Question no: 298
Mr P J Groenewald (FF Plus) to ask the Minister of Public Enterprises:
(1) Whether Eskom provides electricity to all local authorities at the same tariff; if not, (a) why not, (b) what criteria are applied in determining the different tariffs and (c) what are the various tariffs; if so, what is the tariff;
(2) Whether she will make a statement on the matter?
Reply:
(1) Although the methodology to calculate tariffs for all customers is exactly the same, not all local authorities will have the same tariff as this will depend on tariff choice, their location, voltage and size of supply.
(1)(a) The reason for this is the fact that Eskom’s tariffs are based on the cost of supply in accordance with the requirements of NERSA and the Electricity Pricing Policy. The factors that influence the cost of supply include tariff choice, location (urban, rural and geographic zone), voltage and size of supply. Consequently, the particular tariffs may vary depending on these variables. All tariffs, however, are approved by NERSA.
All local authorities on the same voltage and same geographic area that choose the same tariff will have exactly the same tariff rates from Eskom. However, depending on the local authority’s usage profile, the average price paid may differ. If the demand is managed well and the local authority also offers time of use tariffs, its average price paid to Eskom may be less than where the usage is not efficiently managed, even if the tariff rates are the same.
(1)(b) Eskom’s tariffs are designed based on the cost of supply, so similar customers are allocated similar costs. Costs are allocated based on energy, network and retail cost. The sum of all costs must equal the NERSA approved revenue requirement. These are based on network, energy and retail costs.
From a network perspective, the voltage of the supply is the most important driver of costs. The higher the voltage of the network that the supply is connected to, the lower the cost per unit and vice versa. For low voltage supplies, many more pieces of network have to be built to get the energy delivered from the power station to the end-user. Also from a network perspective, it costs more to supply a rural customer than an urban customer, due to distance between customers.
From an energy perspective, the costs differ by the way a customer consumes energy throughout the day and the voltage of the supply. The more peak energy that is used, the more expensive the energy costs are. The lower the voltage, the higher the electrical losses (due to the distance the energy has to travel).
From a retail perspective, the larger the customer the more it costs to serve this customer.
Based on the above, all customers are allocated costs based on their usage profile, voltage, location and size of supply and then after taking into account approved tariff cross-subsidies, tariffs are derived.
A larger local authority may have a bigger demand than a smaller municipality, but because it’s supplied at a high voltage, the cost per unit is much less than the cost for a smaller municipality supplied on a medium voltage rural network. This principle is applied to all Eskom tariffs. It is to be noted that rural tariffs even though their rates are higher than the urban tariffs, receive an inter-tariff subsidy from the Miniflex, Megaflex and Nightsave Urban tariffs as their tariff recovers revenue lower than their cost of supply.
(1)(c) It is not possible to directly compare rates between each tariff as some tariffs have higher fixed charges and lower energy rates. Some tariffs have time-of-use energy rates, while others do not. The most appropriate way to compare different tariffs is to calculate an account based on the full usage and demand of the customer.
(2) No statement will be made.
Issued by: Department of Public Enterprises
19 February 2010
Source: Department of Public Enterprises (http://www.dpe.gov.za/)
