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 1. Learning Knowledge: Principles Regulations Policies Real-life (munic input) Tools Skills • • Worked Examples Some spreadsheet tricks • • Modified Genesis Revenue Impact Tool Theory of tariff Build-up 3. Design and Testing Municipal Utility Data • Non-SSEG Tariff Data Impact Model Simulations • Non-SSEG Customer Data • Costs 2. Data Preparation Outcome: • 4. Reporting Customised SSEG Tariff with Supporting Report
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 Domestic High Domestic Low Source: Municipal tariff documents and NERSA approved tariff schedule (all 2018/19)
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 of 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 of customers.
Transparency helps the Munic. and the Customer
Knowledge - Principles • Exercise 2
Sunny Days Local Municipality Distribution Utility Avoided Bulk Purchases Avoided Bulk Purchases Profit on resale Profit on resale Avoided Losses Avoided Losses Lost Sales Lost Sales Fixed Monthly Charge + Energy Sales only Demand Charge + Residential Revenue Energy Sales Commercial Customers with Pot Customers with PV PV Subsidy to Stimulate Local Economy and keep food prices down Residential Commercial Customers Customers without without PV PV Cost of Supplying Service • Bulk Purchase of Power Businesses and one or two high income households • Gen. Utility Demand Charges are installing embedded PV in the Sunny Days Local • Technical Losses Municipality. Help the municipal distribution utility • Non-Technical Losses develop a tariff design strategy for these customers • Network O&M incl. staff Simo-City Agricultural to keep the lights on for the others and protect the • Network Capital Tariffs TM Customers • Admin incl. Metering & critical local agricultural industry Billing
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 only. • 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. o What does this mean for the municipality and the customer? o 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 .
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