by Chris Yelland, investigative editor, EE Publishers

 

This article questions Eskom's recent application to NERSA for an additional price increase this year, and concludes that if the Regulator is to grant any price increase at all, it should be no more than 6,15% rather than the 12,61% claimed by Eskom.

  

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Thembani Bukula, NERSA

On 30 April 2015, South Africa's national electricity utility, Eskom, submitted an application to the National Energy Regulator of South Africa (NERSA) to increase the electricity price in its financial year from 1 April 2015 to 30 March 2016 by a further 12,61%, over and above the 12,69% increase that came into effect on 1 April this year.

NERSA's task as regulator is to ensure the financial sustainability of Eskom by allowing the utility to recover, through electricity tariffs, all its efficiently and prudently incurred operating costs, plus a fair return on assets employed.

In its price application to NERSA, Eskom acknowledges that "in the original MYPD 3 submission, assumptions were made around the commissioning dates of Medupi, Kusile and Ingula, and the expected performance of the current generation plant, which have since changed. As a result, no provision was made for the extensive running of OCGT's and the continuation of the STPPP agreements".

Eskom goes on further to state that "since the MYPD 3 submission, various factors including the further deterioration of generation plant performance; unexpected significant events such as the boiler explosion at one of the Duvha units; and the collapse on the Majuba power station silo" have necessitated the use of "more expensive supply options like the use of the OCGTs and looking for more short-term supply options".

The question therefore arises as to why Eskom is applying to pass additional (unbudgeted) costs of diesel and STPPP energy through to the customer in the tariff, when, by the utility's admission, such costs result directly from its own failings (i.e. late completion of Medupi, Kusile and Ingula; boiler rupture at Duvha; silo collapse at Majuba), and can therefore, by no stretch of the imagination, be considered as prudently and efficiently incurred.

Furthermore, it is quite clear from the extracts of Eskom's application quoted above that the utility budgeted and included electricity from Medupi, Kusile and Ingula in the period from 1 April 2015 to 30 March 2018 of MYPD 3 which would have avoided the need for extensive use of the OCGTs and STPPP energy purchases.

Therefore, in the event that NERSA may entertain the passing through of any additional diesel and STPPP costs at all, Eskom's claims of R11-billion for diesel and R5,5-billion for STPPP energy for its 2015/16 financial year should be offset by an amount corresponding to the levelised cost of electricity budgeted to have been supplied from Medupi, Kusile and Ingula, and already included in MYPD 3.

In 2012, NERSA calculated the levelised cost of electricity from Medupi was likely to be about R0,97 per kWh, and on this basis, a conservative assumption for the levelised cost of electricity from Medupi, Kusile and Ingula is in the order of R1,00 per kWh.

Based on this it is calculated that Eskom's diesel claim should be reduced from R11-billion to R5,6-billion, while Eskom's STPPP claim should be reduced from R5,4-billion to R0,3-billion 

The overall impact of this would be a reduction in Eskom's claim for an extra price increase for its 2015/16 financial year, from the 12,61% claimed in its application to NERSA, to 6,14%.

All efforts by EE Publishers to engage with Eskom for clarification of its price application to NERSA proved fruitless, and Eskom did not respond to EE Publishers communications and questions on the subject. 

 

Click here for the full article and calculations