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Aug 31, 2012

Big users urge hard line on Eskom costs, as utility delays tariff submission

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Africa|Energy Intensive User Group|Eskom|Renewable Energy|Renewable-Energy|Africa|South Africa|Electrical Energy|Electricity Price Increases|Energy|Environmental|Mike Rossouw|Power|Operations|South Africa
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South Africa’s Energy Intensive User Group (EIUG) has urged the National Energy Regulator of South Africa (Nersa) to be more rigorous in its assessment of some of the cost factors informing Eskom’s application for electricity price increases for the five-year period from April 1, 2013, through to March 31, 2018.

The call came as Eskom requested a month extension from Nersa to give it time “to do additional scenarios”, which government had requested be included in the application. Eskom was due to submit the application on Friday August 31.

The EIUG, whose 31 members consume about 44% of South Africa’s electrical energy and whose operations turn over about R794-billion yearly, is particularly keen for Nersa to take a hard line on prevailing supply and demand inefficiencies, as well as nonelectricity-related costs.

Speaking ahead of Eskom’s third multiyear price determination period (MYPD3) submission to Nersa, EIUG chairperson Mike Rossouw said the “right” price path for South Africa should also be informed by such issues as affordability, cost reflectivity and improved transparency of costs and tariffs.

Prices, Rossouw said, were rising “too fast and too high” for companies in a range of industries – particularly those in the ferrochrome and silicon metals sectors – to remain globally competitive.

Reports suggest that the State-owned utility will seek yearly increases of between 14.6% and 19% over the period, which it believes are necessary to raise the average tariff to a cost-reflective position.

These increases would be in addition to the slew of above-inflation between increases that have been sanctioned by Nersa between 2007 and 2013. South African power prices have more than doubled over the period, with Eskom’s selling price having climbed from around 20 c/kWh to 50.3c/kWh last year. However, prices paid by municipal consumers are far higher and also less uniform.

The utility has also indicated that a price level of 90c/kWh, in real terms, would be necessary for it to cover its operating costs and move ahead with its R323-billion, five-year capital investment programme.

But Rossouw said that each cost and return element in Eskom’s application should come under intense scrutiny, particularly as its research shows that many large and small users were already paying more for electricity than their foreign competitors.

The EIUG was particularly keen for Nersa to get to grips with nonelectricity costs featuring in the tariffs, such as those related to losses and theft, environmental levies, the use of power revenues by municipalities for nonelectricity expenditure, as well as subsidies for renewable energy and poorer consumers. Rossouw stressed that poor consumers should be protected, but said that there should be debate of the nature of that support.

He also questioned whether it was appropriate for Eskom to be earning the returns being sought, given that its investment programme was, ultimately, being funded by the South African consumer.

“Theoretically, Eskom is being paid for by consumers . . . so I could equally argue that the current consumer has a share in Eskom. So, if returns are being made, why aren't we getting those returns, by way of . . . having those returns being avoided to help to reduce the electricity price?”

EIUG was likely to canvass a number of these issues in the upcoming Nersa hearings.
 

Edited by: Creamer Media Reporter
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