Data Gathering and Costing Rate Design
Phase 5: Tariff Restructuring Plans
During this phase, participants are given a chance to reflect on their designed tariff structures in order to understand the implications on their customers. Each region or entity is thus expected, at this stage, to prepare and develop a detailed Tariff Implementation Plan, specifying timelines for each expected outcome. The plans however require the approval of NERSA; this would require the submission of a plan by the participants as well as a presentation of the plan. If the regulator is satisfied with the (presented) plan, approval will be obtained and the plan can be executed in the region or entity. This process will be repeated if any structural changes are made to tariffs.
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With the latter project background, one can thus view the scope of the project from which emanates the project team's assumptions and the expected regional responsibilities:
3.10.4. The Scope of the Project implementation:
• To skill participants to do their own Cost of Supply studies per entity
• To enable each entity to embark on their own tariff design
• Other related charges such as; Wires charges or Distribution Use of System (DUOS) charges should flow from these results
• Other adhoc services of the wires or engineering business will not be handled (although acquired skills can be applied)
• The implementation of the training learnt by participants once they are back in their "shells" or workplace
3.10.5. The training team:
The team is comprised of competent people that stem from Distribution Corporate Pricing plus two facilitation experts from Business Today Consultancy Company. The Distribution team comprises of Mr Phillip Marais (Tariff design & Cost based specialist), Mr Robert Smith (Cost based & Computer Simulation Specialist), Mr Adriaan De Kok (Senior Consultant Pricing Analyst), this team was under the leadership and guidance of Mr Deon Conradie, the Senior Pricing Manager as directed by Ms Thandi Mazibuko (EDI Holdings). Ms Lerato Legoete, the author was unofficially appointed, the "Project Coordinator" in May 2005 - see the MS Project Plan provided in Annexure B (for more detail) which is updated regularly subject to the monthly scheduled workshops taking place and where there are changes that were not envisaged earlier...
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3.10.6. Assumptions by the Project team (core pricing team):
• High level project involvement & support
• Data will be obtained from other business areas (e.g. Finance, Engineering) with full support
• Engineering staff involved to provide network data
• Financial ring-fencing of the electricity business, of all entities participating
• Participants to involve other staff in project and handle all communication
• Current models in use will be used to enable capacity building - Excel and Access based
3.10.7. The target audience:
The target audience include all future RED role players, that is; the NER, EDI, local authorities and Eskom but specifically; Network Services engineers, Finance employees, Electricity Pricing, Meter readers and Customer Service employees.
3.10.8. Regional Responsibilities with regard to project:
Although, the regions or (future) REDs are the customers in this regard, there are certain outputs expected of them in terms of cost-based tariff design so that the Eskom Distribution Electricity Pricing project team can monitor, support and guide each RED through the Tariff Alignment and Cost-based process. This involves the establishment of 'regional' tariff working groups to ensure that the 'Regional' team (Eskom and Metro/Municipalities for that RED):
• Fully participate in all the phases of the tariff alignment and cost-based design process,
• Have a thorough understanding of cost allocation and tariff setting methodologies,
• Will carry the responsibility for regional co-ordination, data collection and cost allocation as well as cooperate with other role players in the tariff design process.
• Will be responsible to calculate the costs and tariffs per RED.
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3.11. Future Tariff Structures
Tariffs include the following; cost basis, unbundling, transparency and non- discrimination. The REDs need to launch their business on a sound basis in terms of tariffs, however, the EDI Holdings Company has subsequently approved that each RED (once formed) continue with the same tariff structures until "the company" is in a position to prepare and produce a consolidated tariff plan and structures - see figure 12.
This means in essence that, when the REDs are formed, Eskom and local authorities or municipalities involved per RED boundary would both be allowed to continue with their respectable tariff structures (customer base and revenue thereof) until the REDs are stable enough to allow for full transfer of assets, customers and employees by both
"contributors". However, during this era of industry uncertainties (in terms of the RED transition), the Eskom Distribution Electricity Pricing project team is faced with the daunting task of encouraging current regions to take this learning opportunity of design their tariffs using data based on their specific cost of supply studies. This initiative is not only a platform for information sharing but also aimed at preparing those individuals who will be accountable for designing tariffs in future RED boundaries and to make them aware that it will be the region's prerogative to use what they have learnt from this pilot project or not.
The proposal from the Pricing project team as well as the EDI Holdings Company is that, once the REDs are stable, thereafter, REDs should move to the integrated/ rationalized RED tariff structures, again, under the impression that EDI restructuring would go fully.
Clearly this can only take place through a phased-in approach, that is, over a certain time period based on the costs and financial stability per RED - see Figure 12 below. The implications of regions or entities designing their own tariff structures in future however, means that the accountability per RED increases, as head office assistance will be limited.
Despite the accountability for tariff plans and structures, REDs need to look at their own sales/load/price forecasting (both short & long term) as well as purchasing contracts.
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This chapter will only focus on Phase 1 of the project, its implementation and outcomes thereof, which is Competency Building. As one reads through this chapter, one should bear in mind that the coordination of all the above-mentioned phases is a great challenge.
Therefore also consider the complexities that accompany the entire Tariff Alignment and Cost-based project and the implementation of phase 1. The difficulty encountered during the Competency Building phase is with the proper alignment of all six regional workshops by avoiding coincidental workshops as well as with the implementation of the rest of the project phases. It is thus the duty of the Project Coordinator to avoid the latter while compiling the Project Plan (figure by communicating such difficulties to the project team.
The proposed process that will lead to the implementation of RED structures and predetermined timelines - subsequent to RED formation