Presentation to PPC : Energy on the Free Basic Electricity (FBE)

1. Presentation to PPC : Energy on the Free Basic Electricity (FBE) Ms Phindile Nzimande CEO 22 March 2012

2. Presentation Outline • Background of Free Basic Electricity (FBE) • FBE mechanism • FBE implementation • FBE implementation challenges

3. Background of FBE • In 2000, Government announced its policy intent to provide free basic services for poor households (i.e. water, sanitation and energy). • In 2002 National Government raised the provision for FBE to the indigent / poor households . • The Department of Energy (DoE) introduced the Electricity Basic Services Support Tariff (EBSST) policy in 2003 and was implemented in the 2003/4 financial year.

4. Background of FBE (Cont.) • Municipalities are responsible for the provision of the FBE within the parameters of EBSST policy. • Indigent/poor households are entitled to 50 kWh of free basic electricity per month, however, some municipalities provide more, eg. Ekurhuleni provides 100 kWh. • Any consumption in excess of the set limit of 50 kWh will be payable by the consumer. • FBE funding is provided to local authorities by National Treasury through the equitable share allocation as identified by the Cooperative Governance & Traditional Affairs (CoGTA) department.

5. Background of FBE (Cont.) • FBE implementation is facilitated by both municipalities and Eskom. • In the Eskom supply areas, municipalities enter into contractual agreement with Eskom. • The terms and conditions are set out in a service level agreement between Eskom and the municipality. • Eskom shall furnish the municipality with monthly tax invoice detailing the number of FBE electricity units issued and the total amount due to it.

6. FBE Mechanism • FBE mechanism is a tool used by NERSA to calculate the FBE charge out rate applicable to Eskom. • FBE charge out rate is determined by considering the following components: • No. of customers supplied by Eskom as indicated by the municipality; • The number of months to supply FBE, i.e. 12 months; • The amount of FBE units per month per household eg.. 50kWh; • Eskom’s costs for supplying FBE (vending commission costs); and • Eskom’s approved first block IBT rate for the particular financial year.

7. FBE Mechanism (Cont.) • FBE rate charge is a tariff at which Eskom charges the municipalities for supplying FBE on their behalf. • FBE rate charge out is determined and approved by NERSA on an annual basis.

8. FBE implementation Source: Eskom

9. FBE implementation challenges • FBE implementation approach • FBE policy requires municipalities to provide FBE to indigent households only, however, some municipalities apply a blanket approach i.e. to all households. • The blanket approach results in revenue shortfall. • The municipality would then want to recover the shortfall through electricity tariffs i.e. tariff increase higher than municipal tariff guideline. • Some municipalities charge additional units, after the FBE ones, at Block 1 rates of the Inclining Block Tariffs – this leads to revenue shortfall.

10. FBE implementation challenges (Cont.) • Multiple dwelling • The supply of electricity to multiple households (i.e. many families in one household) leads to some of the households not benefiting from FBE because the free units are supplied per stand. • Basis for budget • The 2001 stats serves as the basis for the budget allocations. • This results in municipalities supplying to a limited number of households eligible for FBE.

11. Thank you.