Eskom does an extensive study where costs are allocated to each customer category. Costs are allocated as follows:

• Energy cost
  
  Energy costs are allocated to customers based on the Generation costs using consumption profiles and approved kWh volumes. An important factor is how customers use electricity during peak, standard and off-peak time periods during the year. Customers that use more electricity in peak periods and in winter have a higher average cost per kWh.
• Network costs
  
  The network costs are allocated based on capacity, the voltage of the supply and whether a supply is on a rural or urban network. Lower voltage rural network have the highest cost per kWh.
  
  
• Retail costs
  
  The retail costs are allocated on the size of the supply where smaller supply sizes are allocated lower costs versus larger customers. Even though the amount may be less, it is a R/customer cost which when divided by the average consumption gives a higher c/kWh value.

The sum of all costs must balance back to the approved NERSA revenue requirement. The following table shows the cost of supply and compares this to the average rate per tariff:

Eskom’s larger customers (Megaflex and Nightsave Urban tariffs) pay more than the cost to supply these customers. If Eskom tariffs were made cost reflective, the Homelight tariff and the Ruraflex, Nightsave Rural and Landrate tariffs would have to be increased significantly. The tariff receiving the largest subsidy is Ruraflex, which mainly supplies large points of supply on farms and small municipalities.

Therefore the opposite of the common misconception is true – industrial customers subsidise the bulk of Eskom’s residential supplies.

As the number of customers on Homelight has increased by over two million customers over the last 10 years, the average price of the residential tariff has increased. Eskom has also in the past made proposals to reduce the level of subsidies to the Homelight and the rural tariffs to more sustainable levels, which were approved by Nersa. In our current price submission, modeling was done to show a reduced increase to Homelight to address affordability.

The application of the price increase to tariffs

Eskom’s price application is a price increase for all regulated tariffs. The bulk of our sales are to industry, mining and municipalities, all of which are on standard tariffs and are subject to the same price increase as any other customer. These customers are subject to exactly the same rules by Nersa as any other customers and their tariff structures and prices increase are included in our revenue requirement and are approved by Nersa.