1

Public Hearing

Presenter: D Matsheketsheke

Designation: CFO (act)

Date: 9 June 2011

MOE: City Power

2

Introduction: Strategic Priorities

WORLD CLASS

ELECTRICITY

DISTRIBUTOR

PEOPLE INFRASTRUCTURE

SERVICE

1. Social transformation (public

lighting/ electrification)

2. NRS 047

3. SHEQ

1. Performance Management

2. Customer centric

3. Right people in right places

4. Training & Development

5. Staff Security

6. SHEQ

1. Network refurbishment

2. Network development

3. Asset maintenance management

4. Demand-side management

5. Alternative energy sources

6. Infrastructure Security

7. SHEQ

3

Introduction: Financial Drivers

The key drivers of financial performance were used as a basis for analysing primary

problem areas as well as identifying and prioritising strategic actions.

Revenue

Collections

KEY DRIVERS

Cost of Sales

General Expenses

Repair & Maintenance

Costs

Revenues (Volumes/

Tariffs)

Financing costs

Strategic focus areas 2011/12

• Revenue Maximisation

– Improve meter reading performance

– Ensure accurate billing on large power users

– Management of the agency agreement

– Roll out pre paid metering inline with strategy

• Obtain unqualified audit

• Improve Public Lighting performance

• Human Capital Investment

– Staff training and development

– Filling of critical vacancies in line with budget provisions

• Review business model in line with migration of revenue and customer services

functions

• Improve Asset Management

– Implement condition monitoring

– Implement DSM and energy efficiency program

4

5

Proposed programs and activities 2011/12

5 Year Program

2011 - 2014

Delivery / Outcome

(to include measurable

indicators)

11/12

Approve

d

Budget

2010/11

R 000

Propose

d

Budget

2011/12

R 000

%

Incr.

Propos

ed

Budget

2012/13

R 000

Propos

ed

Budget

2012/13

R 000

Implementation of Electrification

programme to 95% of formalized

households

4,000 households planned but

final target to be determined56,212 66,413 0.4% 65,430 69,029

Provide street lighting to formal and

informal Areas

Movement from 62% to 63% and

this converts to 186 000 public

lights77,559 118,376 52.6% 105,620 125,890

98% Maintenance of Public light97% Lights maintained

Allocation of Free basic electricity to

poor households and those with special

needs

Provide households that consume

up to 500kWh with FBE as per

extended social package

174,070 131,899 -24.2% 149,870 168,000

Reduce total energy losses to 10.58%

by 2014 Total losses to reduce down to 1% 135,076 210,144 55.6% 256,890 298,000

6

Proposed programs and activities 2011/12

Program

Project / Activity

Delivery / Outcome

(to include measurable

indicators)

Approved

Budget

2010/11

R 000

Proposed

Budget

2011/12

R 000

%

Incr.

Propose

d

Budget

2012/13

R 000

Propose

d

Budget

2013/14

R 000

Reduce electricity outages by 50% by year

2014

Reduce bulk ( HV )outages - 85 MV)

outages - 930277,154 418,735 51.1% 386,000 431,398

Design and implement long terms

assets management strategy and

plan for energy

315,134 318,611 1.7% 375,450 425,890

Reduce illegal electricity connections

Ongoing annual strategic plan to

address the challenges on illegal

connections with the assistance of

SAPS and JMPD

16,998 29,554 68.0% 38,740 40,871

Continue installation of prepaid

meters on electricity6,339 6,742 6.4% 8,888 10,987

Develop and implement comprehensive

demand side management programme for

waste, water and energy services

Enforce by-laws support for

installation of ripple relays in hot

water geysers in new developments.

19,663 19,547 -0.6% 28,567 30,138

7

Proposed programs and activities 2011/12

Program

Project / Activity

Delivery / Outcome

(to include measurable

indicators)

Approved

Budget

2010/11

R 000

Proposed

Budget

2011/12

R 000

%

Incr.

Proposed

Budget

2012/13

R 000

Proposed

Budget

2013/14

R 000

Participate in activities that lead up to the

establishment of RED 4

EDI restructuring has been

terminated246 0 0% 0 0

Introduce and maintain quality service

monitoring system for at least three years

that can inform regular stakeholder

engagement

Develop key performance indicators

that are measurable4,868 8,158 67.6% 9,500 11,500

All other support services or

departments223,820 268,997 19.9% 274,340 307,784

Total budget (to agree with budget submitted) 1,305,139 1,597,176 22.4% 1,699,295 1,918,597

Computation of Bulk Purchases

8

2011/12 Bulk Purchases Budget GWh Rm c/kWh

Eskom 12,952 7,304 56

Kelvin 879 928 106

Gas Turbines 7.8 23.5 301

Total 13,839 8,256

•The average energy purchase cost is 60c/kWh

•Volumes vs bulk purchases cost

•Change in Eskom Tariff Structure

•Fixed Surcharges

Capital Programs: Investments

Previous 2 Fin Yrs 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 Total CAPEX

Actual 612,045 472,712 765,559 865,025 1,034,909 1,063,465 813,264 393,058 6,020,037

Budget 612045.00 441196.00 704409.00 877320.00 1034923.00 1064150.00 816404.00 627637.00 6,178,084

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

R'0

00

Financial YRS

Capital Expenditure (7YRS)

2010/11 is year-to-date

10

Capital Programs: 6 year expenditure per category

2004-5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11

Electrification 10,112 43,992 66,023 60,553 74,278 108,217 40,423

Service Connection 66,135 80,946 103,995 139,969 125,463 117,266 45,192

Upgrade of Electrical Network 225,811 326,104 298,863 277,882 169,861 55,940 46,989

Township and Network Development 5,234 8,755 34,362 12,093 35,283 13,044 3,293

Meters 27,984 23,160 50,629 85,706 68,749 26,650 10,159

Public Lighting 57,651 77,762 64,796 55,238 68,578 78,096 37,998

Bulk Infrastructure 41,065 118,958 177,549 295,132 425,239 295,357 187,853

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

R'0

00

11

Benefits

• The following benefits have being realized over the past 4 to 5 years, in areas where investments have been made:

- Over 20000 customers have been added into the electrical network infrastructure in response to new township developments and sub -division applications (combination of customers < 56kVA and >56kVA)

- Over 60 000 previously disadvantaged (RDP houses) have been electrified, in response to the universal access to electricity targets (in partnership with DoE)

- Significant reduction in unplanned outages for both HV and MV levels

- Additional infrastructure has been constructed and commissioned to cater for short to medium developments

- Significant investment has been made into SAP, SCADA, Protection, GIS, network data improvement and work management solution (WMS)

- Additional 80MW of generation has been introduced into the network through refurbishment of GAS turbines – in response to load shedding threat

- Through our Expanded Public Works Program,(EPWP) City Power has created over 10 000 jobs in areas where we execute our projects

Capital Programs: Bulk Infrastructure (CAPEX vs.

Outages)

12

Capital Program: Expected Growth

• The current City Power Demand has reached 3.6 GW in 2010,

• The predicted future demand (excluding efficiencyimprovements and power saving strategies) will be in excessof 5.4 GW in 2030,

• The average transmission infrastructure has reached 63 % ofaccepted useful life,

• City Power has over the past years invested approximatelyR6.02bn on the reinforcement, expansion and rehabilitationof the network infrastructure

13

Capital Programs: Forecasted Growth

14

2010 2028

15

Capital programs: 20 year plan

Years 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2027 2028 Total

R x bn 4,00 3,71 4,21 4,13 3,51 1,69 1,78 1,18 0,623 0.461 0.459 0.436 0.350 0.209 26,77

-

200

400

600

800

1,000

1,200

1,400

1,600

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

R mil City Power Proposed CAPEX

Prospect

Princess

Lulamisa

Kelvin

Fordsburg

Etna

Delta

Craighall

City Power Capex Distribution

Tx Exp

23%

Tx Refurb

14%

Dx Exp

28%

Dx Refurb

35%

Tx Exp

Tx Refurb

Dx Exp

Dx Refurb

R26.77 bn

16

Summary Capital Programs: 2011 - 2014

Table below highlights the total funding requirements over the next three (3) years

R 1,3bn, proposed budget is based on multiple year (existing) projects already started and new

critical projects to commence in 2011/12 financial year

The proposed budgets takes into consideration the following sources of funding: CoJ Funding (i.e.

Loans) and other sources of funding (i.e. DSM levy, Grants and Contributions)

Program/ Project Proposed

Budget

2010/11

R’000

Proposed

Budget

2011/12

R’000

Estimate

Budget

2012/13

R’000

Estimate

Budget

2013/14

R’000

Total Funding requirements

Sub – total existing projects (CoJ funding) 295,271 378,100

Sub – total existing projects (Other Sources of Funding) 140,300 150,300

Sub – total new projects (CoJ funding) 287,310 334,305

Sub – total new projects (Other Sources of funding) 358,700 415,695

Grand Total: Funding Requirements 1,081,581 1,278,400 4,130,912 3,507,440

17

1. Summary of the Capital Programs/Projects for 2011/12 within indicatives and the impact on OPEX 1.1. Based on the Business Plan and CIMS indicative budgets for 2011/12 in (R’000):

1.1.1. CoJ Loans – R 585.3 m 1.1.2. City Power own funding – R250 m 1.1.3. Other funding – R 443,1 m 1.1.4. Total – R1,278.4m

Programme/Project

Proposed Budget 2011/12 R'000

Current Budget 20010/11 R'000

Increase/ Decrease R'000

Total Funding requirements

Subtotal projects (CoJ funding plus Own Funds) R 835,300 R 799,000 R 36,300

Subtotal projects (Other Sources of Funding) R 443,100 R 282,581 R 160,519

Grand Total: Funding requirements R 1,278,400 R 1,081,581 R 196,819

Capital programs/projects for 2010/11

Description Budget (R'000)

2011/12: Committed and Critical Needs R 1,278,400

2011/12: Essential needs R 2,933,059

Total Requirements R 4,211,149

2011/12 Indicative Budget R 1,139,605

2011/12 Backlog R 3,071,544

18

Capital programs: Current Backlog

19

Revenue Maximization Initiatives 2010/11

Customer type Meter type Quantity Nature of challenges Proposed solution Cost Estimates

Domestic

Conventional

61000

Access to property and

meters

Replace all

conventional meters

with pre-paid meters

R 110,742,500

Pre-paid 4786 Faulty or damaged meters

Replace all meters

with new pre-paid

meters

R 9,356,720

Large Power

Users (LPU) Demand 4038

Access to property and

meters.

Incorrect information.

No meters installed.

Replace all meters

with AMR meters

R 20,007,900

Domestic and

LPU

AMR 3031 Faulty or damaged meters

Replace all meters

with new AMR metersR 15,003,450

Metering Kiosk 1575

No locks.

Private locks.

Tampering and vandalism

Replace all locks with

City Power orange

locks

R 396,875

Protective

Structures 2470

No protective structures

installed.

Tampering and vandalism.

Install protective

structures

R 3,858,500

TOTALR159,365,945

20

Some of the Key Capital Projects

Program Area Description

2010/11

Rm

2011/12

Rm

2012/13

Rm

Intake Points Sebenza Substation To strengthen the north eastern supply of the city and

to provide additional capacity to allow development

especially in the Modderfontein area and eastern side

of the city

15 150 635

Overhead Line

Upgrade

Orlando - Hursthill

LineLine upgrade to strengthen supply to the Hursthill and

Aukland Park area and to provide for additional power

requirement in these areas.

60

Kelvin - Greswold Line upgrade to strengthen supply to the Greswold

and surrounding area and to provide for additional

power requirement in these areas.

75

Bulk

Electrification

Lufhereng Supply Upgrade the existing Etna supply to cater for

provision of supply to Lufhereng development

10 100 23

Alexandra Upgrade of Alexandra Substation to strengthen the

existing supply and cater for additional supply in

Alexandra and surrounding

49

Electrification

Alexandra Normalisation of existing supply and provion of

additional connections with new metering

59,5 60 60

Lufhereng Provision of new connections to new houses20 150 303,360

Total 213,5 455 441

21

Some of the Key Capital Projects Cont…

Program Area Description

2011/12

Rm

2012/13

Rm

DSM

ALL•Roll out of Smart Metering (1c/kWh recovery)

including AMI

•Telecommunication Infrastructure

221 221

ALL

SWH 100 100

Ripple Controls 20 20

Energy Efficiency Programs 10 10

Total351 351

There will be an impact on Opex:

•Telecommunication,

•Salaries,

•Third party vendor commission,

•Repairs & Maintenance, etc

22

Key challenges

• Finding a balance between satisfying the ever increasing development

requirements (Additional capacity for new township development and rezoning

application) and energy savings/reduction requirements

• Continue to reduce the average age of installed equipment to an acceptable

technical useful lives (Refurbishment Programs)

• Meeting electrification targets by 2012 /14

• Continue to build electricity infrastructure to support major projects.

• Roll out of DSM/ Load management and introduction of alternative energy

sources

• Meeting the Mayoral priorities i.e. Inner City, alignment with the City GDS

• Billing and revenue collection

• Public lighting performance

• Technical and non technical losses

• Theft and vandalism

• Funding (Ability to raise additional funds)

• Network automation through smart technologies

• Skill shortages

23

Measures to improve financial sustainability

Issues City Power Interventions

Revenue Maximisation Improve meter reading performance

Ensure accurate billing on large power users

Management of the agency agreement

Roll out pre paid metering inline with strategy

Alternative sources of

revenue

Use existing infrastructure to generate revenue

Cost saving initiatives Improve operational efficiencies

Up-skill internal staff & minimize usage of contractors

24

THANK YOU