Mandate

To manage a successful retail business and optimally operate and maintain the Eskom distribution electricity network, while managing the Distribution customer base.

Eskom owns 46 712km of distribution lines, 308 899km of reticulation power lines and 11 018km of underground cables in South Africa, representing the largest power line system on the continent of Africa.

	Highlights			Challenges
	The marginal improvement of the system average interruption duration index performance Achieved a customer service score of 84.37% (2010: 85.05%) against a target of 83.71% Improved level of energy losses due to increased interventions in the management thereof Electrified a total of 4 050 968 homes (2010: 3 901 054) since the inception of the electrification programme in 1991 Taken action on more than 90% of wildlife interactions reported to the Eskom/Endangered Wildlife Trust partnership and implemented mitigation measures within four months Performed an internal ISO 14001 review on all regions, highlighting best practices and areas for improvement Engaged with some provincial authorities about permits for cutting protected trees Seen positive results in waste management and data integrity Rolled out various environmental awareness initiatives about climate change.			The marginal deterioration of the system average interruption frequency index performance The number of legal contraventions, especially tree-cutting incidents, and a few incidents of non-conformance with environmental authorisations.
	Future priorities
	Improve network reliability and technical performance   Appropriate network maintenance and capital investments Focus on and respond to current and future customer needs Renew focus on safety improvements Enhance focus on revenue management and collections Continue roll-out of Operation Khanyisa to reduce energy theft Continue roll-out of split metering Standardise, optimise and integrate business processes (Back2Basics) Grow human capital through retention of core, critical and scarce resources, complemented by effective skills and talent management.

 

Benchmarking

Distribution has participated in a 2007 benchmarking study, conducted by an independent international consulting group, with utilities in North and South America. The reporting methodology, network characteristics, environment and operational processes and practices of the distributors in the benchmarking panels are not the same, which results in a wide range of performance levels. This makes any direct performance comparison a challenge.

Eskom’s network interruption performance is dominated by the performance of rural lines, which have been built on a least-cost basis. In this way, Eskom’s distribution networks differ significantly from those of other distribution companies that have supply areas which include large cities and towns. Rural lines in South Africa include long radial lines with very limited redundancy and back-feed capability. This significantly distorts direct comparison with North American distributors in the benchmarking panel.

The South American peer group is more appropriate from a network investment and customer point of view than the North American peer group (as well as European peer groups). The Eskom system average interruption duration index and system average interruption frequency index is in the fourth quartile.

• System average interruption duration index performance in South America (2007) is between 3.5 and 90 hours per year and for Eskom it is 52.61^RA hours.
• System average interruption frequency index performance in South America is between 2.5 and 60 sustained supply interruption events per year, and for Eskom it is 25.31^RA events.

International benchmarks for the distribution supply loss index and the reticulation supply loss index are not available.

Material issues

Distribution’s five-year capital plan is updated every year. The plan is derived from all projects in the Distribution regions, divided into lines, cables, transformer numbers and transformer capacity per voltage level per category. The voltage levels used are sub-transmission (above 33kV) and 33kV and below.

As part of its response to the poor system average interruption duration index performance, Distribution is changing the planning approach and criteria.

Strengthening and refurbishment
Strengthening caters for the growth in the network as a result of economic growth, and refurbishment refers to the maintenance of existing network assets. Growth in the electrification programme also requires strengthening the supporting network infrastructure to open up un-electrified areas of South Africa. The National Energy Regulator of South Africa and the grid code require that Eskom maintains a level of network stability and flexibility that can support the growth of existing customers.

There are about 800 to 1 000 constrained feeders in Distribution which means that due to either voltage or transformer capacity limitations, no new connections can be made. Most of these constraints can only be removed by means of sub-transmission infrastructure strengthening. The capital required is about R5 billion which indicates the extent of the backlog. What can be implemented is in the order of R3 billion in the period up to 2014/15.

There is a significant refurbishment backlog, which this capital plan is addressing. Refurbishment expenditure of R1.4 billion per year will ensure that the backlog does not increase. There is a need to change refurbishment strategies and Distribution’s resource constrained ability to execute the strategy. Spending on refurbishment aims to eliminate the backlog over a 10-year period. Distribution is building additional sub-transmission substations to create more feeders and split the existing feeders in response to the reliability challenges with long feeders (in excess of 200km).

Split metering
Split meters reduce the amount of non-technical losses. These devices use two-way communications to detect tampering. In Soweto, the cost of split meters has increased due to the need for secure housings for the meters to prevent tampering or bypassing. After 2014/15, the split metering technology will be incorporated into normal business.

Material issues

Eskom’s service delivery and efficiency is important to South Africa’s economic prosperity, transformation and sustainable development. By monitoring customer satisfaction, Distribution can plan to ensure that it delivers the required quality of service at the appropriate time and price. A range of statistical perception surveys, conducted by an independent research organisation, is used to measure customers’ satisfaction with the service delivered.

NERSA approved a revenue requirement of R85.18 billion and a price increase of 24.8% on tariff-based sales for 2010/11. This resulted in a standard average price of 41.57c/kWh.

Refer to the Regulatory and Legal Framework section for details of the MYPD 2 process.

The National Energy Regulator of South Africa also decided to replace Eskom’s residential tariff structures with an inclining block tariff. This includes measures to protect the poor, so there are different increases per tariff category. The inclining block tariff has been implemented for metered residential customers. Implementation for prepaid residential customers was limited to the NERSA IBT price levels within the existing structures at first, with full implementation on 1 April 2011.

The inclining block tariff gives significant relief to most residential customers, with customers with low consumption seeing reductions in their costs. Customers using more than 1 500kWh per month see higher than average increases.

	Case study
	The introduction of the inclining block rate tariff NERSA in its determination announced “In order to provide for cross-subsidies for low income domestic customers, as required by the Electricity Pricing Policy (EPP1), implement residential inclining block rate tariffs concurrently with this price increase. The structure of the inclining block tariffs, together with the average c/kWh and percentage price increases, are as follows:       2010/11   2011/12   2012/13   Measure (and unit)   c/kWh     % increase      c/kWh     % increase      c/kWh     % increase      Block 1 (≤50kWh)    54.70     (10.59)    57.65     5.40     60.83     5.50     Block 2 (51 – 350kWh)    58.48     (5.20)    66.16     13.23     75.09     13.50     Block 3 (351 – 600kWh)    76.35     21.95     96.05     25.80     120.93     25.90     Block 4 (>600kWh)    83.74     35.82     105.35     25.80     132.63     25.90     Average residential tariff   60.60         68.83     78.62     78.62