Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
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Overview of <strong>Multi</strong>-<strong>Year</strong> <strong>Price</strong> <strong>Determination</strong><br />
2013/14–2017/18 (MYPD 3)<br />
1.6 Proposed changes to the retail tariff structures<br />
Page 35 of 144<br />
<strong>Eskom</strong>‟s revenue requirement results in a single average price increase that is translated<br />
into specific tariff increases for each tariff. In addition to the revenue request detailed earlier<br />
in this chapter, <strong>Eskom</strong> requests that Nersa consider the following modifications to the<br />
existing tariff structure. This is based on the revenue requirement that translates into an<br />
average price increase of 16% per year over the MYPD 3 period.<br />
1.6.1 Protecting the poor (subsidisation by other users)<br />
<strong>Eskom</strong> and Nersa are aware of the need to protect low-income households from the impact<br />
of high price increases. In its MYPD 2 decision, Nersa implemented the inclining block tariff<br />
(IBT) to cushion poor households that use very little electricity. This structure, which also<br />
provides an incentive for all households to use electricity efficiently, divides consumption into<br />
four blocks, with the per-unit tariff stepped up as consumption increases.<br />
The prices determined for the different IBT blocks successfully lowered the cost of electricity<br />
for all residential customers including the poor, but its implementation has had some<br />
unintended consequences. The tariff structure is complex and hard to understand. <strong>Eskom</strong>‟s<br />
residential customers receive lower-than-average tariff increases, with a built-in cross-<br />
subsidy from larger urban users, making the growth in IBT cross-subsidies economically<br />
unsustainable. Currently, residential customers receive about R4.5 billion that increases in<br />
cross-subsidies from <strong>Eskom</strong>‟s large customers growing to about R6 billion in 2013/14.<br />
Importantly, the mechanism also needs to be refined to better target low-income households.<br />
<strong>Eskom</strong> proposes to amend the residential tariff structure to include a simplified, subsidised<br />
single energy rate “lifeline” tariff (Homelight 20A) to protect low-income households. It further<br />
proposes a modified IBT structure for larger low-consumption residential customers that will<br />
also cater for multiple homes, and thirdly, to reintroduce fixed-charge tariffs (based on the<br />
size and true cost of supply) for residential customers with high consumption.<br />
1.6.2 <strong>Price</strong> increase date<br />
<strong>Eskom</strong>‟s financial year runs from 1 April to 31 March, so tariffs for <strong>Eskom</strong>‟s non-municipality<br />
customers currently increase on 1 April. However, in terms of the MFMA, municipal tariffs<br />
are only allowed to increase on 1 July. To avoid a shortfall in revenue the delay in increases