Eskom cries foul as Nersa rejects its diesel claim

Mar 02 2016 18:33
by Joanne Taylor and Chris Yelland, EE Publishers

Johannesburg - At a media briefing on 1 March 2016, the National Electricity Regulator of South Africa (Nersa) announced the approval of an average 9.4% electricity price increase for Eskom for the 2016 to 2017 financial year, while rejecting Eskom’s claim for a higher tariff increase to compensate the utility for unbudgeted costs of diesel incurred during the 2013 to 2014 financial year.

Using the regulatory clearing account (RCA) mechanism, Eskom applied in late 2015 to recover from electricity customers, via an additional tariff increase in 2016 to 2017, some R22.7bn of variances in its actual costs and sales revenue in 2013 to 2014 from those projected in its MYPD3 price application.

After receiving 82 written submissions from affected stakeholders, and holding public hearings around South Africa in February 2016 to hear oral submissions from the public, Nersa rejected about half of Eskom’s claim, and only allowed the pass-through of some R11.2bn as being prudently and efficiently incurred.

In respect of Eskom’s claim for R8bn for unbudgeted diesel costs in 2013/14, Nersa ruled that the utility’s extensive use of diesel-powered OCGTs in the Western Cape was a direct result of the poor performance and low availability of Eskom’s coal-fired power stations, well below international benchmarks, and the late completion of Eskom’s Medupi, Kusile and Ingula new-build programme.

Of its R8bn diesel claim, Eskom was thus only allowed the recovery of R1.25bn, this being the cost of coal to generate electricity equivalent to that generated by the unbudgeted diesel used.

mr modise

                                      NERSA chairperson Mr. Jacob Modise at the media briefing on 1 March 2016

Eskom CEO Brian Molefe disagreed with the Nersa decision, issuing a statement after Nersa’s announcement that “yet again” Nersa’s decision does not address the question of Eskom’s continued financial sustainability.

“We note with concern the decision on OCGTs, which will guide Eskom’s operations in the future in terms of balancing the energy supply and demand in a bid to avoid load shedding”, said Molefe.

Molefe further complained that the diesel-powered OCGTs had been used in the past to avoid or limit load shedding on the understanding that Eskom could recover these costs within the RCA process. He added that that while Eskom would do its best to minimise the risk of load shedding, with the utility’s already depleted balance sheet the OGGT decision “will have operational consequences”.

Nersa has also ruled that Eskom must submit a new multi-year price determination (MYPD4), within three months, because the assumptions and forecasts upon which MYPD3 was based for the years 2013/14 to 2017/18 have materially changed. A new multi-year price determination is thus expected to become effective from 1 April 2017.

This is clearly required to reflect both the current economic circumstances and Eskom’s position, and therefore to provide more certainty to the electricity price trajectory in the years ahead.

Nersa indicated at the media briefing that the RCA mechanism would still be retained as a tool as part of the regulatory process to make adjustments retrospectively resulting from variances in prudently and efficiently incurred costs by Eskom, and to ensure that these costs were adequately recovered from Eskom’s sales revenue.

The increase of 9.4% in Eskom’s average electricity price will become effective 1 April 2016 for the utility’s direct customers. Tariffs for customers that are supplied by municipal electricity distributors will go up on 1 July 2016, and it is expected that a similar price increase will apply. Nersa also regulates the electricity tariffs of municipal electricity distributors, and typically about 70% of their cost structure comprises electricity purchases from Eskom.

At the media briefing, Nersa stated that it had considered the public interest and all the inputs received from stakeholders into account.

When questioned about the 8 000-plus responses collected on the Organisation Undoing Tax Abuse (Outa) website, and the 50 000-plus responses to the online Avaaz petition, Nersa’s board member responsible for electricity regulation, Thembani Bukula, confirmed that Nersa had received these submissions. He further indicated that these had each been counted as only one of the total of 82 written submissions received.

“Our challenge is to regulate the energy industry in a manner that balances the interests of energy producers on the one hand and consumers on the other. This is never an easy task as it is influenced by the greater economic environment locally and internationally, as well as the policy environment of government,” said Jacob Modise, chairperson of Nersa.

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nersa  |  eskom  |  diesel


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