guideline for electricity reseller tariffs presentation by erasa (electricity resellers association...

Guideline for Electricity Reseller Tariffs

Presentation by ERASA (Electricity Resellers Association of South Africa) at the NERSA Public Hearing held on

Thursday, 09 April 2015

Contents of Presentation

1) Reseller Backgrounda) What is a Reseller of electricity?b) How did Resellers come into existence?

c) Who are ERASA?2) Tariff design

a) EPP and NRS 058.b) Cost for a reseller to bill (supply) the end consumer.

3) Previous NERSA hearing taken into consideration.a) Cost to bill 1 meter versus 50 meters.

4) Consultation Paper on the Guidelines for Electricity Reseller Tariffs published on 09 February 2015.

5) Conclusion.

What is a Reseller of electricity?

• The concept of buying electricity in bulk and then the reselling thereof is generally referred to as “reselling”. There are 4 distinct groups of resellers in South Africa:

i. Body Corporate or landlord.ii. The big property investor, like financial houses.iii. Outsourced services to third parties acting as external

contractors (varying in service from full retail to only meter reading).

iv. Licensed industrial zones.• ERASA (Electrical Resellers Association of South Africa) represents

largely those in category iii above. However, it should be noted that some of the members who provide meter reading services indirectly represent those parties contained in category I and ii.

How did the Resellers come into existence?

• The concept of reselling electricity in South Africa has been around for many years. A number of our members have been in existence for 20 years or more. If we take into consideration bulk supplies of electricity to Body Corporates, landlords and other large commercial buildings it goes back even further.

• The bulk supply point platform was created by City Councils needing to lessen their administrative and cost burden due to the greater prevalence of high density urban developments. Reselling started as a need by property owners, landlords and Body Corporates to have a metering service to individual consumers beyond a bulk supply point.

Who are ERASA?

• ERASA = Electricity Resellers Association of South Africa. Constitution = To promote foster and create a credible association of Electricity Resellers. To uphold and enforce any code of conduct pertaining to the members of the Association. To establish and maintain relationships with other associations and / or legislators within the energy sector of South Africa and to co-operate with them on a national, provincial or regional level.

• Most members are operating as reselling businesses but some members are specialist meter reading service providers.

• Members are operating in most metros country wide. www.erasa.org.za

• ERASA members are representative of the full spectrum of consumers beyond bulk supply points, residential, commercial and industrial. It would be fair to say that the majority represented would be domestic consumers.

http://www.erasa.org.za/

• The services provided include full meter reading services, billing services as well as the host of backup services that accompany this = technical support (meter testing, check readings etc.) and administrative support (secretarial services, call centers, etc.)

• Many Resellers will also install and maintain the electricity meters at own cost.

• Many members have a prepaid metering service which is a more costly exercise to implement and administer from a technical point of view since it requires a Supply Group Code (SGC) from ESKOM which is very difficult and costly to come by which results in many resellers paying for this from authorized entities. It requires high input of IT and the payment platform are costly since they require banking services with real time authorisation at a wide range of “over the counter” payment points.

• Resellers also take on the risk of losses, both technical and non-technical (bad debt).

Tariff designa) EPP and NRS 058 • The Electricity Pricing Policy (EPP) of the South African Electricity

Supply Industry was published in the Government Gazette No 1398 on 19th December 2008. Is a 52 page document. We need only for purposes of this hearing refer to:

• Par. 2 GENERAL PRICING PRINCIPLES States that• d. “Tariffs must reasonably reflect the costs associated with

rendering the service, including capital, operating, maintenance, administration and replacement costs.”

• c.” Tariffs must be set at levels that facilitate the financial sustainability of the service.”

• Par. 8.20 Trader Charges• “It is recognized that the non-cost reflective nature of the tariffs of

licensees are part of the resellers’ problem.”

Energy Pricing PolicyGovernment Gazette 19th december 2008

Tariff design contd.

• EPP Policy Position 43• Non-licensed traders of electricity shall

provide the electricity at terms, tariffs and services not less favourable than that provided by the licensed distributor in the area.

• NERSA shall provide guidelines to resellers regarding resale principles.

EPP page 40

Tariff design contd.• EPP also refers to the NRS 058 which deals extensively with the Cost of

Supply methodology. Tariff must reflect the cost of supply. • What is the cost of supply? • NRS 058 refers to Par 4.2.1 “ring fencing” i.e. quantifying costs associated

with cost chain required to supply electricity to the end user. There are 6 functions identified as follows:

a) Production of electricity – ESKOMb) Transmission of produced energy over power lines to load centers – ESKOMc) Transportation and transformation of the power over distribution networks

– Licensee (Municipality)d) Delivering of energy to the end users. - Reseller (network and meters

beyond bulk supply point = DB boards, CB’s cabling, etc)e) Providing support services to such end users – Resellerf) Billing of the end user – Reseller• Also 4.1.1 cost of supply methodology = include “non-technical loss

adjustment” i.e. bad debt.

NRS 058

Cost for a reseller to bill (supply) the end consumer

• Costs are: Installing infrastructure (landlords – reticulation) meters, reading and billing, technical and administrative backup, losses.

• ERASA members studies conducted show that the costs are between 15 - 20% of the current electricity tariffs. This is a convenient figure with many tariffs around the R1.00 / kWh mark. .15 – 20c /’ kWh

• Some members costs are as high as 36% but it should be noted that these were landlords who included costs of common property electricity as an expense. Note that some licensees do the same.

• Should the impending steep tariff hikes be implemented then it cannot reasonably be expected that the bulk supply discount be increased by the same margin but rather in accordance with Consumer Price Index (CPI).

Previous NERSA hearing taken into consideration.

Cost to bill 1 meter versus 50 meters.• It was noted at a previous hearing held towards the latter half of 2014 at

Gallagher Estate that a representative of AMEU (Association of Municipal Electricity Utilities) made the comment during his presentation that their (licensee / municipal) costs differences involved in reading one meter and reading 50 meters in a building are negligible. As we have illustrated, this is not about reading a meter, it involves the installation and maintenance of the meters and the billing of the consumption to end users that are 50 times more. It is the number of queries and meter tests and check readings that are 50 times more. It is about the losses and bad debt being 50 times more. All these costs are saving made by the Licensee.

• We would like to see the municipalities disclose these costs as they are in fact obliged to do by the EPP and the NRS 058 which requires that the licensees tariffs be cost reflective and they do Cost of Supply studies. They are required to be transparent about these figures. ERASA members have participated in the consultation with NERSA in providing these figures. Which leads us to point 4.

Consultation Paper on the Guidelines for Electricity Reseller Tariffs published on 09 February 2015.

Stakeholder Question 1 Q Should the tariff structure implemented by the licensed authority

to its customers be the same or aligned to the same tariff structure that the licensed authority designs for its reseller to ensure that the tariff structure applied to the reseller’s customer is similar to the structure the licensee implements to its customers? Kindly elaborate.

A Yes, but licensed authorities should not design special tariffs for resellers. Not for the supply to resellers at bulk supply points, nor for the customers of resellers. The licensed authority must design a tariff for supply points of various categories (like domestic, bulk domestic, LV demand, HV Demand, etc.)

• Just apply the principle that the end consumer must not be worse off.


Stakeholder Question 2Q Should the resellers and customers of resellers be consulted

by the licensed authority designing reseller tariffs? And how should this process be conducted?

A No. Licensed authorities must simply stick to the guidelines for tariff design that will result from this initial negotiation process.


Stakeholder Question 3Q Do you agree with the assertion that if the reseller tariff is

designed in such a way that the various input costs are taken into account, only those costs are supposed to be passed through to the end user?

A The problem with passing on certain costs to the end user comes to play only when the tariffs were designed incorrectly. The problem can (and should) be avoided by designing the tariffs for all classes by recognising that they might sit behind bulk supply points.

• This can be achieved by reducing service and network charges of all classes to a minimum, and to increase the average energy cost accordingly.


Stakeholder Question 4Q Municipalities and Eskom have a liberty to cross subsidise

within their customer classes, in the case of non-recovery of costs. However, in the case of a reseller’s under recovering costs when providing a service to end users, what do you suggest should be done to address this issue without distorting the price the end user pays for electricity?

A The process can continue unabated, but once a category is identified for any particular supply point, there simply has to be a difference between the bulk pricing and the end user pricing, taking into consideration that end user pricing should be identical whether a reseller or municipal customer.


Stakeholder Question 5Q Should incentives be provided to resellers by licensees for

special cost recovery allowances, or how should resellers be compensated for any potential additional costs likely to be incurred in operating and maintaining the network beyond the bulk meter point, without over charging customers?

A No, cost reflective tariffs are sufficient.


Stakeholder Question 6Q Should a mark-up of 12% to 18% when licensees are

designing reseller tariff be regarded as reasonable, to ensure that end users are charge the same tariff charged to customers directly supplied by a licensee? Kindly elaborate.

A Yes, although ERASA studies show the margin to be between 15 to 20%.

• In order to check if a cost-reflective tariff structure was designed correctly, the licensee can check if the gap is between 15% and 18% or 15% – 20%


Stakeholder Question 7Q How FBE should be implemented by resellers to ensure that

eligible customers benefit?

A The tariff to the bulk supply point should be credited with the amount of FBE that must be passed to end consumers. Licensees must therefore know how many indigent end users are behind each bulk supply point, and they must credit it to the bulk supply point.


Stakeholder Question 8Q In most cases buildings or complexes with low load factors run at

a loss, will these ever be profitable? Should resellers operate in such buildings or complexes?

A This should not be a problem in residential buildings which have a flat rate per kWh.

• This problem occurs when there is very low energy consumption to any maximum demand supply point (Not only bulk supply points) .

• Tariffs should be designed to ignore "declared demand" or peak demand of the previous winter if energy consumption is below a certain threshold. Licensees will not accept this change in tariff design easily, because it is not cost reflective. The exception can be motivated as a cross subsidising in favour of struggling businesses.


Stakeholder Question 9Q Should resellers be allowed to operate at freehold

developments, where a house or building and the land on which it is built is fully owned by an individual?

A Yes. The process of reselling is defined to include only sales of electricity to multi-tenanted arrangements behind bulk supply points. If it is multi-tenanted and each tenant has a metered supply point.


Stakeholder Question 10Q What conditions are currently in place between resellers and

their licensed authorities for supplying electricity to the end user?

A The principles dictated by the by-laws and tariffs of the licensed authorities, namely that the end user must not be worse off, had he/she purchased electricity directly from the licensee.


Stakeholder Question 11Q How should disputes between customers supplied by

resellers and reseller be resolved?

A The escalation process should be a simple duplicate of the current process in place for councils.

• Dispute with Licensee not resolved goes to NERSA• Dispute with Reseller not resolved goes to Licensee and then

NERSA.• For ERASA members we would like dispute to go to ERASA

after Reseller then to Licensee and then to NERSA.


Stakeholder Question 12Q What other information licensee should submit to NERSA

pertain to resellers?

A Licensee can keep a register of Resellers operating in its jurisdiction and this can be submitted to NERSA. Licensee can make sure that registered Resellers keep their accounts paid up to date. This can help regulate “fly by nights”. Can also be used to identify which Resellers get most complaints and investigate reasons and take action.

Conclusion• ERASA appreciates the opportunity to make a

presentation to NERSA and be a part of the process. • We would not like to see Reseller tariffs

implemented by licensees until this process has been fully concluded as our members feel that the Resellers tariffs implemented on 1st July 2015 by certain licensees are not cost reflective tariffs.

• All tariffs should be cost reflective and each party in the chain should disclose their costing.

• Tariffs should be fair and transparent.

guideline for electricity reseller tariffs presentation by erasa (electricity resellers association...

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