rolled out. (3- 5 years).

City Power has also ensured that customers do have various tariff options and are not limited in
choice of tariff.




10

				
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