Day 3 SSEG Tariffs and Revenue Impact Sessions Nelson Mandela Bay - - PowerPoint PPT Presentation

Day 3 – SSEG Tariffs and Revenue Impact Sessions

Nelson Mandela Bay Metropolitan Municipality 10th April 2019 Adrian Stone, Josh Dippenaar, Tanaka Shumba, SEA

Tariff & Revenue Sessions Outline

Knowledge: Principles Regulations Policies Real-life (munic input) Skills

• Some spreadsheet tricks
• Theory of tariff Build-up

Tools

• Worked Examples
• Modified Genesis Revenue Impact Tool

Municipal Utility Data

• Non-SSEG Tariff Data
• Non-SSEG Customer Data
• Costs

Outcome:

• Customised SSEG Tariff with

Supporting Report Impact Model Simulations

• 1. Learning
• 2. Data Preparation
• 3. Design and Testing
• 4. Reporting

Knowledge Exchange

Brief Overview of Tariff Status and Challenges in each Municipality

– Why have you joined the sessions? Expectations. – Tariff issues and process in your municipality. – Tariff approval issues. Political acceptance issues. – Remarks on any interesting tariffs in your munic. – Indicate number of munic representatives and roles

Basic Charge Domestic Tariffs in place in supported munics

Source: Municipal tariff documents and NERSA approved tariff schedule (all 2018/19)

Domestic Low Domestic High

Skills

• Exercise 1

Exercise 1

Knowledge - Principles

• Overview of Regulations / Guidelines

NERSA COS Framework

After total costs have been ascertained, the revenue requirement will be determined by adding a profit margin. The margin is represented by the surplus to be earned by the licensee. The surplus is determined by the Energy Regulator after taking into account the peculiar circumstances of each licensee. Currently, the Energy Regulator uses a tolerable range of 10-20% and a target

• f 15% on the percentage surplus.

NERSA Distribution Grid Code

• The Distributor shall make capacity available on its

networks and provide open nondiscriminatory access for the use of this capacity to all South African Customers (loads), and Embedded Generators. In exchange for this service, the Distributor is entitled to a fair compensation through electricity tariffs.

• The structure of tariffs (the balance of fixed and variable

components) should reflect the costs drivers.

NERSA Consultation Paper: SSEG Regulatory Rules

Fixed Charges: It must be ensured that the fixed costs associated with maintaining and operating the network are recovered through appropriate fixed charges. These costs may even increase due to SSEG and the network needs to manage bi-directional flow and the peak demand is not necessarily reduced.

NERSA Consultation Paper: SSEG Regulatory Rules

Avoided Costs: The SSEG might avoid certain costs for a distributor and should be fully compensated through an export credit rate for any measurable reduction of cost to the utility. This would be the avoided energy cost/purchases, and, if any, the network and line losses costs. As more and more SSEG is connected its possible, however, that SSEG could increase the costs of the network and line losses.

Section 16 of the Electricity Regulation Act of 2006 states that the setting of prices, charges, tariffs and the regulation of revenues: NB!!!!!!

• must enable an efficient licensee to recover the full cost of

its licensed activities, including a reasonable margin or return;

• must provide for or prescribe incentives for continued

improvement of the technical and economic efficiency with which services are to be provided (losses see Cos Guideline – tech and non-tech losses above a certain threshold eat into your margin);

• must give end users proper information regarding the costs

that their consumption imposes on the licensee's business;

• must avoid undue discrimination between customer

categories; and

• may permit the cross-subsidy of tariffs to certain categories
• f customers.

Transparency helps the Munic. and the Customer

Knowledge - Principles

• Exercise 2

Avoided Bulk Purchases Profit on resale Avoided Losses

Sunny Days Local Municipality Distribution Utility

Revenue Pot Commercial Customers with PV Commercial Customers without PV

Fixed Monthly Charge + Demand Charge + Energy Sales Subsidy to Stimulate Local Economy and keep food prices down

Simo-City Tariffs TM Residential Customers without PV

Agricultural Customers

Lost Sales Cost of Supplying Service

• Bulk Purchase of Power
• Gen. Utility Demand Charges
• Technical Losses
• Non-Technical Losses
• Network O&M incl. staff
• Network Capital
• Admin incl. Metering &

Billing Avoided Bulk Purchases Profit on resale Avoided Losses Lost Sales

Residential Customers with PV

Energy Sales only

Businesses and one or two high income households are installing embedded PV in the Sunny Days Local

• Municipality. Help the municipal distribution utility

develop a tariff design strategy for these customers to keep the lights on for the others and protect the critical local agricultural industry

Exercise 2 - Instructions

• Describe your approach to designing the structure of a

SSEG tariff (commercial & residential) for Sunny Days and explain your thinking. Compare the SSEG tariff to the non-SSEG tariff. Can be numbers or descriptive.

• What information will be needed to design the tariff?
• What will need to be taken into account?
• How will the tariff be structured (types of charges)?
• How might this look compared to non-SSEG customers?
• Feed back to the group

Skills & Tools

Exercise 3 - Refresher

There are 5 Tariff Levers to Play with

We’re going to play with 3 levers…..

SSEG brings BOTH value and reduced revenue to Distribution Utilities

With the right tariffs, revenue impact from SSEG installations can be neutral

Exercise 3a – Instructions

• Open “Sheet 3a” of the Exercises Workbook
• Set export tariff levers to charge of 10c , 40c and 80c/kWh

Move basic and import levers to get same net revenue. Questions:

• Are these tariffs equivalent in terms of municipal revenue?
• Are they equivalent in terms of customer perceptions?
• Are they equivalent in terms of risk to revenue recovery?
• Justify these answers.

SSEG-Saw Equation for Tariff Build-up

Exercise 3b – Instructions 1

• Open “Sheet 3b” of the Exercises Workbook
• This show 3 approaches to calculating a basic two part

SSEG tariff with respect to ‘eliminating’ revenue impact.

• Remember in this case we have not looked at the

customer’s perspective.

• The “Theory” sheet shows how the calculations are done

(its an application of the costs and benefits see-saw). But this is just for interest.

• Go through each approach varying the green cells and

seeing the impact on net and gross revenue:

Exercise 3b – Instructions 2

• Go through each approach varying the green cells and

seeing the impact on net and gross revenue:

• 1. What is meant by net and gross in this context?
• 2. Which approach is more fair to the municipality and why?
• 3. Which approach is more fair to the customer and why?
• 4. Which approach is what NERSA wants?
• 5. What are the political / institutional difficulties?

15 – 20 minutes to play around then report back / discussion Ask the facilitators questions while you are playing around

Exercise 4

Q: What is a sensitivity analysis? A: This is where we vary the inputs to our model and see what happens to the output. If a lot happens then the model is sensitive to the input.

Exercise 4 – Part 1

Open Revenue Impact Model Select “Standard Inputs” Vary the following inputs between high and low values for the residential and medium commercial tariff categories:

• Import Tariff Basic charge
• Export Energy Tariff
• Capital Cost of PV

What happens to:

• 1. The municipal revenue impact?
• 2. The business case for the customer

Exercise 4 – Part 2

• The goal of this exercise is to use our ‘Goal Seek’ skills to

find a SSEG tariff that covers costs in the same way as the non-SSEG tariff.

• We are going to vary the Residential Basic Import Tariff
• nly.
• Go to Table 6 of “Printable Report”
• Use ‘Goal Seek’ to make the amount recovered in excess of

bulk energy costs the same for SSEG and non-SSEG customers.

• What does this mean for the municipality and the

customer?

• Is it fair and will NERSA approve it?

Data Preparation Phase

• Populate Standard Inputs with municipality data……

Extra Slides on EPP

Electricity Pricing Policy (DoE 2008)

Tariff: A combination of charges covering different aspects of supply, grouped into a coherent set of charges. Tariff structure: The combination of different charges and the relationship to each other. Transparency: The explicit reflection of all composite costs that constitute a tariff, for example: energy charges, demand charges, basic charges, levies, cross-subsidies and MSOE.

Electricity Pricing Policy (DoE 2008)

Municipal surcharge (on electicity = MSOE): A charge in excess of the municipal cost of supply that a municipality may impose on fees for a municipal service provided by or on behalf of a municipality, in terms of section 229(1 )(a) of the Constitution and the Municipal Finance Management Act. Cross-subsidy (within sector): Over-recovery of revenue from customers in some tariff classes whether intentional (e.g. electricity levies) to balance the under-recovery of revenue from customers in other tariff classes (i.e. electricity subsidies) as calculated in the cost.of supply study or unintentional by way of unidentified surcharges within the ESI or as a natural consequence of cost pooling.

Electricity Pricing Policy (DoE 2008)

NERSA approved a Cost of Supply (COS) study framework as it is a requirement of the Electricity Pricing Policy (EPP). All Municipalities were advised to undertake and submit the COS studies so that the revenue earned by the municipalities per tariff category is aligned with the cost to supply electricity.