MYPD3 tariff restructuring plan use-of-system charges Brochure November 2012 Use-of-system charges for MYPD3 Page 1
PART 1: ESKOM REVENUE REQUIREMENT Introduction The current Multi-Year Price Determination (MYPD2) ends on 31 March 2013. In contrast to MYPD1 and MYPD2, both of which spanned three years, Eskom is proposing a five-year determination for MYPD3, running from 1 April 2013 to 31 March 2018. This is to ensure a more gradual and predictable price path for households, businesses, investors, and the country as a whole. Eskom s MYPD3 application strikes a balance between the possible short-term negative effects of increasing electricity prices, the sustainability of the industry, and South Africa s long-term economic and social needs. The submission of this MYPD3 application is the beginning of a public process to address the issues raised in Eskom s application in particular, sustainability of the electricity industry and security of supply. NERSA is an independent regulator and will follow a process of public consultation prior to making its decision. Stakeholders are encouraged to participate in this process. WHAT ARE THE BUILDING BLOCKS OF ESKOM S REVENUE REQUIREMENT? Eskom s application for revenue over five years translates into an average price increase of 13% for Eskom needs, plus 3% to support the introduction of independent power producers (IPPs) in the country s energy mix, giving a total of 16%. This is a nominal price increase of 67 cents per kilowatt-hour (c/kwh) from the current average of 61 c/kwh in 2012/13 to an average price level of 128 c/kwh in 2017/18. With regard to capacity expansion, Eskom s application is based on building new generation capacity up to the significant completion of Kusile Power Station, the Department of Energy s (DoE) peaker gas plant of 1 020 MW, and the renewable energy IPP bid programme, which caters for a total of 3 725 MW of renewable capacity. Eskom s application does not include all of the capacity requirements for South Africa into the future, as set out in the Integrated Resource Plan 2010 (IRP2010), as these determinations have not been made as yet. In keeping with the Electricity Regulation Act (2006), the revenue being requested in this application will cover; R1 trillion over five years, of which two thirds come from primary energy and operating costs, while the remaining third is related to assets, namely, depreciation and return on assets. Primary energy: the cost of basic natural resources used to produce electricity including coal, water, biomass, and sorbent (excluding IPPs) will increase by an average of 8.6% per year for Eskom requirements and by 10% per year with independent power producers incorporated. Operating costs: Eskom s operating costs increase by an average of just over 8% per year. These costs include maintenance of existing plant and employee costs. Eskom currently has more than 44 000 people on its payroll, and this will increase to 45 500 over the period. Most of Eskom s power stations are in their midlife, and they require substantial spending on maintenance and refurbishment if their performance is to be sustained and improved. This means that maintenance costs will continue to increase by more than the inflation rate. Depreciation: depreciation is set to rise at an annual average 10% over the MYPD3 period as we phase in the depreciated replacement valuation methodology as per government s Electricity Pricing Policy. Return on assets: the return moves from 0.9% in Year 1 of the MYPD3 period to 7.8% at the end of the period. This is below the NERSA targeted return of 8.16%. Use-of-system charges for MYPD3 Page 2
The revenue that is being requested is based on the following assumptions. Eskom s application assumes: that electricity demand will grow, on average, by 1.9% a year over the MYPD3 period; a price path that gradually moves to cost-reflective tariffs over five years; that Eskom will only complete its current capacity expansion programme, which includes replacement and refurbishment of older stations; that provision needs to be made for the 3 725 MW renewable energy independent power producer (IPP) programme being undertaken by the Department of Energy (DoE) (and the 1 020 MW DoE peaker gas plant); that there will be a single-digit increase in primary energy costs, with coal at 10%; and that a mandatory energy conservation scheme will be in place to prompt South Africa s largest energy users to curb their usage (but only implemented if necessary). The engagement process Eskom is committed to open and on-going communication throughout the process prior to NERSA s determination. Customers are encouraged to participate in NERSA s consultation process. Use-of-system charges for MYPD3 Page 3
PART 2: USE-OF-SYSTEM CHARGES Use-of-system charges are all network-related charges, that is, the charges to be raised for the use of the Eskom network. Use-of-system charges consist of the following: Reliability service charges to be shown separately Contribution to network-related subsidies to be shown transparently and payable by all loads Losses based on loss factors updated in the cost to serve Network charges There are Distribution use-of-system charges (DUoS) for Distribution-connected customers and Transmission use-ofsystem charges (TUoS) for Transmission-connected customers. Use-of-system charges may differ depending on whether the customer is a load or a generator. Use-of-system charges are payable by load customers as well as generators. Use-of-system charges for MYPD3 Page 4
Rate(R/kVA/Month) Transmission network charges for Transmission-connected loads Demand network charge 25.00 20.00 15.00 10.00 5.00-2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Zone 1 4.37 7.66 8.76 11.34 15.26 21.64 Zone 2 4.42 7.74 8.85 11.45 15.41 21.86 Zone 3 4.46 7.81 8.94 11.57 15.56 22.07 Zone 4 4.51 7.89 9.03 11.68 15.72 22.29 Transmission network charges for loads are based on four transmission zones for Transmission-connected customers. Transmission network charges for Distribution-connected loads (ETUoS) The embedded TUoS charges (ETUoS) apply to customers embedded in the Distribution network. The ETUoS charges recover the cost of the TUoS network charge for loads, as the Transmission system is used to deliver energy to Distribution-connected customers. The TUoS charges are adjusted to take into account the diversified demand of all the embedded customers of Distribution. Based on four transmission zones and voltage. Distribution restructured network charge for loads Distribution network charge R/kVA network demand charge based on chargeable demand R/kVA network access charge based on UC LV subsidy charge (> 22 kv) New unbundled charge c/kwh unbundled from energy rates (Miniflex and Ruraflex) New unbundled charge Differentiated by voltage and geographic categories (rural and urban) Use-of-system charges for MYPD3 Page 5
Previously, only customers connected at greater than 132 kv were considered direct Transmission customers. Now changed to include all customers connected directly to the Transmission network, irrespective of voltage, who impose no cost on Distribution. Comparison of Distribution network charges restructured for loads in 2012/13 value Urban network access charge New unbundled charge Urban network demand charge Unbundled charge Transmission reliability service charges for loads No longer payable from 2013/14 Reliability service charge for Transmission-connected loads 2013/14: Covers the cost of providing ancillary services such as black-start or reserves utilised by the System Operator to keep the national grid in balance. All customers (loads and generators) pay for ancillary services. Use-of-system charges for MYPD3 Page 6
Distribution reliability service charges for loads Reliability service charge for Distribution-connected generators and loads 2013/14 Same rates payable by Distributionconnected generators and loads UoS subsidy contribution by loads Contribution to network-related subsidies: All loads connected to the Eskom Distribution and Transmission network will be required to pay the residential (previously related to electrification) and rural subsidy (ERS) charge. Eskom s retail tariffs include a subsidy to fund the shortfall between the cost of supply versus the tariff. The subsidy provides for the following: Electrification programme: the amount of funding provided by the government does not cover the full cost of electrification. Rural networks: capital subsidies are provided to facilitate rural connections and affordability. Affordability subsidy: the residential affordability-related subsidies are payable for all Eskom purchases of energy. Customers that wheel energy will be exempted from this charge as per the NERSA Regulatory Rules for the Third-party Transportation of Energy (not a use-of-system charge). Customer service and administration charges payable by loads Customer service charges recover the cost of providing a customer service and are raised on each account. Administration charges cover the cost of metering, meter reading, and billing and are raised on each point of delivery. Charges depend on supply size. Losses charges for loads Losses payable by loads: Electrical losses occur as a result of transporting electricity from the generator to the load. Average loss factors are used and are determined by voltage and geographic location. The cost of losses is added to the energy rates. Use-of-system charges for MYPD3 Page 7
Loss factors Transmission loss factors Distribution loss factors Transmission losses for loads 1.05 1.045 1.04 1.035 1.03 1.025 1.02 1.015 1.01 1.005 1 0.995 Load Loss factors 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Zone 1 1.01168354 1.01180397 1.0117108 1.01183023 1.01218987 1.01149016 Zone 2 1.02180038 1.02192201 1.02182791 1.02194854 1.02231177 1.02160506 Zone 3 1.03201838 1.03214123 1.03204619 1.03216802 1.03253489 1.03182111 Zone 4 1.04233857 1.04246264 1.04236665 1.0424897 1.04286023 1.04213932 Load loss factors: Based on conventional 0% to 3% zonal rates, that is, 1% cumulative for each 300 km radius, referenced from Johannesburg. Four zones. Use-of-system charges for MYPD3 Page 8
Changes to the loss factors for loads Transmission loss factors 2013/14 proposed Distribution loss factors 2013/14 proposed 2012/13 2012/13 Loss factors applied to energy rates to cover the technical cost of losses Use-of-system charges for generators Use-of-system charges for MYPD3 Page 9
DUoS charges for generators A network charge based on voltage (only applicable to > 66 kv) A network charge rebate based on the approved loss factors, the amount of energy produced on a TOU basis, and the wholesale energy rate A reliability service charge (same charge as for loads) An administration charge (same charge as for loads) A service charge, where applicable (same charge as for loads) To comply with NERSA s Regulatory Rules for Third-party Access, the UoS charges for wheeling generators will increase at a different rate from the increase for non-wheeling generators. DUoS network charge for generators Network charges based on the cost-reflective value for > 66 kv 2012/13 Voltage Network access charge [R/kW/m] < 66kV R 0 66kV & 132kV R 7.22 Network charge rebate Will be rebated as follows: Rebate = consumption in peak, standard, and off-peak periods x wholesale energy rate in peak, standard, and off-peak periods x (Distribution loss factor x Transmission loss factor 1) *Refer to Distribution loss factors, Transmission loss factors, and wholesale energy rates. Loss factors for Distribution-connected generators Used for calculating rebate Transmission loss factors Distribution loss factors Use-of-system charges for MYPD3 Page 10
Example: Bill for a generator at > 66 kv in Transmission Zone 1 Transmission UoS charges for generators Transmission UoS charges for generators (supply): A network charge based on transmission zone A losses charge based on transmission zone A reliability service charge Service and administration charges A six-zone geographical differentiation shall be used for Transmission-connected generators. Use-of-system charges for MYPD3 Page 11
p.u. Loss factors Transmission loss factors for generators Transmission loss factors for Transmission-connected generators 1.03 1.02 1.01 1 0.99 0.98 0.97 0.96 0.95 0.94 Supply Loss factors 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 CAPE 0.970864838 0.970005037 0.970345097 0.970381139 0.969721685 0.969201713 KAROO 0.995038471 0.994888297 0.994947719 0.994954015 0.994838758 0.994747787 NATAL 1.004098163 1.004223369 1.004173819 1.004168569 1.004264687 1.00434058 MPUMALANGA 1.02056496 1.021203881 1.02095095 1.02092416 1.021414863 1.021802582 WATERBURG 1.023447143 1.02417773 1.023888496 1.023857863 1.024419011 1.024862444 VAAL 1.019857998 1.020474514 1.020230456 1.020204606 1.020678093 1.021052197 Generator loss factors: Calculated from load flow model as per Grid Code. Loss factors below 1 mean negative loss factors, that is, customers in these zones are compensated for losses. Reliability service charge for generators For more information on the Eskom MYPD3 submission, please visit www.eskom.co.za. Use-of-system charges for MYPD3 Page 12