IMFO OCTOBER 2012

Presented by: Fred FryerDirector: Revenue Services (Energy)

THE EKURHULENI EXPERIENCE ONTHE INCLINING BLOCK TARIFF

# Discussion 1 Ekurhuleni* Energy at a glance2 Influencing factors on the Ekurhuleni IBT3 The current levels of the EMM IBT4 Placing the EMM IBT levels in context5 Is the City of Ekurhuleni doing the right thing?6 Conclusion

* Ekurhuleni = EMM

DISCUSSION POINTS

# Discussion 1 Ekurhuleni Energy at a glance2 Influencing factors on the Ekurhuleni IBT3 The current levels of the EMM IBT4 Placing the EMM IBT levels in context5 Is the City of Ekurhuleni doing the right thing?6 Conclusion

DISCUSSION POINTS

EKURHULENI ENERGY AT A GLANCE• EMM has 48 bulk infeed points from Eskom• The July 2012 account to Eskom was R1 billion (one thousand

million)• Bulk purchase account from Eskom in 2012/2013 will be R6,7 billion• EMM predicted income from electricity sales is about R11 billion• The City has the following numbers of electricity meters:• Credit meters = 183 000• Large meters = 6 000• Prepayment meters = 206 000• Total meters = +- 400 000

• Eskom supply areas inside EMM boundaries = +-144 000 meters• Eskom larger customer meters = +-278

Previous year performance• Financial targets were:

– Income Budget• Budget set at R9,414,228,343 • Income achieved of R9,129,499,958 • Which is 97%

– Bulk purchases of electricity• Purchase budget set at R5,957,128,828 • Actual purchases of R5,984,093,496 • Which is 100,5%• The colder winter is the most likely reason for the deviation

• The graph shows that electricity sales have generally declined since 2007, with a slight increase in 2011

• This indicates a struggling economy or rising electricity prices forcing efficiency

REVENUE VALUE CHAIN COMPONENTS

ENERGY OPS & MAINTENANCEENERGY OPS & MAINTENANCE

FINANCEINCOMEFINANCEINCOME

METERINGONLINE CONTRACTOR

Utility Risk Management

METERINGONLINE CONTRACTOR

Utility Risk Management

METER READ CONTRACTOR(S)

Motla

METER READ CONTRACTOR(S)

Motla

WEMMC 1 (Netgroup)WEMMC 2 (Tsekema)

WEMMC 1 (Netgroup)WEMMC 2 (Tsekema)

METER REPAIR CONTRACTOR(S)One per depot

METER REPAIR CONTRACTOR(S)One per depot

ENERGY REVENUE SERVICES

ENERGY REVENUE SERVICES

IMQS ELECTRICITY

REVENUE MODULE

IMQS ELECTRICITY

REVENUE MODULE

VENUSVENUSBUSINESS PROCESS

MANAGEMNT

BUSINESS PROCESS

MANAGEMNT

IMS(Tembisa)

IMS(Tembisa)

SUPRIMASUPRIMA

BCXBCX Landis & GyrLandis & Gyr

REVENUEREVENUE

ELECTRICITY TARIFFS

ELECTRICITY TARIFFS

SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT

GISGIS

12

34

56

78

9

12

34

56

78

910

BUDGET MANAGEMENT

BUDGET MANAGEMENT

MATERIAL SUPPLY

CONTRACTS (meters,

protective structures, etc)

MATERIAL SUPPLY

CONTRACTS (meters,

protective structures, etc)

THIRD PARTY VENDING

CONTRACTOR(S)Cigicell, Easypay,

Smartec

THIRD PARTY VENDING

CONTRACTOR(S)Cigicell, Easypay,

Smartec

REVENUE MANAGEMENT & ENHANCEMENT

PROJECT

REVENUE MANAGEMENT & ENHANCEMENT

PROJECT

NERSANERSA

OPEX + CAPEXOPEX + CAPEX

FUTURE METER MANAGEMENT

SOFTWARE (currently at WEMMC’s)

FUTURE METER MANAGEMENT

SOFTWARE (currently at WEMMC’s)

Meter fault management

software Pragma

Meter fault management

software Pragma

CRMCRM

IMQSPROJECT CONTROL

IMQSPROJECT CONTROL

COMMUNICATIONS NETWORK (ICT)

FUTURE SMART METERS

FUTURE SMART METERS

ID2ID2

MAIN FACTORS SUPPORTING ELECTRICITY REVENUE, including a reduction in kWh losses

• A good set of electricity tariffs – EMM is fortunate to have leading talent in this regard

• A very robust method of reading and managing demand meters – meteringonline, meter management consultants, Finance, Energy meter maintenance

• Reliable prepayment vending systems – Suprima and IMS• Dealing with meter interference (tampering) sustainably• Automation of processes such as new meter installations, meter

exchanges, etc (business process management) and tracking of progress

MAIN REVENUE PROJECTS

• ELECTRICITY TARIFFS• Reduced risk, adequate returns, refinement, manage Inclining Block Tariff

• DEMAND METERS (LARGER USERS)• AMR, tariff rules applied, refinement of supportive processes

• CREDIT METERS• Maintenance managed, focus on no-access meters• Smart meters to be tested in our environment (can we manage the

technology, communications, effects of lightning, reliability, etc)• PREPAYMENT METERS

• Venus / Suprima integration project • Tembisa system upgrade (communications)

• OTHER• Business processes, contain costs, add customers, keep networks

reliable, training to improve Energy skills

# Discussion 1 Ekurhuleni Energy at a glance2 Influencing factors on the Ekurhuleni IBT3 The current levels of the EMM IBT4 Placing the EMM IBT levels in context5 Is the City of Ekurhuleni doing the right thing?6 Conclusion

DISCUSSION POINTS

INFLUENCING FACTORS ON EMM IBT

• EMM has 144 000 residential customers, supplied by Eskom• These customers are spread over vast areas throughout the EMM area• In terms of previous electricity tariff charges, there was differentiation between

the EMM specific IBT rates and the general Eskom IBT rates• Previously, EMM had IBT rates suitable to EMM conditions, i.e.

• Two sets of residential tariffs, one for higher consuming customers, and• One for lower consuming customers, and• Both being available to any residential customer (i.e. free choice)• A cross-over point, designed at a fairly low consumption level, ideally at 500

units per month, was maintained• A high consuming customer insisting on the IBT, could change to the IBT,

but• Would end up paying more for electricity

• The careful design created the minimum of customer administrative management and protected EMM income, whilst also taking care of vulnerable customers with 100 units FBE coupled to the IBT

GRAPH ILLUSTRATING A CROSS-OVER POINT DESIGNED INTO TWO RESIDENTIAL TARIFFS

INFLUENCING FACTORS ON EMM IBT

• EMM customers and Eskom customers inside EMM boundaries questioned the tariff differentiation (One City, two tariffs?)

• EMM, from 1 July 2012, adopted the exact Eskom IBT rates• Which will now form the status quo for the City• One change was made to a final block, creating a financial barrier to deter

higher consuming customers from migrating to the subsidized IBT• This was done to maintain a second tariff for higher consuming customers, in

order to deal with multiple households on one stand• EMM also engaged with customers to explore a reduction of the FBE allocation

(100 units per month), or to target the FBE allocation• EMM customers were opposed to this and FBE of 100 units per month

continues, coupled to the IBT in a broad-based manner• Effectively, FBE subsidizes block 1 and part of block 2

# Discussion 1 Ekurhuleni Energy at a glance2 Influencing factors on the Ekurhuleni IBT3 The current levels of the EMM IBT4 Placing the EMM IBT levels in context5 Is the City of Ekurhuleni doing the right thing?6 Conclusion

DISCUSSION POINTS

IBT EKURHULENI ESKOMNotes

VAT exclusive(c/kWh in

12/13)

(c/kWh in

12/13)

EMM PROVIDES AND PAY FOR 100 UNITS PER MONTH FREE BASIC ELECTRICITY IN BOTH EMM AND ESKOM AREAS

A.1 Block (1-50 kWh) 60,83c 60,83c same

A.2 Block (>50 to <=350 kWh) 75,09c 75,09c same

A.3 Block (>350 to <=600 kWh) 111,42c 111,42c same

A.4 Block (>600 kWh for Eskom) Block (>600 to <=700 kWh for EMM) * EMM modification

122,21c 122,21c same

A.5 Block (>700 kWh for EMM only) * Block 5 acts as a theoretical “barrier” to prevent higher end customers from receiving a windfall benefit

200,00cSELECT

TARIFF B AT 108,6c

122,21c(> 700 kWh per

month customers should select Tariff

B, which is R108,60c)

EKURHULENI AND ESKOM RATES

# Discussion 1 Ekurhuleni Energy at a glance2 Influencing factors on the Ekurhuleni IBT3 The current levels of the EMM IBT4 Placing the EMM IBT levels in context5 Is the City of Ekurhuleni doing the right thing?6 Conclusion

DISCUSSION POINTS

• The next few slides are unique to EMM in that:

– The IBT is at the same level as Eskom, for reasons provided– The IBT tariff receives a broad-based allocation of 100 units of FBE– The average bulk purchase rate from Eskom, will vary from City to City,

as well as in the case of smaller municipal distributors. In this case, the EMM purchase rate was used to illustrate the principle

PLACING THE EMM IBT LEVELS IN CONTEXT

• EMM will purchase from Eskom at 60c per kWh• Technical and non-technical losses, conservatively, are 10% (see next

slide)• The City can, therefore, only sell 90% of units purchased from Eskom• The value of 60c, now becomes 67c• The first and second block of the IBT are:

PLACING THE EMM IBT LEVELS IN CONTEXT

A.1 Block (1-50 kWh) 60,83c

A.2 Block (>50 to <=350 kWh) 75,09c

PLACING THE EMM IBT LEVELS IN CONTEXTSeptember 2012

Tariff A Tariff B Tariff A and B combined

CCAActive Meters

Average Consumption

Active Meters

Average Consumption

Active Meters

Average Consumption

ALBERTON 17,883 271 5,314 867 23,197 407 BENONI 11,833 401 4,187 962 16,020 548 BOKSBURG 16,956 350 4,460 927 21,416 470 BRAKPAN 17,866 249 1,979 878 19,845 312 EDENVALE 938 435 1,862 789 2,800 671 GERMISTON 28,637 280 1,423 871 30,060 308 KEMPTON 4,024 444 6,282 870 10,306 704 NIGEL 6,671 389 616 937 7,287 435 SPRINGS 28,899 292 1,958 868 30,857 328 TEMBISA 8,538 428 1,047 536 9,585 440

ALL CCAs 142,245 315 29,128 876 171,373 411

• Average consumption for September is 315 kWh, for a low consumption customer base of 142 000

• 100 units are FBE, EMM sells 215 units per customer• EMM income from this customer is R161. Eskom account is R211.** ignoring external subsidization AND ignoring theft of electricity.

VANDALISM AND THEFT • The photo was taken in July 2012, in Villa Liza x2, Boksburg

• 6 prepayment meters in one pole top box, all bypassed, at least 4 meters destroyed

• A capital intervention is required involving protective structures and new meters

• The uncontrolled electricity consumption destroys transformer and cable insulation, even to the point that they catch fire

SUCCESS IS POSSIBLE

• Our experience in Langaville (and other areas) shows that creating a commercially viable area (i.e. electrical network restored and protected) can result in excellent payment levels in EMM

• Our experience indicate that a significant amount of work and other resources are required to reach the stage depicted in the next slide

LANGAVILLE IN EMM

• Langaville proper has 2 038 active meters• EMM electricity income was at a low of R2 300 per month for Langaville• Average account of R1,13c per month• Post intervention – income is R280 000 (or an average account of R138 pm, ave

250 units pm)• The R138 per month is payable after 100 units FBE were received, which = R67

# Discussion 1 Ekurhuleni Energy at a glance2 Influencing factors on the Ekurhuleni IBT3 The current levels of the EMM IBT4 Placing the EMM IBT levels in context5 Is the City of Ekurhuleni doing the right thing?6 Conclusion

DISCUSSION POINTS

DISCUSSION POINTS• Vulnerable electricity customers should be protected against high electricity costs.

• The assumption is underpinned by an acknowledgement that access to electricity is an important instrument in alleviating poverty. No access to electricity to a large extent denies access to safe cooking, lighting, knowledge acquisition and communication.

• Municipalities and Eskom should also be protected from over-extending their social responsibility related to the levels of the IBT. Block 1 of the IBT should be set at a level comprising at least the average annual bulk purchase cost of municipalities plus 10%, to practically compensate for technical losses and a small percentage of non-technical losses.

 • The subsidy to the IBT customers will still be considerable, given that no

maintenance and refurbishment costs, or administrative costs (such as vending costs, human resources, etc) are recovered, nor any surplus contribution.

DISCUSSION POINTS (2)• Supplementing the IBT with a second tariff, i.e. by creating two tariffs, catering for

two very different sectors of electricity users, several major problems are averted.

• Two tariffs avoid negative factors such as: 

• income levels that must be protected;• placing additional burden on business and industry to make up for shortfalls in

income;• the dilemma created by IBT and multiple households;• the dilemma created by intermittent users, and• a lack of choice in tariffs for residential users.

• The IBT is often relevant in areas where non-technical losses are very high. If these are not controlled, the IBT levels may become very critical in terms of the survival of the distributor.

Ngiyabonga