EIUG scrutinises Eskom application for recovery of costs

April 9th, 2018, Published in Articles: EE Publishers, Articles: Energize

The Energy Intensive User Group (EIUG) of Southern Africa has submitted its comments to the National Energy Regulator of South Africa (Nersa) regarding Eskom’s regulatory clearing account (RCA) applications for 2014/15 to 2016/17 and says Nersa should allow only R40-billion of the R65-billion clawback requested by Eskom.

Nersa will hold public hearings into Eskom’s RCA applications from 16 April to 14 May 2018. Nersa’s electricity subcommittee will announce its decision on 21 June after due consideration.

Xolani Mbanga, the EIUG’s CEO, speaking on behalf of energy intensive consumers which account for 40% of electricity use in South Africa, said Eskom has not shown any real intent to restructure the business to properly address its liquidity challenges.

“The marginal adjustments and cost savings have not and will not save Eskom. Eskom continues to hide behind the regulations and look to its customer base to bail it out. Unless forced to change, it will continue to operate in the same way,” he said.

The EIUG further stated that the irony of Eskom’s application is that it claims sluggish growth in electricity demand, which was at least partly owing to the unavailability of electricity supply, load-shedding, load curtailment and higher electricity prices of recent years.

“Customers were required to reduce their electricity consumption by 10% or face load-shedding. The result of their compliance is penalisation for not consuming electricity, which Eskom could not produce anyway,” Mbanga said.

He added that the burden of such inefficiencies cannot be borne by the customer base.

Case in point

The EIUG concedes that the recovery of costs in the RCA applications should be sufficient to maintain Eskom’s liquidity and avoid a default, but no larger, so that it is forced to make a fundamental change in its management and operations.

Moreover, the industry body believes Nersa is best positioned to find the balance between what should be allowed to maintain liquidity and what can be absorbed by the market without seriously impeding economic growth or causing job losses.

The EIUG has requested Nersa to verify the claims made by Eskom for the over-expenditure on primary energy, international purchases, independent power producer costs and to disallow all other inefficiently and imprudently incurred costs.

Mbanga highlighted that the EIUG’s analysis shows that aspects within Eskom’s control have led to the requirement for higher tariffs.

“These include Eskom’s poor and outdated planning and inefficient management; the fact that Eskom appears to have moved money around – against the Nersa-approved Multi Year Price Determination 3 (MYPD3) plans – to other areas without Nersa’s approval; a capital expenditure (capex) overspend of about R40,9-billion; and 20% overspend on coal costs owing to inefficiencies.”

The industry body’s detailed analysis shows that there are areas of the RCA applications, for coal purchasing and handling and water use and treatment, where costs should and could have been reduced in line with the reduced electricity demand but were not.

Further, it is not within the RCA parameters for Eskom to claim capex over-expenditure in the RCA applications.

“There is clearly little or no conformance by Eskom to the MYPD3 regulatory decision in most of the expenditure items. The MYPD was meant to provide a price-path that would enable customers, investors and other stakeholders to plan with a certain level of certainty with respect to future electricity prices,” Mbanga said.

However, the divergence between the forecast sales volumes by Eskom and actual sales, coupled with its inability to maintain and operate the existing generation fleet at optimal levels have resulted in RCA applications that significantly alter the price path predicted by the MYPD3, says the EIUG.

Acknowledgement

This article was first published by Creamer Media’s Engineering News and is republished here with permission.

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