Public hearings by the National Energy Regulator of SA (Nersa) on Eskom’s tariff application for the next two years started on Monday with representatives from Nersa and civil society organisations questioning the increases demanded by the state-owned utility, saying the public should not carry the burden for its poor performance.
Some of the suggestions presented to Nersa during Monday’s hearings were to reduce the fixed charges levied by Eskom, which is requesting a 32% tariff increase for 2023, to reflect the level of service that the utility can provide.
It was also suggested that end users should not be liable for costs directly caused by the inefficiencies of the coal-fired fleet — such as higher diesel costs needed to run emergency generation units during breakdowns at coal-powered stations.
The tariff application being considered is for the 2023/2024 and 2024/2025 financial years which forms part of Eskom’s fifth multiyear price determination (MYPD5) originally submitted in June last year.
Nersa approved a 9.6% increase in the standard electricity tariff for 2022/2023 (the first year of the MYPD5) — about half of what Eskom requested. Based on the 9.6% increase which came into effect in April 2022, the increases Eskom are asking the regulator to approve for the next two years would amount to about 32% in 2023 and about 9% in 2024.
Outlining the details of the tariff application, Calib Cassim, CFO of Eskom, said the allowable revenue the utility is hoping to recover for the two financial years in question have not changed compared to the original submission in which it requested to be allowed to recover R335bn for 2023/2024, and R365bn for 2024/2025.
However, there have been changes to how this total amount is calculated. For example, the provision for carbon taxes has been removed since the implementation date has been delayed while provision for primary energy costs has been substantially increased.
Cassim said one of the main contributors to the higher expected primary energy costs is the rising price and volume of diesel to be procured to power the open cycle gas turbines (OCGTs) that form part of the emergency generation fleet. While Eskom budgeted R5bn for diesel in 2023/ 2024 the cost was revised upwards to R16bn in the application that is now being considered.
Muzi Mkhize, full-time member of Nersa, asked Cassim why the higher diesel and other fuel costs had to be borne by consumers when they are a result of Eskom’s own inefficiencies.
“Why should consumers pay for OCGTs that cost more to run than coal-fired power stations, when your energy availability factor (EAF) is 59%?” Mkhize asked.
In its latest application Eskom revised the EAF (a measure of the performance of the generation fleet which expresses available energy as a percentage of total installed capacity) downwards from 62% to 59%.
Similar sentiments were expressed by Liz McDaid, parliamentary and energy adviser to the Organisation Undoing Tax Abuse (OUTA), who said that the regulator should not reward Eskom for “poor delivery, corruption and mismanagement”.
“What we are not hearing from Eskom is what their plans are to ensure that they pay for load-shedding and for not supplying electricity. It was Eskom’s own decision to keep running expensive, old, coal-fired power stations […] and the [end user] is expected to just pay up [for this decision],” McDaid said.
According to OUTA, fixed costs charged by Eskom mean people pay even if there is no electricity, and load-shedding means Eskom makes money even if it provides zero electricity. This, OUTA said, contradicts a principle of fairness.
“Maybe the fixed costs should be tied to the energy availability factor, if Eskom can only deliver 59% then customers should only pay a 59% share of fixed costs,” said McDaid.
She added Eskom should compensate customers for losses suffered when household appliances break as a direct result of load-shedding.
OUTA appealed to the regulator to grant a maximum of a consumer price index (CPI) tariff increase.
“If the economy is to recover from Covid-19, electricity needs to be kept to an affordable level in order to be an economic enabler,” OUTA said.
Jack Armour, commercial manager at the farmers’ representative organisation Free State Agriculture, told Nersa that “beyond inflation [tariff increases] are totally unjustifiable and will have a huge effect on food production and affordability.”
Unaffordable electricity price increases are “placing SA on an anarchy knifepoint,” he said.
Eskom believes, said Cassim, that the tariff increases being requested are “what is required to not put further burden on the fiscus”.
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