Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

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