Business Unity South Africa (Busa) has said it broadly opposes Eskom’s regulatory clearing account (RCA) application for 2018/19 and any future RCA applications that would result in electricity price increases excessively beyond those already granted by the National Energy Regulator of South Africa (Nersa) for the fourth multi-year price determination (MYPD4) period.
In a statement issued on Friday, the organisation said further increases in electricity tariffs will render significant and possibly permanent curtailment of many of South Africa’s industries.
The RCA is a monitoring and tracking mechanism that compares the costs and revenue assumptions in the MYPD made by Nersa in awarding tariff increases to Eskom, versus the actual revenue and costs incurred by the utility.
Busa has in its response to previous pricing applications highlighted the threat of ever-increasing price increases both to the economy and to Eskom, as “the death spiral accelerates”, and it maintains that this threat is “very real and growing”.
“Eskom’s inability to address its challenges is systemic and the utility appears to be unable to adapt to the structural changes of the economy and the international paradigm shifts in energy generation.
“This is beyond the reach of amendment of electricity tariffs. Indeed, these increasing and uncertain prices, coupled with frequent load-shedding only exacerbate the situation,” Busa said.
The organisation asserted that the RCA application was fundamentally flawed as it sought to recover revenue shortfalls and cost overruns that could have been avoided if Eskom had sufficient low-cost generation capacity.
Busa indicated that the low energy availability factor (EAF) of about 70% was the primary driver of variances between actual results and those originally approved by Nersa, which provided for an average of 79%, in line with Eskom’s earlier application.
“By Eskom’s own admission, the low EAF is the result of years of mismanagement,” the organisation said.
The organisation emphasised that there was no grounds for arguing that variances related to the low EAF were costs prudently incurred.
Busa maintained that the RCA should be assessed on the basis of what the results would have looked like if operations met global best practice standards.
It also said that the low EAF had to be considered in conjunction with the human capital efficiency of Eskom as expressed in gigawatt-hour sold per employee – based on Eskom’s Annual Report data the trend shows a decline from around 6.5 GWh sold per employee in 2006 to just under 4.5 GWh sold per employee in 2018.
Over the same period, the average price of electricity has increased by about 500%.
Busa said that in the context of a “fundamentally flawed” application, several aspects of the application should be disallowed because, in its view, projected sales volumes could have been achieved and costs were not prudently incurred.
Busa does not believe a sales volume adjustment is warranted as the loss of sales are directly related to Eskom’s poor performance and unreliability.
It posited that an efficiently operated Eskom should have met the sales forecast of 213 TWh and should have sourced its primary energy as per the production plan.
Eskom’s cost structures include expenditure, direct and indirect, relating to both inefficiencies and its developmental mandate. Busa asserted that such costs were not prudently incurred in the supply of electricity and should not be for the account of the consumer.
The organisation voiced its support for clear government policy statements to restructure Eskom and the industry, and urged that these changes be expedited as far as possible.
In the meantime, it maintains that the regulatory regime regarding licencing and registration for embedded generation be favourably finalised so that those who are able to generate for own use and supply energy onto the grid are able to do so in the short term.