Eskom tariff request 'dishonest and unfair' - expert

Cape Town – The National Energy Regulator of South Africa (Nersa) should reject Eskom’s electricity tariff increase because it is “unreasonable, unfair and fundamentally dishonest”, according to energy expert Chris Yelland.

Eskom has until 16:00 on Monday to withdraw its application to Nersa, while the public has the same deadline to submit applications for or against Eskom’s proposal.

On May 8, Eskom made an urgent application to Nersa to increase the electricity tariff by 25.3% for the 2015/2016 financial year, including the 12.69% price increase that has already been approved.

Eskom applied to the regulator for the selective reopening of the Third Multi-Year Price Determination decision for the 2015/2016 to 2017/2018 period because it required cost recovery of R32.9bn for open-cycle gas turbines and R19.9bn for the short-term power purchase programme.

Eskom wants a 10.10% selective reopener for open-cycle gas turbines and the short-term power purchase programme and a 2.51% increase in the environmental levy by 2 cents per kilowatt-hour.

Customers paying for Eskom’s failure

“All these increases that Eskom is trying to get passed through to the customer are actually a result of Eskom’s own failings,” said Yelland, who submitted his own application against Eskom's bid.  

“My belief is that Nersa is not entitled to pass these to the customer in the tariffs and these should be borne by Eskom and its shareholders,” Yelland told Fin24 on Monday, adding that the extra costs have not been prudently and efficiently incurred.

“Nersa should reject Eskom’s application in its entirety,” he said. “If Nersa is inclined to pass through any costs at all, my application shows that Eskom’s claim costs are grossly overstated and neglect to mention… any of the cost reductions during the year that would benefit the customer.  

“Eskom’s application is not only deficient, but it is also dishonest in seeking to maximise its own revenue increase, while unfairly prejudicing the customer and not passing back to the customer any associated price reduction that result from its failings.”

AUDIO: Interview with Chris Yelland

Mixed messages from Molefe

Yelland said Eskom’s acting CEO Brian Molefe had sent mixed signals about finances at a recent parliamentary meeting.

“Mr Molefe made it clear that Eskom could cope perfectly well with its business and its cash flow requirements without such an increase,” he said. “Yet, he wants to pass through these grossly overstated increases through this opener.

“If there is to be any increase at all, it should be something like 3.63%, which is a significantly lower value and something that can easily be handled by Eskom through the acknowledgement of its own acting CEO.”

If Eskom does not withdraw its application by 16:00 on Monday, other submissions will be considered by Nersa. Public hearings are expected to be heard on June 23 and 24 and Nersa will make a final determination by the end of June.

“I am hoping that Nersa will agree that Eskom’s application is unreasonable and unfair and fundamentally dishonest,” said Yelland.

Key extracts from Yelland's submission

- "The meaning of the term 'selective reopener' in Eskom’s mind becomes clear, namely: Eskom gets to select the highest possible costs that should be passed through to the customer for the next three years; and Eskom also elects to ignore any cost offsets that may benefit the customer.

- "Eskom is attempting to pass these full heavily overstated costs of R16.8bn per year through to its customers, who have certainly not budgeted for any such costs increases, while the question of affordability to the customer, be it to ordinary citizens or to the productive economy, is completely ignored by Eskom in its application.

- "The question... arises as to why Eskom is applying to pass any additional (unbudgeted) costs of diesel and STPPP (short-term power purchase programme) energy costs through to the customer in the tariff at all, when, by the utility’s admission, such costs result directly from its own failings (i.e. the late completion of Medupi, Kusile and Ingula; the boiler rupture at Duvha; and the silo collapse at Majuba); and can therefore, by no stretch of the imagination, be considered as prudently and efficiently incurred.

- "In a recent presentation to financial journalists, a cash flow forecast was presented by acting Eskom CEO Brian Molefe, which was premised on no 12.61% additional price increase by Nersa at all for 2015/16. A similar presentation was made by Mr Molefe to Parliament on 12 June 2015. In his presentation, Mr Molefe stated that that even without the additional 12.61% price increase for 2015/16 there would be no problem in rolling over R10bn of debt that becomes due for repayment in 2015, and raising additional gross funding of R66bn by the end of 2015 (comprising R55bn debt + R10bn private placing + R1bn other funding).

- "In the event that Nersa may entertain the possibility of any additional price increase for 2015/16 at all ... this should be limited to 3.63%, or as otherwise determined by Nersa after a thorough investigation and recalculation of the net diesel and STPPP cost increases, taking into account the applicable offsetting cost reductions in this year."

READ: Chris Yelland’s submission to Nersa