Eskom proposes complete tariff overhaul – including a massive change for prepaid users

 ·8 Aug 2022

Power utility Eskom has submitted its proposed 2023 Tariff Restructuring Plan to energy regulator Nersa, showing how the group wants to make sweeping changes to its price structures.

According to Eskom, its current tariff structure is heavily outdated and does not reflect the true cost of generating power.

“Existing tariff structures are outdated and need to be modernised to reflect the changing electricity environment, and crucial decisions in this regard are needed to protect the electricity industry,” said Eskom Group executive for Distribution, Monde Bala.

“For example, customers are installing their own power generators and are using the grid in different ways, and the wheeling of energy is also expanding. Fair and equitable revenue recovery from all customers for the services provided can only happen with tariffs and tariff structures that are modernised to reflect this changing environment.”

The power utility said that the implementation of the proposed tariff structures will reflect cost drivers more accurately, protect all customers’ interests, avoid unfair cross-subsidies, enable fair recovery of costs by all users of the grid, provide the correct economic signals while also ensuring adequate recovery of Nersa-approved revenue by Eskom.

However, it warned that customers would still feel the impact of the changes.

“When updating tariffs and implementing structural changes, it is not possible to have zero impact on all customers,” Bela said.

“Therefore, while the structural changes proposed will recover the revenue approved by Nersa in line with Nersa’s approved Multi-Year Price Determination (MYPD) methodology, individual customers may pay more or less, depending on the change and their consumption profile.”

Big changes

Eskom said that its tariff system needs to be overhauled to reflect the changes in energy generation. This includes the utility itself being unbundled.

One of the key changes is a more cost-reflective tariff.

Eskom’s use of system costs are currently recovered equally through a fixed and variable charge. This however poses a volume risk because of the increase in distributed generation (DG). The national grid provides backup and storage for DG.

“Correct separation and structure of network charges is imperative to ensure that there is a fair recovery of costs by all users of the grid so that tariffs more accurately reflect the value of the service being provided and that unintended subsidies are not created,” Eskom said.

To make network charges more reflective of the cost drivers, there will be a gradual increase in the fixed network charge, Eskom said. For this submission, the fixed network charge increased to 60%, and the variable network charge was reduced to 40%.

The group is also proposing a change to the time-of-use structure and costs – including new peak and low times during summer and winter, and changing how it charges during these times.

Simpler packages

For municipal customers, Eskom said the number of tariffs it offers needs to be reduced to simplify and assist in the better determination of municipal purchase costs.

“This also allows for the separation of municipal tariffs from non-local-authority tariffs and better allocation of subsidies. This separation reduces the municipal contribution to subsidies,” it said.

Residential tariffs need to be overhauled, and the group proposes shifting away from the inclining block tariff (IBT) – the confusing setup, primarily for prepaid users, where unit costs increase based on the ‘block’ being used.

The first block in a month is the cheapest. As users consume more power and buy more units, the purchases move to the next, more expensive block.

“(The IBT) as a tariff structure is no longer appropriate, is disliked by customers, and is complex to understand and explain,” Eskom said.

“For large low-income/multiple-family dwellings, the assumption that low consumption equals poor may not necessarily be true. Multiple dwellings may also be supplied from a single electricity supply point. An IBT structure has a significant impact on these customers.”

In addition, there are more affluent customers, for example, with holiday homes that unfairly benefit from the inclining block rate, it said.

By moving away from an IBT structure, there will be an impact in that lower-consumption customers will pay slightly more and higher-consumption customers less.

Eskom wants to replace the IBT with a single fee that includes the energy charge (c/kWh), an ancillary service charge (c/kWh), a network demand charge (c/kWh) and a R/day service and administration charge.

In real terms, this would take the charge from 139.99c/kWh and 158.62c/kWh for blocks one and two on Homelight 20A, to a single fixed fee of 141.15c/kWh. For Homelight 60A, the fees would move from 158.44c/kWh and 269.31c/kWh to a fixed fee of 169.10c/kWh, Eskom said.

The full proposal is embedded below:

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