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Overview of Free Basic Electricity (FBE)
Programme and experience of stepped
Presentation to the Portfolio Committee
22 March 2012
Overview of Free Basic Electricity
Challenges experienced in implementing the programme
Sufficiency of the 50KWh per month Free Basic Electricity
Experience and challenges encountered with the Inclining Block Tariffs
Free Basic Electricity
Overview of Free Basic Electricity (FBE) programme
• In 2000, Government announced a free basic service policy
• In 2003 the Department of Energy (then Department of Minerals and Energy) developed the
Electricity Basic Services Support Tariff (EBSST) Policy which was implemented in the
2003/2004 financial year
• This policy prescribed an allocation of 50 kWh per month to be provided to all low income
households to be funded through the local government equitable share
The obligation to identify low income households to receive FBE, in line with the Constitution
remained with municipalities even in places where Eskom is the direct supplier of electricity
• FBE is funded through the equitable share, an unconditional grant given to municipalities to
assist them in providing basic services to low income households
• No funding is directly provided to Eskom from national government but Eskom claims the
funding for FBE from municipalities in terms of a funding agreement between Eskom and
• Eskom has 1,15 million customers approved to receive FBE, with agreements signed with
Challenges experienced in implementing the programme
• The national average of customers collecting FBE tokens is currently at 76%
• In some provinces collection rate is as low as 58% due to collection sites not being easily
accessible to customers in remote and rural areas
• Improvement and regular interaction is required between Eskom and regional energy
forums, with FBE consistently on the agenda
• Co-ordination and information sharing between Eskom and municipalities is a challenge
• Inconsistent identification of low income households as indigent by municipalities
• Challenges with FBE being provided to farm workers as the farmer generally holds the
contract of supply, and this needs to be addressed.
An indication of FBE collection rate in Eskom supply areas
Identified by municipality
% Collection rate
1 153 244
• Eskom is exploring mobile sites in remote and rural areas to improve the collection rate
• Equitable share to be a conditional grant to ensure its application as intended
• Eskom to provide municipalities with the FBE status reports and municipalities to
discuss the results at all levels.
• Municipalities to update their indigent registers annually and confirm correctness.
• Regular workshops to be arranged including representatives from Eskom, municipalities
and government where ideas can be shared and to strengthen relationships.
• Quarterly meetings to be held with representative from Eskom, COGTA, NERSA, DPE,
DoE and SALGA (all the stakeholders that are involved in this Programme) to share the
challenges of FBE and getting solutions to those challenges.
• Formation of a joint task team to explore mechanisms to provide FBE to farm workers.
Sufficiency of the 50kWh FBE per month
Sufficiency of 50 kWh FBE per month
• In 2010 Eskom gave inputs to the Inter Ministerial Committee (Energy)
(IMC–E) Work Group 1A: Protection of the Poor and FBE.
• The aim was to develop a report that addressed amongst others:
• Evaluation of the current FBE policy and identification of other possible options;
• Make it more uniform and effective to reach all customers classified as indigents;
• Evaluating whether 50 kWh per month is sufficient as FBE;
• It was recommended that the 50kWh per month level is sufficient (refer to
• To date there has been no change in the policy.
• Eskom will take its guidance from national policy as to who qualifies and
what should be the correct FBE level provided.
Recommendations made by (IMC–E) Work Group 1A:
Protection of the Poor and FBE (24 May 2010)
• The recommendations from the report presented to the IMC
• Having considered what usage level certain appliances use, the average
monthly consumption of an average indigent household is between 50kWh to
100kWh. (2 million Eskom customers consume up to 50kWh per month)
• Low income consumers will be able to reduce their electricity consumption
with the use of more energy efficient appliances.
• It was concluded that the 50kWh per month level is sufficient.
Steps taken to address the challenges –Working Group 1A
• A number of steps have been taken that will ensure that low income
households are sufficiently protected from the impact of Eskom electricity
price increases, including :
• substantially increasing the equitable share over the 2010 Medium Term
Expenditure Framework (MTEF) to enable municipalities to deal with the
increased electricity bulk costs and extending the classification criteria for
• the electricity component for the equitable share allocation amounts to R8.4 billion
2010/11, R9.6 billion 2011/12 and R10.6 billion in 2012/13
• introducing an inclining block tariff from 2010/11 which will ensure that low
income households in Eskom areas of supply are cushioned against the impact
of substantial electricity price increases.
• Other factors impacting the low income households not having access to
electricity such as lack of infrastructure for electrification need to be
Conclusions of (IMC–E) Work Group 1A: Protection of the
Poor and FBE
• Lack of properly administered indigent registers by municipalities to capture
the indigent households must be resolved
• General funding constraints in municipalities where FBE allocation competes
with other priorities to be addressed with National Treasury and COGTA
• Some municipalities and Eskom may struggle to implement a stepped tariff
approach in the short to medium term due to technology and systems
• Attention should be on extending free basic electricity to indigent households
not yet receiving free basic electricity rather than extending the FBE
threshold to more than 50kWh per month.
Inclining Block Tariffs (IBT)
What is the inclining block rate (IBT) tariff?
• An inclining block tariff (IBT) is a mechanism where tariffs rise in stepped increases according
to the amount of electricity used.
This benefits poor customers who use less electricity and thus pay the lowest rates, while customers
who use more electricity pay incrementally higher tariffs, and thus a higher average rate, as their
electricity consumption rises.
The structure is commonly used to charge for water usage.
• The tariff is divided into four consumption blocks and each subsequent block has a higher price
per kWh of energy.
• The amount payable is the sum of consumption per block multiplied by the energy rate/price per
unit associated with each block.
• The selection of the blocks, the limits and the prices per unit have been set by NERSA and is
required to be implemented by Eskom and municipalities as determined by NERSA.
• The tariff is for both prepayment and conventionally metered customers
• In addition to the low price of electricity in the first two blocks the poor also receives 50kWh
Free Basic Electricity (FBE) from government.
Inclining Block tariff (IBT) – overview/implemented
• NERSA made a decision in February 2010 to introduce IBT with effect from 1 April
• Was implemented for billed customers on 1 April 2010
• The implementation for prepaid customers was delayed to 1 April 2011 as the vending
system needed to be upgraded; during this period a single rate was applied
• The rates originally approved by NERSA over the MYPD period were as follows:
Monthly level consumption
<= 50 kWh
51 – 350 kWh
351 – 600 kWh
> 600 kWh
Inclining Block Tariff Rates in 2010/11
•1st block can take 50 kWh
•2nd block can take 300 kWh
•3rd block can take 250 kWh
•All in excess of 600 kWh
•Block rates are exclusive of VAT. VAT is then added to the sub-total of the bill
IBT implemented fully from April 2011
Residential tariffs 2010/11 and 2011/12
IBT – Unintended consequences
• The tariff is successful in providing subsidised electricity for low income households with
low consumption, but has a number of unintended consequences, as follows:
• The IBT structure is difficult to understand and complex to administer resulting in
many customer queries;
• The prepayment vending system which preceded IBT, was not designed to deal with
• The tariff has resulted in cross-subsidies with large customers subsiding residential
customers. It is currently manageable by Eskom due to its large customer base but is
not sustainable . Also not all municipalities have enough of a large customer base to
provide the cross-subsidies through electricity tariffs.
• Large low income households or single stand households with multiple dwellings do
not necessarily benefit as their consumption is high.
• Affluent households can afford energy efficient technologies benefiting further from
• Not all municipalities implemented IBT due to their own challenges.
Example of Prepaid Customer Purchases in
Soweto (Chiawelo) - Actual customer bill
Background on Eskom residential customers
• Most of the residential
customers on average
consume 350kWh or less
IBT Subsidies – implications of the MYPD 2
•The lower increase in 2012 has resulted in lower IBT rates for higher consumption and a
R810million reduction in estimated subsidies.
Inclining block tariff – the way forward
• NERSA published a consultation paper on IBT in October 2011 on which Eskom
provided the following comments:
• Eskom supports that the low income households must be protected against high price
increases, but proposed that this be done through a national subsidy framework;
• The mechanism for the funding of subsidies should be investigated as not all distributors
(Eskom and municipalities) can provide subsidies equitably through electricity tariffs
• NERSA should develop a national residential tariff guideline that provides a framework
for residential tariff structures and design,
• All distributors should be entitled to develop their tariffs in line with the abovementioned
national residential tariff guideline taking into account unique circumstances, as a onesize-fits-all approach is not practical.
• IBT should be revisited as a tariff option and in compliance with the DoE’s Electricity
Pricing Policy Eskom proposed an alternative option (next slide).
Eskom’s proposed residential tariff strategy to
replace IBT in response to NERSA consultation
Low Income, 20A low consumption
Low subsidised single In compliance to the
60A and 80A
- higher consumption
Higher but less
Will cater for multiple
homes on one stand
> 80A, 3 phase
Fixed charge (based
on supply size) +
single energy charge
Based on true cost
plus a fair
• Challenges with FBE:
• Consistency of approach in application of the FBE programme
• Unconditional equity share grants with FBE competing against other priorities
• The programme to be easily accessible to customers in rural and remote areas
• FBE threshold:
• Based on policy and research done It was concluded that the 50 kWh per month is
adequate. However more needs to be done to make it accessible to all qualifying customers
• Challenges with IBT:
• IBT does protect low income households but is complex, difficult to understand and
• IBT is not implemented equitably in Eskom and municipality areas and as Eskom we have
proposed that it be revisited
• Eskom recognises the challenges and is committed to support government initiatives and
national policy to protect low income households against increasing prices of electricity