Brian Molefe, head of Eskom, reacts to NERSA approving less than he asked for. NERSA explains why they gave the 9.4% increase:
Only 9.4% hike will have consequences, says Eskom’s Molefe
The risk of load shedding could increase as a result of energy regulator Nersa’s decision to only give Eskom half of its required tariff increase on Tuesday.
Eskom CEO Brian Molefe said the decision to only approve a 9.4% electricity price increase doesn’t help Eskom’s financial sustainability and “will have operational consequences”.
“We will do our best to minimise the risk of load shedding, striking a balance with Eskom’s already depleted balance sheet,” he said in a statement.
“We note with concern the decision on open cycle gas turbines (OCGTs), which will guide Eskom’s operations in the future in terms of balancing the energy supply and demand in a bid to avoid load shedding,” he said.
Nersa announced that it would not grant Eskom the R22.8bn variance it requested for the costs incurred in the production of electricity in the 2013/14 financial year. It has instead approved an amount of R11.241bn, which amounts to a 9.4% tariff increase for the 2016/17 financial year.
Molefe said Eskom has reduced its diesel usage in recent months and improved its maintenance plan. “However, we continue to run a constrained grid,” he said.
“OCGTs are part of our emergency portfolio and have been used in the past to avoid or limit load shedding with the understanding that we can recover these costs within the RCA process.
“The recovery of diesel costs is now seriously in question with Nersa’s current decision.”
“We understand the implementation of the regulatory rules in Nersa’s RCA balance decision. The decision on the revenue variance and certain primary energy costs including independent power producers is supported,” said Molefe.
Eskom said that in terms of the Municipal Finance Management Act, the Public Enterprises Minister Lynne Brown will table the municipal increases in Parliament on or before 15 March 2016.
Why Nersa granted Eskom 9.4% tariff hike
National energy regulator Nersa has given two main reasons for granting Eskom a 9.4% tariff increase for the 2016/17 financial year.
The hike will kick on 1 April.
In terms of sales, Eskom applied for a “regulatory clearing account” (RCA) balance of R11.723bn. The energy regulator allowed R6.175bn. The larger part of this difference is because Eskom did not disaggregate the special pricing agreements and international sales when allocating the approved third Multi-Year Price Determination (MYPD3) revenues to different customer categories, said Nersa.
With regards to other primary energy, the energy regulator has disallowed coal handling and start-up gas and oil. Furthermore, nuclear has been re-phased over the life of the nuclear plant.
With regard to open cycle turbines (OCTG), Eskom applied to recover R8.024bn. The energy regulator has allowed Eskom to recover R1.252bn. The energy regulator has found that Eskom used the OCGTs due to the unavailability of the plant. In this regard, the energy regulator has allowed the excess production from OCGTs at a rate equivalent to the coal price instead of the actual cost of operating the OCGTs.
Eskom submitted an application to Nersa in November last year to recover R22.8bn, which the utility said it used to avert load shedding.
The decision comes after extensive consultation with government, unions, small and intensive users, who engaged in public hearings in six provinces, according to Nersa chairperson Jacob Modise.
Modise said the challenge has been and still is regulating the energy industry in a manner that balances the interests of energy producers on the one hand and consumers on the other.
Nersa evaluated the RCA balance for the first year (2013/14 period) of the MYPD3 amounting to R22.8bn.
– Article by Wim Pretorius