Eskom has submitted a tariff restructuring application to the National Energy Regulator of South Africa, proposing sweeping changes to the calculations used to determine its approved electricity prices.
This comes after the utility conducted an updated cost-of-supply (CTS) study, which showed that the current approach, in place since 2012, was not resulting in cost-reflective revenue collection.
Eskom advanced three primary reasons why an overhaul of the current tariff structure was necessary.
“Firstly, the different tariff rates no longer reflect the different services being provided — that is, they are not aligned with energy, network and retail costs — because of the application of average price increases,” Eskom said.
In addition, the imminent unbundling of Eskom divisions required that the charges were more reflective of the costs per division.
The utility said that applying average increases to rates meant there was no link between the charges raised and the Nersa-approved cost per division, only that the overall sum of all charges recover the approved Multi-Year Price Determination (MYPD) revenue decision.
Finally, the energy industry was evolving, and tariff structures needed to evolve to protect all customer interests and to ensure adequate recovery of Nersa-approved revenue, the utility argued.
Eskom provided a summary of the costs and revenue under its current and proposed tariff structuring in the table below.
Eskom expects the changes will lead to an overall slight decline in revenue of R2 million — which is a relatively flat decrease considering an overall revenue of roughly R247.8 billion.
On average, the utility has calculated that revenue from residential tariffs would decrease slightly by 0.81% — a reduction of R131 million.
The most significant increases Eskom has proposed are for the tariffs charged for public lighting, which make up a minute fraction of its overall revenue.
For municipalities, Eskom calculated its costs in generating electricity for public lighting is R62 million more than the revenue it collects.
To compensate for this, the new tariff would allow for collecting 30.28% more revenue for public lighting from municipalities.
Public lighting for non-municipal areas have also seen a shortfall of R11 million, which is why Eskom wants to collect around 33.19% more revenue.
Goodbye Inclining Block Tariff — Hello high capacity charges
One of the potential major changes for residential users is the scrapping of the Inclining Block Tariff (IBT), which charges higher rates for higher monthly consumption.
Eskom said the IBT structure had proven unpopular and was difficult for customers to understand, resulting in “perverse” behaviour when purchasing at the high block rates.
It also argued the assumption that low-income or multi-family dwellings were low consumers was not necessarily true.
“Multiple dwellings may also be supplied from a single electricity supply point. An IBT structure has a significant impact on these customers,” Eskom said.
“In addition, there are more affluent customers, for example, with holiday homes. that unfairly benefit from the inclining block rate.”
For the revised Homelight tariff, which is typically reserved for low-usage single-phase residential dwellings, churches, schools, halls, clinics, old-age homes or similar customers in urban areas, Eskom would continue to subsidise costs.
These users would pay roughly the same rates for lower energy usage, while consumption from 700kWh and upwards would be cheaper than under the current tariff structure, as shown in the graphs below.
But the picture will be very different for Homepower users.
Eskom said the use of IBTs also greatly incentivised higher-consumption customers to use alternative energy sources and energy efficiency, resulting in a real revenue loss not commensurate with a real cost reduction.
“The reduction in consumption by these customers because of the switch to alternative energy sources such as PV results in subsidies being unfairly distributed,” Eskom stated.
“These customers, mostly affluent, who then reduce consumption, are subsidised by those without PV.”
To resolve this, Eskom has proposed introducing a single energy charge (c/kWh), an ancillary service charge (c/kWh), a network demand charge (c/kWh) and a R/day service and administration charge for Homepower users.
These were previously proposed by Eskom in its 2020/2021 retail tariff plan and effectively meant that Homepower users would be charged substantially more per month even when using no electricity.
For example, a Homepower 1 user would pay R938 instead of R218 without using a single kilowatt-hour of electricity.
The overall differences between Eskom’s current and proposed Homepower tariffs are shown in the graphs below.
Despite these additions, Eskom said its Homepower tariff would work out to be roughly 4% cheaper on average.
According to Eskom, the average customer on the Homepower 1 tariff structure currently has a bill of R2,857 per month, but will pay roughly R2,571 on the new tariff, a reduction of 10%.
The average Homepower 3 user will also be paying 3% less, whereas Homepower 2 and Homepower Bulk users will be paying 5% and 3% more, on average.
The current and revised monthly bills for Homepower customers are shown in the table below.
Although the increase in capacity charges will negatively impact solar users who make little use of Eskom’s grid throughout the month, Eskom is also proposing a new time-of-use tariff called Homeflex that could be to their benefit.
That includes a net-billing rate that provides compensation for excess energy exported into the grid.
Eskom said this tariff would be mandatory for customers with small-scale embedded generation with the approved postpaid smart meter device and voluntary for residential customers without self-generation.
Eskom wants Nersa to consider the implementation of the new tariff structure for electricity prices from 1 April 2023.
The regulator will make a decision on Eskom’s proposal following the standard public consultation process.