1 Eskom Distribution (An Integrated Development Approach) Presentation to the Portfolio Committee on Public Services and Administration 5 June 2006

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Eskom Distribution(An Integrated Development Approach)

Presentation to the Portfolio Committee on Public Services and Administration

5 June 2006

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Contents

1. Brief Introduction/Background

2. Eskom’s Electrification programme

3. Alignment of Projects with IDP Process

4. Electricity Universal Access Approach [2012]

5. National RED – Conceptual Design

6. Progress on Billing Systems [Revenue Enhancement]

7. Electricity Power Challenges in the Western Cape

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Eskom Holdings : Divisional Mandates

Generation

Transmission

EnterprisesDivision

Corporate

Distribution

To design, build & refurbish Eskom’s assets, act as a catalyst for globalisation for the group and to be the custodian of Eskom’s non-regulated businesses. Eskom Enterprises will also offer strategic and commercial lifecycle services to the line divisions

To optimally operate and maintain the plant lifecycle of Eskom’s South African generation capacity assets.

To assure regulatory compliance, ensure effective group wide governance, develop policies for compliance assurance and to provide strategic services.

To optimally operate and maintain the lifecycle of the South African transmission network.

To manage the retail business and optimally operate and maintain, the SA Distribution network, while playing an active role in the restructuring of the EDI.

Key Customers

Key Customer

Division

To proactively manage contestable client relationships and to trade energy from Generation and international sources to contestable clients in SA (consumers of >100GWh) and customers abroad

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Distribution Division : Business Model

Customer CategoriesWires Business (Engineering/Network)

Retail Business(Customer Service)

Overall management of network infrastructure in

delivery of electricity to end user

Functional Areas:

• Construction of network infrastructure;

• Installation of meters;

• Inspection, testing, upgrade & maintenance of equipment

• Technical customer connections & disconnections

Purchase electricity from the wholesale market and sell to

end user/ Redistributors

Residential

Traction

Agriculture

Commercial

Redistributors

Prepaid

Mining & Industrial

Functional Areas:

• Sales & Marketing

• Energy Trading

• Customer Service

• Pricing & Tariff Planning

• Call Centre

• Billing

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Contents


2. Electrification programme






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Electrification - Energy White Paper

Mentions the following key issues:

Electrification Planning Unit [INEP BPU] National Electrification Fund [NEF] Economic Development Infrastructure creation Economic Nodal Areas identified/priorotised Integrated National Electrification Programme

[INEP]

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Eskom’s Electrification Programme

3,3m households have been electrified since 1994 Approx. R9b capital expenditure – average cost

R3900 per connection National Government subsidised INEP since 2001 R873m allocated for 2006/7 programme 120 000 connections to be realised in 2006/7 [after

adjustments (target was 160 000 connections] Connections mainly in rural areas Capacity building programmes achieved through

ESDEF Rural Development initiatives in Nodal areas

8

Challenges

Different challenges for current and proposed

programme compared to the 1994 programme Limited Infrastructure [mostly in rural areas] Integration with Government prioritiess

A phased process for step-up programme Step-up of programme – 18 months lead time required Average lead time for bulk infrastructure – 27 months Availability of resources, funding, material, suppliers etc.

Ensure availability of adequate capacity Electrical infrastructure in former TBVC states and self

governing territories requires major upgrading and strengthening

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Challenges

Harmonisation of electrification and housing programmes Balancing cost against social economic requirements e.g. job

creation Ensure availability of data and structural information Cater for household growth as part of step-up programme Development of policies regarding implementation issues

such as un-proclaimed areas, land usages etc. Ensure political support in ensuring the speeding-up of housing

allocation/tender processes etc. Integration of supply technologies Finalisation of the EDI restructuring Availability of funding up front [R2,5 billion per annum]

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CONTRIBUTION TO INTEGRATED SUSTAINABLE RURAL DEVELOPMENT (ISRDP)

MANDATE AND STRATEGY

The programme was established in 2001 to support the Integrated Sustainable Rural Development Programme in the 15 identified rural nodes.

Eskom will continue with other development initiatives as per their mandates.

The programme will be reviewed in 2010. MANDATE AND STRATEGY

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Spread of Projects [In Nodal Areas]

Region/Area Amount (R)

Eastern Cape [8 Projects] 17 145 282

Northern Cape [5 Projects] 8 278 350

Central Karoo [2 Projects] 2 400 000

Free State [1 Project] 1 200 000

Limpopo [8 Projects] 8 762 355

KwaZulu Natal [11 Projects] 21 690 000

TOTAL CONTRIBUTION 59 475 987

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Type of Projects Funded

Rural Development Projects include the following:

Upgrading of Classrooms Contributing towards infrastructure for water projects Food security programmes Multi-Purpose Centres – Electricity Provision Agricultural Development

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Additional Eskom’s Programmes For Social Upliftment Eskom Development Foundation Training and Development Expo for Young Scientists Proudly South African Selected environmental initiatives Chairman and Chief Executive Funds HIV / AIDS / SAAVI, Health Care training / immune

boosters Business Against Crime Scholarship Programme Assets donations / BUs donations

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Contents








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The (INEP BPU) makes recommendations for the approval of the Integrated National Electrification Plan [INEP] to the National Electrification Advisory Committee (NEAC) comprising of inter alia DME, National Treasury, SALGA, AMEU, DWAF, IDT, DPLG and Eskom based on the following criteria:

Focus on backlog and apply a rural bias

Prioritise based on Integrated Sustainable Rural Development

Strategy (ISRDS) Nodal Zones

Maximise on available infrastructure

Past performance taken into account

Government priorities and initiatives such as Integrated

Infrastructure Development considered

Regional capacity e.g. resources

National Electrification Fund Allocation Principles

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NEF Process for Allocation of Funding to Provinces

Use same criteria as in NEAC Adjust programme as per DME requirements and in line

with the change process Provincial consultation done through:

Provincial IDP/MIG Forums chaired by Provincial Local Govt officials

Provincial Energy Forums [where applicable]

Final funding allocations to Municipalities are based on the approved budget by DME and are consistent with IDP agreements signed between Eskom and Municipalities

Project Life Cycle principles observed

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Contents








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19

National Backlog to date

A current backlog of electrification connections of 3.4 million households.

An estimated requirement of 5 million connections by 2012.

If electrification continues at the current rate: 43% of current backlog (excluding growth) will be electrified by

2012. 29% of backlog (including growth) will be electrified by 2012.

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Universal Access Consideration Step-up programme planning to be phased in (+/- 18 Months) Master plan needs to be in place Cost per connection (Based on existing Eskom trends)

R4,970 from 2006/7 R5,522 from 2008 to 2010 R6,075 for 2011 to 2012

High cost per connection to be influenced by : Less infrastructure available Catering for higher supply technology e.g. 10A, integrated

development programmes Low density/long line length

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Universal Access Considerations

Cost for social economic developments e.g. job creation,

BEE should be made available separately (Community

based construction -Department of Labour)

Eskom needs to identify risks and consequences of step-up programme

Focus Universal Access as follows [shifting target]

Western Cape - 2007/8 Northern Cape, Free State - 2008/9 North West and Mpumalanga - 2009/10 Universal Access for the rest – target 2012

Once universal access is reached – business as usual

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Context ……….

Farm worker houses included as part of connections The following were not factored in

Non grid concessions/connections Local economic development planning Land restitution issues Emerging farmers [electrification, support and

development] Impact of Municipal Infrastructure Grants (MIG) Schools and clinics electrification

Planning Targets should be negotiated with Municipalities to ensure alignment

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Journey to Universal Access

Eskom identified 3 phases for development of the Universal Access Planning approach:

Phase 1 - (Short term): High level planning proposal to achieve universal access in line with Government objectives;

Phase 2 - (Medium term): Detailed planning proposal per municipality for the current Medium Term Expenditure Framework 3 year cycle (with refined Phase 1 planning proposal); and

Phase 3 - (Long term): Long Term approach on the development of the Universal Access Plan (UAP).

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Project Charter for Phase 3 (2 Stages)

Project charter on how the plan might be prepared, based on 2 stages: Stage 1: UAP Business Case

Review the 3 year rolling electrification plan and related available data, for the 3 year MTEF cycle as per NT process and to be gazetted by February 2007; and

Develop DME Business Plan (Case Study). Agree upfront on what the DME requirements are for a BP. The minimum requirements are:

Scope and definition of what is required. Resource requirements with a 2012 view broken

down per year. Scenario sketching and sensitivity studies. Risk identification and mitigation The biggest risk is

that Eskom must do more than 350 000 connections within any year.

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Project Charter for Phase 3 (2 Stages)

Stage 2: National requirement for Universal Access

Compile the Connection Master Plan & Network Development Plan, noting needs of low density areas & small scale farming, & constraints of the 2012 target;

Assess impact on Eskom Generation & Transmission, other operational issues, financial viability, recommended subsidies, tariffs, & refurbishment;

Assess application of technologies (including non-grid), appropriate execution strategies, resource availability & timeframes;

Align to Electricity Supply Industry & Electricity Distribution Industry restructuring, development plans, other planning processes & government initiatives; and

Compile “next phase” detailed projects & timelines after Government decisions.

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Stage 2 Project Approach

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Contents






6. Progress on Billing Systems [Revenue Enhamcement]


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Background

Cabinet decision of 14 September 2005:

“… six metro REDs needed to be set up as soon as possible after the local government elections, and that other areas would be covered under separate local REDs or a national distributor. Eskom will continue to play a critical role particularly in the national RED”

Meeting of the economic cluster ministers (DPE, DME, dplg, National Treasury) on 29 November 2005:

• 6 Metro REDs confined (for the 1st phase) to metro boundaries - to be confirmed by March 2006

• Business model for national RED in place by June 2006, subject to realistic timeframes

January 2006: Minister of Public Enterprises requested Eskom to conceptualise the national RED with concrete proposals on management & governance

February-May 2006: Financial Viability analysis.

Awaiting Cabinet approval.

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Key Features of the National RED

Use the Eskom national footprint as the basis of the National RED

- enhanced economies of scale through proven technology, business processes & scaleable IT solutions

- improved service delivery through customer focused value chains

- sustained industry skills in various centres of excellence

- national planning and infrastructure development

- earlier progress - limited dependence on RED creation

- a base for equitable national tariffs

Staff Benefits

- stability for industry employees

Credible consolidation vehicle for municipal electricity undertakings

- immediately address weak rural distribution- leverage on Eskom experience of TBVC and

SGT take-overs- equalise the financial impact of restructuring

through inclusion in the national rate base

Support free basic electricity & universal access to electricity by 2012

- proven Eskom track record particularly in rural electrification

- economies of scale with respect to planning, project management & national infrastructure development

- delivery of national electrification infrastructure

- government interaction on electrification funding and reporting limited to a single service provider (national RED) as opposed to multiple municipalities

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Benefits to Municipalities

MUNICIPAL REQUIREMENT

NATIONAL RED OFFERING

Financial Position not adversely affected

Secure cash flow through asset compensation (sale or lease)

Effective and efficient electricity service provision

Effective service provision based on regulatory standards

Delivery on Electrification and FBE targets based on contractual agreements

Effective and Efficient non-electricity service provision

Opportunity for focused attention to non-electricity services

Eskom support for non-electricity municipal services e.g. billing, cash collection & contact centres

Equitable electricity tariffs Low equitable tariffs in the long term due to enhanced business efficiencies through consolidation and economies of scale

National RED a base for equitable national tariffs

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Non-Electricity Municipal Service Provision [Conceptual Design]

3rd Party cash

collection

CustomerWater Meter

Elect. Meter

Finance

Water / SewageOperations

Municipality

Finance

ContactCentre Billing &

Account Ops

Electricity Dispatching

Copy Billing &Account Ops

DispatchingWater / SewageTrouble

Calls

ElectricityAccountAll

trouble calls&

bill queries

Refer to municipal account

Copy Billing &Account OpsCopy Billing &

Account Ops

Electricity WiresElectricity

Trouble Calls

Refer to Electricit

yaccount

Shared Service

KSACS

MeterRead

s

MeterRead

s

Rates &ServicesAccount

Municipal Services Revenue

3rd Party water credit

Management

National Distributor

ESKOM

Single Customer Data BaseInformation &

Cost for service

Electricity Revenue

Information

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Summary

The proposed conceptual design of the national RED fully supports the national objectives

The national RED will be an effective consolidation vehicle for non-metro municipalities

Initially, minimal restructuring effort is required to immediately address the problems of rural distribution

The national RED will significantly contribute to meeting the target of universal access to electricity by 2012

Eskom’s national footprint will provide the base for significant benefits through economies of scale and skill

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Summary

Municipalities will benefit from the process through:

secure cash flows from asset compensation enhanced non-electricity service provision through a service

provided by the National RED The financial implications of the national RED divesting of its

business in the Metro boundaries as well as transferring in municipalities are manageable

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Contents








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Strategy

Target 6 Munics from the list of 12 as a pilot Liaise with DPLG Service Delivery Facilitators

locally

Customised offering per Munic from: Electricity provision Contact Centre Account Operations Water, rates, sewerage, refuse billing Systems

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List of 12 Munics with Service Delivery Facilitators

Proposed Municipalities Population # of Households

Other services 1st phase

suggestion

Eskom Region

1 Mafikeng Local Municipality (NW) 259,478 64,674 64,674 C

2 Makhuduthamaga Local Municipality (LP) 262,903 53,156 53,156 N

3 Matjhabeng Local Municipality (FS) 408,170 120,288 30,000 NW

4 City of Johannesburg (GP) 3,225,812 1,006,931

5 Tsantsabane Local Municipality (NC) 31,013 7,227

6 Greater Kokstad Local Municipality (KZN) 56,528 19,625

7 UMngeni Local Municipality (KZN) 73,896 20,488 20,488 E

8 Dr. J S Moroka Local Municipality (MP) 243,313 53,582

9 Cederberg Local Municipality (WC) 39,326 10,366 10,366 W

10 Nelson Mandela Metropolitan Municipality (EC) 1,005,778 260,799

11 Buffalo City Local Municipality (EC) 701,890 191,046 50,000S

12 Moretele Local Municipality (NW) 177,905 43,008

TOTAL 6, 486, 012 1,851,190228,684

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High Level Assessment and Recommendations

There appears to be no major technical obstacles We can use Eskom’s Billing and Contact Centre Systems Staff and systems are scalable

Municipal customer impacts One municipal bill for all services separate from any

Eskom bill No change to current municipal bill layout and logo New account id will be allocated to the customer Need to convert sufficient history to enable accurate

estimates

Time Frames At least 10 months to set up systems

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Contents






6. Progress on Billing Systems [Revenue Enhamcement]


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Eskom Peaking Generation400 MW Palmiet

Western Cape Network

Note: The above excludes The City of Cape Town’sgeneration

LoadWinter Max : 4250 MW

Summer Max : 3900 MW

Transmission Capacity2400 - 2800 MW

Koeberg Generation1800 MW

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What happened?

Date Incident Resulting Impact on Supply

11 November 2005 Switchgear failed Transmission lines and transformers tripped

Loss of supply

16 November 2005 Fire under the lineKoeberg Unit 2 shutdown

Loss of supply

23 November 2005 Controlled shutdown of Koeberg Unit 2

Load shedding due to network limitations

25 December 2005 Controlled shutdown of Koeberg Unit 1, foreign object detected

Loss of supply

18 to 19 February 2006 High pollution levels and misty conditions

Kendal Unit 6 and Koeberg Unit 2 shutdown

Loss of supplyFull black-outSubsequent load shedding

28 February 2006 Multiple line faults Shutdown of Koeberg Unit 2Subsequent load shedding

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What does this mean? – Supply Capacity

End July27 M

arch 2006

24 April

2006

19 June 2006

22 May 2

006

25 Sept 2

006

28 Aug 2006

Both Koeberg units operational

Limited electricity supply Sufficient electricity supply

Koeberg Unit 2

Koeberg Unit 1

One Koeberg unit operational at a time

Koeberg Unit 1

Koeberg Unit 2

Shut down Koeberg Unit 2 for refuelling at end of May

Complete repairs to Koeberg Unit 1 before end of May

Shutdown

Generating electricity

Key:

Transmission System Intact

Palmiet Pumped Storage

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What does this mean? – Supply Forecast

0

1000

2000

3000

4000

5000

End July

Electricity supply forecast(Illustrative)

Key:

27 March

2006

24 April

2006

19 June 2006

22 May 2

006

25 Sept 2

006

28 Aug 2006

Limited electricity supply Sufficient electricity supply

Koeberg Unit 900 MW

Transmission System 2400 to 2800 MW

(varies according to Koeberg output)

Koeberg Unit 480 to 900 MW

Palmiet Up to 400 MW

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What does this mean? – Supply Shortfall

0

1000

2000

3000

4000

5000

End July

We need more electricity than can be supplied

Enough electricity to meet needs

Electricity supply forecast

Electricity need/demand forecast

Key:Gap = Electricity Supply

Shortfall of 300 to 400 MW during morning and evening

peak times through the winter

27 March

2006

24 April

2006

19 June 2006

22 May 2

006

25 Sept 2

006

28 Aug 2006

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What are our Action Plans?

Koeberg Repairs and refueling

Transmission Grid activities

Load Shedding Plan Demand Side Management

(DSM)

No shortage of electricity supply after the end of July since supply will be provided by: Koeberg Unit 1 Koeberg Unit 2 Palmiet (during

peaks) Transmission System

End July

We need more electricity than can be supplied

Enough electricity to meet needs

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Koeberg - Update

Area Progress Update Risks

Unit 1 Synchronised on to the grid at 10h30 on 17th May

Steadily increasing its power output

Currently generating 99% (890 MW sent out) power

Final adjustments to be made before increasing to full power

At this stage there are no major known risks on the plant

Unit 2 Unit 2 shutdown during the early hours of the 22nd May for its routine refuelling shutdown

Shutdown is planned for 59 days

Should synchronise on to the grid on the 19th July

As it is early days in the outage no new risks or threats have been identified

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Issues to note

Electrification Progress to date and funding requirements Universal Access Approach/Strategy Co – ordination of projects to meet IDP requirements Training, development and capacity building initiatives

as part of Eskom’s social responsibility programme Revenue Enhancement pilot project REDS and associated benefits Western Cape recovery Plan

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Thank You

Documents

1 Eskom Distribution (An Integrated Development Approach) Presentation to the Portfolio Committee on Public Services and Administration 5 June 2006