CITY OF EKURHULENI (EMM) challenges experienced and possible solutions relating to EDI JOINT PUBLIC HEARINGS BETWEEN THE PC ON ENERGY AND THE PC ON COOPERATIVE.

CITY OF EKURHULENI (EMM)challenges experienced and possible solutions

relating to EDI

JOINT PUBLIC HEARINGS BETWEEN THE PC ON ENERGY AND THE PC ON

COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS

TOPIC: POSSIBLE RESTRUCTURING OF THE ELECTRICITY DISTRIBUTION INDUSTRY

Presented by: Fred Fryer26 July 2012

POINTS FOR DISCUSSION

# Discussion 1 Ekurhuleni Energy at a glance2 EMM revenue protection initiatives3 Eskom supply areas inside EMM boundaries4 EMM electricity connection backlog5 Difference in tariff levels – municipalities / Eskom6 Conclusion

Energy Challenges

POINTS FOR DISCUSSION

# Discussion

1 Ekurhuleni Energy at a glance2 EMM revenue protection initiatives3 Eskom supply areas inside EMM boundaries4 EMM electricity connection backlog5 Difference in tariff levels – municipalities / Eskom6 Conclusion

EKURHULENI ENERGY AT A GLANCE• EMM has 48 bulk infeed points from Eskom• The July 2011 account to Eskom was R890 million• Bulk purchase account from Eskom in 2012/2013 will be R6,7 billion• EMM predicted income from electricity sales is about R10 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• Larger customer meters = +-278

EKURHULENI BULK PURCHASE AND SALES

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

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

DISCUSSION:1.EMM total is 5,2% (see right hand side bar of graph)2.Brakpan Depot has the highest losses, but is also the smallest of EMM depots (previous slide, 6% of EMM kWh units)3.Non-technical losses can be reduced (consist of bypassed meters, illegal connections, billing errors, meter errors, etc)

DEMAND METERS – safeguarding income

• Snapshot of internet based automated meter reading in place for all demand metered customers

DEMAND METERS – safeguarding income

• Snapshot of internet based automated meter reading in place for all demand metered customers – graphical representation

POINTS FOR DISCUSSION

# Discussion 1 Ekurhuleni Energy at a glance

2 EMM revenue protection initiatives3 Eskom supply areas inside EMM boundaries4 EMM electricity connection backlog5 Difference in tariff levels – municipalities / Eskom6 Conclusion

WHAT IS THE PROBLEM?

• Electricity prices are soaring• The value of electricity is, therefore, also rising• Valuable assets become a target for criminal elements, who will

generate illegal income to themselves

• The Electricity Distribution Industry must respond to this threat

15

SDBIP – 2011/2012 – 4th QUARTERPLANNING STATEMENT PERFORMANCE

INDICATORTARGETS ACHIEVED

TARGET 2011/2012 4th QUARTER

Reduce number of customers not purchasing (prepaid vending) over a

90 day period

% of customers not purchasing over a

90 day period<10% 6,8%

• Concern over the increasing number of tamper events that become evident• Own staff and outsourced contracts ensure that this rate is “contained” as much as

is possible• ELECTRICITY METERS ARE UNDER ATTACK!

VANDALISM AND THEFT (1) • 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

VANDALISM AND THEFT (2)Higher end customer meter tamperedHigh level of professionalism by tampering person…

FACTORS AVOIDING UNNECESSARY COSTS

• Reduction in prepayment tampering

• customers with bypassed meters often use excessive amounts of electricity, EMM purchases each unit from Eskom at 51c in summer and 88c in winter. These units are not “sold” again, i.e. an ave of 60c per unit lost, with no income from that.

• If one considers an average of 10% technical and non-technical losses, the above figures are 57c and 98c respectively, averaging at 67c/kWh unit.

• Prepayment meter tampering reduction =

• lower consumption, • lower Eskom (or bulk purchase) account, • lower network stress, • lower maintenance and standby, • higher network reliability, • higher income

20

Split prepayment meter, with metering element safely contained inside meterbox

TYPICAL METERING USED

Split prepayment meter keypad (or customer interface) installed in the house

PROTECTIVE STRUCTURES

PROTECTIVE STRUCTURE –

SAFEGUARDING ELECTRICITY

METERS FROM INTERFERENCE

POINTS FOR DISCUSSION

# Discussion 1 Ekurhuleni Energy at a glance2 EMM revenue protection initiatives

3 Eskom supply areas inside EMM boundaries4 EMM electricity connection backlog5 Difference in tariff levels – municipalities / Eskom6 Conclusion

EMM TOTALCOLLECTION RATE PER CCA REPORT - CONSUMER DEBTORS : 2011/2012Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 Nov-11 Oct-11 Sep-1197.98% 97.19% 94.80% 97.24% 91.78% 91.08% 87.28% 95.00% 97.32% 91.07%

EMM ELECTRICITY SUPPLY AREACOLLECTION RATE PER CCA REPORT - CONSUMER DEBTORS : 2011/2012

Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 Nov-11 Oct-11 Sep-11102.0% 101.8% 98.4% 101.7% 96.0% 94.4% 90.1% 97.6% 100.0% 100.0%

EMM NOT SUPPLYING ELECTRICITYCOLLECTION RATE PER CCA REPORT - CONSUMER DEBTORS : 2011/2012

Jun-12 May-12 Apr-12 Mar-12 Feb-12 Jan-12 Dec-11 Nov-11 Oct-11 Sep-1127.0% 20.3% 23.2% 24.3% 20.3% 23.7% 18.0% 31.3% 33.9% 26.4%

WHAT IS THE PROBLEM?

GENERAL OVERVIEW OF PROBLEMS EXPERIENCED IN ESKOM SUPPLY AREAS INSIDE EMM BOUNDARIES (1)

• EMM is unable to leverage payment for other services, by means of the control of electricity – residents, therefore, pay only for electricity (to Eskom)

• Ekurhuleni controls electricity theft in own supply areas by means of capex investment in “protective structures” and split prepayment meters – there are numerous requests by EMM residents to be supplied by Eskom (reason may be to avoid having to pay)

• EMM has areas where electricity networks are vandalized to a point where the network must be rebuilt, e.g. Langaville, Brakpan – costs are known to be at about R16 000 per stand (network rebuilt, protective structure, split prepayment meter)

GENERAL OVERVIEW OF PROBLEMS EXPERIENCED IN ESKOM SUPPLY AREAS INSIDE EMM BOUNDARIES (2)

• Creating a sustainable network may then be (if all Eskom supply stands need networks to be rebuilt):

144 000 stands x R16 000 per stand= R2,3 billion(assuming no additional upstream capacity is required)

• Revenue is only likely to be generated sustainably, if the network is reliable and fairly resistant to tampering, i.e. after investment

• A cost benefit analysis should take into account avoided costs: • Such as less energy purchased from Eskom when electricity consumption

paid for, levels out at 300 to 350 units per month per customer• And additional income:

• Such as when water consumption is paid for

GENERAL OVERVIEW OF PROBLEMS EXPERIENCED IN ESKOM SUPPLY AREAS INSIDE EMM BOUNDARIES (3)

• Prior to July 2012, Eskom and EMM tariffs for residential customers were not the same:

• The Eskom IBT was lower than the EMM IBT

• The differentiation in tariff levels created tension between the two sets of customers

• Since 1 July, the EMM and Eskom IBT’s are the same**Change made to upper blocks to prevent windfall benefit to higher end customers

• EMM supplies FBE to Eskom customers valued at +-R60 million per annum

IBT EKURHULENI ESKOMNotes

VAT exclusive(c/kWh in

12/13)

(c/kWh in

12/13)

ONLY 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

SOLUTIONS TO BE EXPLORED (1)• One solution may involve EMM to supply all customers within our

boundaries• This will be capital intensive• Capital will have to be phased, skilled resources and material will not be

available in one go• Adding 144 000 customers is a 41% increase in numbers• Opex budgets may have to increase by a higher margin, given the level of

interference with networks• Other resources will have to increase (staff, vehicles, etc)• As per the original Metro-RED concept, these resources could be taken over

from Eskom?• Complex barriers – licensed areas, employee + customer issues, more

• A second solution may involve cooperation between EMM and Eskom to also recover income from other services• This will still be capital intensive• Complex technical and other barriers…

SOLUTIONS TO BE EXPLORED (2)• Execute EMM feasibility study

• Engage with National Government on:

• Eskom licensed supply areas inside EMM • The investment that will be required (by Eskom) to hand over a

commercially viable electrical network, to EMM• The likely reaction by communities who may not have been paying for

electricity for decades…• Who will also realize that the bigger picture involves paying for other

municipal services as well…

• Following success in terms of the above:• Engage with Eskom on a suitable area to commence the take-over:

• based on the condition being acceptable • Resolve institutional capacity matters, so that human resources are

available to execute work in this area• Opex budget to support work in this area

SOLUTIONS TO BE EXPLORED (3)

• Consolidate the learning process acquired through the first area taken over

• Commence with the second area

• And so forth

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

POINTS FOR DISCUSSION

# Discussion 1 Ekurhuleni Energy at a glance2 EMM revenue protection initiatives3 Eskom supply areas inside EMM boundaries

4 EMM electricity connection backlog5 Difference in tariff levels – municipalities / Eskom6 Conclusion

35

SERVICE DELIVERY BACKLOGSUnits Units Cost

Electrification 121 000 Formal Households

(still to be verified)

R2 Billion

165 000 Informal Households(estimated)

2.8 Billion

Network Upgrade - R800 Million

Street Lighting 16 000 Poles R20 Million

Highmast Lighting 500 Masts R75 Million

CAPITAL BUDGET2012 - 2013 2013 - 2014 2014 -2015

Lighting R16 400 000 R19 600 000 R23 150 000

Network R173 066 000 R191 789 712 R191 600 000

Revenue R21 550 000 R25 800 000 R30 750 000Electrification R138 915 791 R136 331 000 R152 331 000

Energy Efficiency R27 000 000 R10 000 000Corporate Other

(Office Equipment / Vehicles) R21 742 969 R25 220 000 R24 150 000

TOTAL R398 674 760 R408 740 712 R421 981 000

2011/12 INEP FUNDED ELECTRIFICATION PROJECTSCurrent Projects STANDS DoE Funding Status CommentsEsselen Park Ext 2 623 R 4 547 900.00 100% CompleteEden Park ext 5 Electrification 2450 R 17 885 000.00 100% CompleteEden Park ext 4 Electrification 199 R 1 452 700.00 100% CompleteTinasonke Electrification 719 R 5 248 700.00 100% CompletePalm Ridge Electrification Phase 1 1799 R 13 132 700.00 100% CompletePalm Ridge Electrification Phase 2 849 R 6 197 700.00 100% CompletePalm Ridge Electrification Phase 3 3131 R 22 856 300.00 100% CompleteWinnie Mandela Phase 4 140 R 1 022 000.00 100% CompleteTswelopele Ext 5 1200 R 8 760 000.00 100% CompleteGelusdal Ext.3 719 R 5 248 700.00 100% CompleteEnixiweni 121 R 883 300.00 100% CompleteChief Albert Luthuli Ext.2 267 R 1 949 100.00 90% Change ControlChief Albert Luthuli Ext.3 281 R 2 051 300.00 90% Change ControlEdayeni 90 R 657 000.00 80% Complete Change ControlChief Albert Luthuli Ext.5 544 R 3 971 200.00 Contractor on site Change ControlKwa-thema Ext. 3 567 R 4 139 100.00 Contractor on site Change ControlPalm Ridge Electrification Phase 4B R 0.00 100% CompleteTOTAL 13699 R 100 002 700.00  

2012/13 INEP FUNDED ELECTRIFICATION PROJECTS

Current Projects STANDS DoE Funding Status

Palm Ridge Electrification Phase 4A 1779 R 17 790 000.00 95% Completed

Palm Ridge 33/11/6.6kV, 2x20MVA Sub Bulk R 31 292 899.00 Complete

Daveyton 132/11kV, 2x40MVA Sub Bulk R 23 917 101.00 95% complete

TOTAL 1779 R 73 001 488.00  

2012/13 EMM FUNDED ELECTRIFICATION PROJECTSCurrent Projects STANDS Total cost per

projectStatus

Palm Ridge Electrification Phase 5 3321 R 53 136 000.00 Design StageMayfield Ext.6 2040 R 32 640 000.00 Design StageMayfield Ext.7 800 R 12 800 000.00 Design StageMayfield Ext.8 1134 R 18 144 000.00 Design StageChief Albert Luthuli Ext.6 964 R 15 424 000.00 Design StageJuhn Dube 500 R 8 000 000.00 Design StageChief Albert Luthuli Ext.5 307 R 4 912 000.00 ConstructionKwa-Thema Ext 3 716 R 11 456 000.00 Construction

Chief Albert Luthuli Ext 3 223 R 3 568 000.00 Construction

Chief Albert Luthuli Ext 2 267 R 4 272 000.00 Construction

Endayeni 90 R 1 440 000.00 ConstructionTOTAL 10362 R 156 512 000.00  

40

UNIVERSAL ACCESS CHALLENGES

• Funding allocation• Procurement Processes• Reliant on Human Settlement plans• Houses built in Phases• Growing number of Informal Settlements• Service delivery protests

Electrification – Esselen Park

OPERATIONS CLUSTER

ENERGY DEPARTMENT

POINTS FOR DISCUSSION

# Discussion 1 Ekurhuleni Energy at a glance2 EMM revenue protection initiatives3 Eskom supply areas inside EMM boundaries4 EMM electricity connection backlog

5 Difference in tariff levels – municipalities / Eskom6 Conclusion

WHAT IS THE PROBLEM?

MUNICIPAL / ESKOM TARIFF GAP INDICATED

MUNICIPAL / ESKOM TARIFF GAP SOLUTION PROPOSED

• The previous graph showed the EMM – Eskom tariff gap• This is 114c/kWh – 84c/kWh measured at a 30% load factor• This is by far not the highest gap that one will encounter when

repeating this exercise for other municipalities• EMM envisions the solution as follows:

• In July 2012, NERSA allowed Eskom a 16% increase to “own” customers, and

• A 13,5% increase to Eskom’s municipal customers • This has the effect of narrowing the gap between the Eskom

line and the municipal line (previous slide)• It is proposed that NERSA considers continuing this trend in

future financial years

POINTS FOR DISCUSSION

# Discussion 1 Ekurhuleni Energy at a glance2 EMM revenue protection initiatives3 Eskom supply areas inside EMM boundaries4 EMM electricity connection backlog5 Difference in tariff levels – municipalities / Eskom

6 Conclusion

CONCLUSION

The City wishes to thank the PC on Energy and the PC on Cooperative Governance and Traditional Affairs for the opportunity afforded to

make this presentation

Ngiyabonga