The National Energy Regulator of South Africa (Nersa) homed in on the “prudency” and “efficiency” of Eskom having spent an extra R8-billion on diesel to operate the expensive open cycle gas turbines (OCGTs) during its 2013/14 financial year, as Regulatory Clearing Account (RCA) hearings entered their final stretch on Thursday.
The State-owned utility has made application, under the RCA mechanism, to recoup R22.8-billion in cost and revenue variances for only the first year of the five-year third multiyear price determination (MYPD3). Nersa has been hosting public hearings into the application since late January and expects to make a final determination on February 25.
The diesel cost variation is the second-largest component of the application, with the largest variance claim arising from Eskom’s calculation of an R11.7-billion revenue variance against that outlined in the MYPD3 for the year.
The MYPD3 determined that Eskom should spend R2.5-billion on diesel during the year. However, the utility ended up spending R10.5-billion and producing 3 621 GWh of electricity from the Ankerlig and Gourikwa plants, as opposed to an assumed output level of 1 056 GWh.
Eskom CFO Anoj Singh argued that its extensive use of the OCGTs was prudent, as it ensured that the utility avoided load-shedding, beyond the 13 hours recorded during the year. He also insisted that all other supply- and demand-side options were exhausted prior to the deployment of the diesel plants.
Eskom even went so far as to display a chart indicating that, had it restricted the use of OCGTs to the morning and evening peaks, load-shedding would have increase by 2 586 GWH, which would have carried an economic cost of R25-billion.
However, the Nersa regulatory panel questioned both the R25-billion figure – which panellist Jacob Modise suggested included no offsets, such as those that could have arisen from higher electricity imports from Mozambique and lower exports to Botswana – as well as the efficiency of having used the plants during low-load weekend periods.
Panellist Nomfundo Maseti also probed whether the “over-utilisation” of the OCGTs could really be considered prudent, efficient and cost effective, in light of high levels of unplanned outages from Eskom’s coal fleet during the year. Eskom’s unplanned outages rose to 14.4% in 2013/14 against an MYPD3 expectation of 10%. The net result was a fall in the energy availability factor to 75.1% from a planned level of 80%.
Eskom executive for generation Matshela Koko acknowledged that the “biggest driver” of the higher diesel use was the rise in plant unavailability, but argued that the balance for the shortfall “could only be found in the diesel space”.
It could not, executive for transmission Thava Govender added, have been found through a reduction of exports, which took place during periods of low domestic demand, nor through increasing the use of independent power producers, whose available capacity had been fully purchased during the period. Eskom was also unable to increase imports from Cahora Bassa, owing to various problems, such as flooding, collapsed towers and snapped lines on the Mozambican side of the border.
The higher use of OCGT coincided, Koko said, with a change in strategy that prioritised addressing the coal-fleet maintenance backlog. For this reason, the plants were used over low-demand weekend periods to provide space for maintenance and/or to replenish dam levels at the hydro peaking plants.
At the time Eskom had not yet, he said, found a balance that allowed for higher levels of maintenance and lower levels of diesel use, while keeping the lights on. He argued that, with hindsight and incremental changes to the strategy, that balance was currently being found through its maintenance “budget” approach, of 11.5 GW of maintenance in the summer and 8.5 GW in the winter.
“We have come to realise that, when we live within that maintenance budget, we have more plant available and we burn less diesel . . . but you can only do that the with benefit of hindsight.”
Singh stressed, though, that the test of prudency was a “test of reasonableness” in the circumstances, without the benefit of hindsight.
RATING AGENCY BLUB ‘NOT HELPFUL’
Meanwhile, panel chairperson Thembani Bukula’s hackles were raised by Eskom’s decision to include extracts from the Standard & Poors’ (S&P’s) and Moody’s assessments of Eskom, which pointed to a regulatory bias toward consumers over the utility.
Bukula scathingly questioned whether S&P’s reference to a “negative intervention aimed at protecting consumers” might not even refer to Eskom’s own previous application to reduce its tariff from 25% to 16%.
He also queried the usefulness of including S&P’s and Moody’s statements, which were published in July 2015, as part of an RCA application that was focused on 2013/14.
“We are trying to confine ourselves to the RCA application . . . and I see that this was done in July , so these quotations and these concerns of ratings agencies, in relation to the RCA that we are considering today, may not be very helpful,” Bukula asserted.
Singh acknowledged that “some the blame” for the agencies’ regulatory uncertainties could be laid at the door of Eskom, which had made several approaches to Nersa, including the unsuccessful selective reopener of 2015, which had cause them to ask whether Eskom itself understood the regulatory environment.