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Sep 05, 2012

Eskom asked to integrate additional new-build options into tariff submission

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Eskom CFO Paul O'Flaherty on the reason for delaying its tariff submission to the National Energy Regulator of South Africa. Camera Work & Editing: Darlene Creamer. Recorded: 5.9.2012.
 
 
 
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State-owned electricity utility Eskom, which was asked by government last week to refrain from delivering its tariff application to the regulator to allow for the inclusion of additional scenarios, has requested clarity as to the precise nature of these new considerations so as to enable it to redraft its request.

The initial deadline for submission to the National Energy Regulator of South Africa (Nersa) had been set for August 31 and CFO Paul O'Flaherty said on Wednesday that Eskom had been more than ready to submit its third multiyear price determination period (MYPD3) documentation, which ran to around 3 000 pages, by that date.

He stressed, too, that Eskom’s “compliant” and “competent” application had been widely canvassed with government and civil society stakeholders.

Nevertheless, O’Flaherty refused to be drawn on the quantum, or the phasing, of the increases being sought, saying only that the application that was meant to have been submitted on Friday had included “double digit” increases over the period.

The utility currently estimated cost-reflective tariffs to be 90c/kWh (real), against prevailing tariffs of around 60c/kWh and the application had been guided by the principle of transitioning towards cost-reflectivity over a five-year horizon, from April 1, 2013 to March 31, 2018. Such a transition was necessary to provide assurance to Eskom bondholders and to the credit ratings agencies that the utility had the standalone capacity to repay the R227-billion of borrowings it was raising to pay for its R323-billion build programme.

It had been reported separately that Eskom would be seeking yearly increases of between 14.6% and 19% over the period, which was likely to meet resistance from stakeholders. The Energy Intensive User Group had already indicated that prices were rising “too fast and too high” for companies to remain globally competitive.

Should the clarifications being sought from government be forthcoming by the end of the week, O’Flaherty said Eskom should be able to redraft its submission by the end of September or early October.

But Nersa, whose consultation timeframes were being curtailed by the delay, had the authority to set a new deadline. At this stage, there was broad-based agreement that the March 15, 2013, deadline for approval by Parliament should not be shifted.

OTHER CONSIDERATIONS

Government was concerned that the MYPD3 application had not catered for likely costs associated with any new Eskom projects beyond the Kusile power station, and had also limited the renewable energy horizon to those associated with the current process to procure 3 725 MW.

O’Flaherty said multiple scenarios had been considered, but Eskom felt it could only submit on the basis of approved projects, or for projects supported by a determination by the Energy Minister Dipuo Peters.

The application had also been informed by an assumption that energy demand would not grow by more than 1.9% a year, which was far below initial estimates of demand expanding by over 3% a year.

In other words, the application was not aligned to the Integrated Resource Plan (IRP2010), which implied additional new build costs that could arise during the MYPD3 period.

In fact, Peters indicated recently that she was poised to make determinations that would to transform the Renewable Energy Independent Power Producer Programme into a rolling procurement process in line with the IRP2010. She was also considering new determinations for the procurement of conventional capacity from independent power producers.

However, O’Flaherty said that, in the absence of these determinations or any “direction” on possible future build options, Eskom had had to make a call on what should be included in the application. Eskom also did not agree with the IRP2010’s demand growth assumptions, which had been a major feature in guiding the application.

“[For instance], it is already to late to expect a nuclear programme in 2023 – it’s too late. It’s also too late to expect that there is going to be 500 MW of new coal in 2014, as the IRP2010 indicates, because there have been no decisions.”

Besides the transition to cost reflectivity, O’Flaherty also confirmed that the MYPD3 had been premised on single-digit increases in primary energy costs and the institution of a mandatory energy conservation scheme.
 

Edited by: Creamer Media Reporter
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