The electricity distribution industry (EDI) - The electricity distribution industry (EDI) is the part of the electricity supply industry that distributes, connects and trades electricity at medium and low voltages to end users. Restructuring means transforming electricity distribution in South Africa to improve efficiency and rationalize.
Practitioner bibliographical sketch
- Specific problem manifestation
However, this research will only focus on the implications of the restructuring process for distribution. This research will thus pave the way to the realization of final tariffs that will be approved and easily regulated by the regulator.
Eskom Dx Eskom Customer Categories Customer Categories Municipal Tariff Structures x n Figure 5: Current Tariff Structures in the Industry (source: Conradie, March 2005) 19
The Tariff Alignment and Cost-based Design Project
Currently, Eskom's tariffs are set according to; whether the supply is classified as urban, rural or residential, what the supply is to be used for or the size of the supply. This is thus a benchmark project which will benefit the whole of EDI and is run by EDI Holdings and supported by NER.
The cost allocation done
Electricity supply costs unbundled to reflect energy, transmission and
Costs segmented into categories
Assign charges based on the unbundled costs and the nature of these costs
Data Gathering and Costing Rate Design
Comprehensive problem statement
That is, this research will be based on emerging aspects and development of the above project in the Eskom Distribution Electricity Price Division. From the latter discussions, one realizes that the planning process of the project will be an interactive one and it is evidently a soft systems approach (Flood & Jackson, 1991; Gill & Johnson, 2002).
Introduction
Vertical integration was usually associated with franchise monopoly status, where the government regulated the supply of electricity to control prices, profits and performance. The purpose of this review is therefore to strengthen the knowledge base of past restructuring experiences and to go back and see if the reform of the South African electricity supply industry is on track.
A look at the electricity supply industry (world wide)
Regulation of Electricity
One perspective (way of looking at it) is that state-owned and regulated utilities are inefficient and perform poorly. Cordukes (1990) also came up with an idea that these fundamental components of regulation were developed in response to two basic considerations.
The History of Electricity Regulation
Electricity Markets in Developing Countries and the need for Restructuring
Examining and evaluating restructuring proposals in these electricity supply industries, investigating and questioning experiences (whether successful or failed) - especially for developing countries, and especially presenting their history. More specifically, this refers to the poor integration of national grids that have stifled the electricity trading potential in the region (Turkson).
Meanwhile, since utilities have monopoly power that may be ineffectively controlled, taxation of special purpose utilities can be justified as a recovery of monopoly profits. Nowadays, taxation in the public utility sector has become much more complex.
The Introduction of Competition in the Production of Electricity
The industry article consolidated by Cordukes (1990) seemed confident that the latter perspectives (on competition) will cease to exist in the near future. This is what the South African market will strive for in the near future.
An Overview of Reform Proposals
- Experiments in Deregulated Wholesaling
- Reform by Restructuring
- Total Deregulation
Ownership and operation of all transmission capacity would be transferred to “a regional energy pooling and transmission company.” Gordon (1986) reiterates that retail services would be provided by franchise monopolies, and that retail rates would be subject to government regulation.
The U K Electricity Industry
- Structure of the UK industry
- Impact of competition on UK customers
- Competition in the supply industry
- Service levels
- Energy efficiency and the environment
- Suppliers and the regulator
- Customer's perspective and impact
Although there is still much to be done before the dynamics of the UK electricity market reach a point of stability, there are some positive findings at the time of this research. Regulation of the British electricity market was embodied in the Director General of Electricity (DGES), the regulator.
Many countries around the world, such as Poland and the USA, are looking to the UK model as a basis for developing their own competitive electricity market.
Restructuring In Developing Countries
Outsourcing represents the replacement of private production by private contractors; Denationalization and tax reduction refer to the reduction of the scope of public sector activities, which respectively take the form of the sale of public enterprises and the (partial) abandonment of public non-market functions. According to Heald and Steel (1982), privatization of the public sector would contribute to the following four objectives:
The history of the reformation of the South African Electricity Supply Industry and Electricity Distribution Industry
It produced 97% of the electricity produced in the country and it represented almost 60% of the electricity produced in the entire African continent. This leads one to the above mentioned problem of a fragmented industry - that electricity prices are that the country is uncoordinated and largely a product of the South African previous government regime/system.
The History of Electricity Tariffs in the South African context
- Review of Electricity Tariffs
- bjectives of Tariffs
- Policy making approach
This means that tariffs should cover all costs of supply to customers, while ensuring that costs are recovered between customers in the most efficient way to create stable and efficient prices. There should be a set of tariffs that allows customers to choose the most favorable tariff based on their usage patterns.
Conclusion/ Way Forward
As the South African electricity distribution industry embarks on this major restructuring (separating distribution from transmission and generation groups) – ahead of the electricity supply industry – it is hoped that, based on the above experiences, they will come up with a process that is truly South African and fits the context of the province. The success of the latter depends on allocative (correct allocation of capital in terms of investment) and productive efficiency (competition in generation results in improved productivity).
CHAPTER 3: RESEARCH METHODOLOGY
- Title
- Background
- Scope of this research project
- Out of Scope
- Introduction
- The South African Electricity Sector
- Electricity Distribution industry and its relation to Electricity Pricing
- Tariff Alignment and Cost-based Design (pilot) Project - Pricing perspective
- Project Background and introduction
- Rationale for information sharing
- Summary of all Tariff Alignment Project Phases (pilot)
Below is an overview of the Tariff Alignment and Cost-Based Design pilot project over a five-year period (not absolute, but subject to change) - see Figure 11. For the holistic view of the project and its elements, refer to the attached (Annexure B & C).
Project launch & Tariff Simulation course
- COMPONENT 2: RED TARIFF DESIGN AND IMPLEMENTATION
As defined in the figure above, the cost-based tariff alignment (pilot) project is divided into five phases as defined in Figure 11 above.
Data Gathering and formatting
Costing
During these simulation workshops or training sessions, both the target audience and the training team are expected to; analyze existing methodologies and rates, as well as the systems used to obtain data to carry out cost of supply studies. Evidently, such intense mentoring activities require some commitment and (unspecified) time spent with participants in their specific settings to discuss their specific obstacles and formulate solutions.
Rate Design
Tariff Restructuring Plans
- The Scope of the Project implementation
- The training team
- Assumptions by the Project team (core pricing team)
- The target audience
- Regional Responsibilities with regard to project
- Future Tariff Structures
Participate fully in all phases of rate adaptation and cost-based design process. Thus, it is the duty of the project coordinator to avoid the latter during the preparation of the project plan (figure by communicating such difficulties to the project team.
Pre par
This chapter will focus only on Phase 1 of the project, its implementation and outcomes, which is capacity building. The problem encountered during the capacity-building phase is in properly coordinating all six regional workshops by avoiding random workshops, as well as in the implementation of the remaining phases of the project.
6 -12 months
Therefore, consider also the complexities that accompany the entire Tariff Alignment and costing project and the implementation of phase 1. The proposed process that will lead to the implementation of the DAR structures and the predetermined deadlines - after the formation of the DAR.
3 - 5 years
The latter references should come as no surprise, as they have been discussed and cited repeatedly throughout this chapter. The latter represents the equity side of Eskom; however, these rates must also be sound and understandable for the "ordinary" customer, this goal also ties in with the transparency issue suggested by the ERIC (1996) discussed earlier.
The Tariff Alignment and Cost Based Design Course
- Hypothesis of the Tariff Design Course
- The simulation programme
- Student motivation
- The testing of the intervention and implementation
- Progress to date and outcomes
There seems to be a huge gap in the industry when it comes to rate design skills. Because the facilitators were not experts in the tariff design field, it was decided.
Evaluation of the research methodology
- Data collection approach
- Evaluation Strategies and reason for the use of a particular methodology
- Sample size
The research methodology used in this research thus involves the practical involvement of the researcher with the subjects. The sponsorship and support of EDI Holdings Company was a contributing factor in the success of this project.
- The results
- Attendance of the sample/ targeted audience
- Feedback from delegates
- Delegates pledges to improve in their workplace
- Future possibilities to address concerns
- The learning outcomes that evolved as the workshops progressed
- Discussion Overview
- Discussion on Workshop Feedback
- A look at the "training team" and reasons for their success
- Response to the Negative Feedback Queries
- The overall learning experience as an Organisational Development exercise
- Discussion on the success of the workshops
- Discussion on the workshops, the project and the EDI intent
The attendance of the workshops by all members involved in the cost of supply study per region or entity. An important factor that contributed to the success of these workshops was the personality and style of the facilitators.
Changed Competency Building Focus due to the Changed RED end state
Financial impact and justification on the REDs
In his article in the ESI Africa Magazine (2003), Tino Espinherira states that electricity prices (which are currently low - see Figure 15 below) are one of the main factors contributing to the conditions necessary to achieve an acceptable return on investment to obtain. for potential independent power producers (IPPs). However, the main policy challenge is to design a sector structure that provides incentives to optimize investment efficiency in the future41.
CHAPTER 5: CONCLUSION AND RECOMMENDATION
- The future tariff design candidate
- What Is The Future For The Tariff Alignment Course?
- What will happen specifically with the training sessions?
The latter was the rationale behind the Capacity Building project that emerged in the Eskom Distribution Electricity Pricing group. This is in terms of regional visits starting at Stage 3: Cost (as previously explained), to ensure that each.
Draft policy and strategy for electricity supply industry reform for the Republic of South Africa. Interim rationalized user specification: supply cost methodology for application in the electricity distribution industry.
ANNEXURE
Appendix B; Rate Alignment and Cost-Based Design Project Plan ID e Task Name Duration Start Complete Predecessors 2,'05 Jan 9.
Acquire & manage customer load profile data Acquire & manage customer load profile data Model
Acquire & manage customer load profile data Detail - (L3) Level 4: Acquire customer load & non load data
Research typical customer load profile Model
Research typical customer load profile Detail - (L3) Level 4: Perform load profile statistical analysis
Derive cost of supply Model
Derive cost of supply Detail - (L3)
Maintain cost of supply methodology Maintain cost of supply methodology Model
Acquire financial, wholesale electricity pricing &
Develop cost of supply matrix Develop cost of supply matrix Model
Design tariff structures Model Design tariff structures Detail - (L3)
Research customer & business tariff requirements Research customer & business tariff requirements Model
Define new tariff structures Define new tariff structures Model
Calculate rates for tariffs Model
Calculate rates for tariffs Detail - (L3)
Maintain tariff rates model Maintain tariff rates model Model
Scale rates to be revenue neutral & adjust for subsidies Scale rates to be revenue neutral & adjust for subsidies
Analyse impact of tariff rates on customers Analyse impact of tariff rates on customers Model
Manage tariff stakeholders Model
Manage tariff stakeholders Detail - (L3) Level 4: Recalculate rates with price increase
Appendix D: SIMULATION OVERVIEW: AN OVERVIEW OF THE COMPUTER BASED COURSE LAYOUT Tariff Design Today SIMULATION OVERVIEW You are the team at a Regional Electricity Distributor (RED) tasked with designing a group electricity distribution fees. 2005 Business Today Simulations Limited Figure 20: Shows the three most important pieces of data needed to put the pieces together to design rates (source: Student Manual).
Income Statement
As discussed in the write-up above, the simulation model essentially allows participating students to go from an Income Statement obtained from Distribution Finance to a Cost Table, which is a breakdown of all costs charged to customers for category. R Total Revenue Requirement - Target Spread I Total Revenue Requirement - Target Spread R 62 Figure 23: Presents the cost table from which the actual rate structures can be determined (this picture shows only acquisition and network costs vs. different customer categories/voltage levels).
Cost Table
COURSE EVALUATION
COURSE EVALUATION 27 June - 01 July 2005
COURSE EVALUATION 11-15 July 2005
