https://www.miningweekly.com

Nersa says door still open to Eskom after rejecting further 2015 tariff hike

Nersa chairperson Jacob Modise outlines the regulator's determination on Eskom's selective reopener. Camera Work & Editing: Nicholas Boyd. Recorded: 29.6.2015.

29th June 2015

By: Terence Creamer

Creamer Media Editor

  

Font size: - +

The National Energy Regulator of South Africa (Nersa) on Monday rejected Eskom’s application for a further 2015/16 tariff hike in addition the 12.69% already granted for the year, citing major information gaps in the State-owned utility's submission as a key reason for the decision.

Eskom approached Nersa on April 30 with a ‘selective reopener’ of the third multiyear price determination (MYPD3), seeking an additional 9.58% to cover surging diesel-related costs (6.43%) and to pay for the extension of short-term power purchase programme (STPPP) contracts with private generators (3.15%).

The increase, had it been granted, would have bolstered Eskom’s revenue by over R16-billion during 2015/16 and by more than R52-billion for the remaining financial years of the MYPD3 period, which runs until March 31, 2018.

The utility’s initial application also sought a further 2.51% hike to cater for an increase in the environmental levy, which had been announced by Finance Minister Nhlanhla Nene in the February Budget. However, this aspect of the application was withdrawn by acting CEO Brian Molefe as the increase in the levy had not been instituted and there was little indication that government planned to implement it during the 2015/16 fiscal year.

Nersa chairperson Jacob Modise announced that, owing to deficiencies in the application, the regulator had decided not to approve the increases sought to cover additional OCGT and STPPP costs, which had arisen primarily owing to the delay in the introduction of capacity from Medupi, Kusile and Ingula.

ANOTHER APPLICATION?

Modise indicated, however, that the regulator remained open to Eskom submitting either an application for adjustments allowed for in the MYPD methodology, using the regulatory clearing account instrument, or, alternatively, to a new application for the period April 1, 2016, to March 31, 2019, with indicative projections for April 1, 2019 to March 31, 2021.

Nersa's Thembani Bukula said the regulator would require any new application six months prior to the tariff implementation period date to give it time to deliberate and consult the public on the application. Eskom's next increase would be due on April 1, 2016.

He also indicated that a full reopener – which should include a full exposition of cost increases, as well as any decreases associated with not operating the new-build plant and the low energy availability factor across the exiting coal fleet – could be more supportive of helping it to meet its mandate of providing price path certainty and predictability.

In its response to the decision, Eskom gave no immediate indication as to its intentions. Eskom's Thava Govender said the utility had noted Nersa's decision and that it would study the details of the determination and consult with its shareholder before commenting further.

Modise stressed that the decision to reject Eskom's application did not represent Nersa closing the door on Eskom. However, he said that Nersa had to remain within the bounds of its governing legislation and regulation when making determinations.

"In the decision we have taken, what we have said is that we have left the door open for Eskom to submit a [further] application in accordance with the MYPD methodology. So, Eskom is still free to come and submit an application that provides all the information that will allow us to make a decision," Modise explained, adding that it was even open to a "completely new application", which he even dubbed MYPD4, based on new assumptions to 2021.

"So the door is not closed to Eskom."

Eskom's application was criticised by several presenters at recent public hearings for being in breach of legislation, with Business Unity South Africa (Busa) even suggesting that Eskom radical departure from the norm could create unacceptable regulatory uncertainty. Busa, along with just about all of the other presenters, also warned that the additional, unexpected increase could imperil growth, jobs and investment.

Serious questions also arose about the implications of any further tariff increase on electricity-distributing municipalities, owing to a National Treasury circular informing municipalities that any additional bulk electricity price increases approved by Nersa after May 15 would need to be “deferred” to the 2016/17 financial year. The effect would have seen municipalities being forced to absorb any out-of-cycle increase until July 1, 2016, which would have placed them under financial strain.

In fact, Nersa found that the application did not provide a mechanism for how the proposed increase could be implemented in a manner that was consistent with the Municipal Finance Management Act.

Bukula was also dubious about the justification proffered by Eskom in its application, which asserted that operating the OCGTs, in the Western Cape, well beyond their envisaged role as peaking-power plant was necessary to minimise the risk of load-shedding. Molefe even argued that, at a cost of R2.30/kWh, operating the OCGTs would be six times cheaper than the economic cost of unserved electricity, which had been estimated at R15/kWh.

Bukula said it was unclear whether Eskom had fully pursued the alternatives, including exploiting the demand-side management programmes for which resources had been allocated in the MYPD3.

"From the application and what we understand, we are not at a point where we are saying that it's a choice between load-shedding and increased electricity prices."

Edited by Creamer Media Reporter

Comments

Showroom

Universal Storage Systems (SA)
Universal Storage Systems (SA)

South African leader in Steel -Racking, -Shelving, and -Mezzanine flooring. Universal has innovated an approach which encompasses conceptualising,...

VISIT SHOWROOM 
SMS group
SMS group

At SMS group, we have made it our mission to create a carbon-neutral and sustainable metals industry.

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Photo of Martin Creamer
On-The-Air (15/03/2024)
15th March 2024 By: Martin Creamer
Gold, hydrogen, mining boost make headlines
Gold, hydrogen, mining boost make headlines
15th March 2024
Magazine round up | 15 March 2024
Magazine round up | 15 March 2024
15th March 2024

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.153 0.186s - 95pq - 2rq
Subscribe Now