NERSA rejects Eskom’s request for an additional electricity tariff hike.
NERSA has heeded the national sentiment by rejecting the additional electricity tariff hike. NERSA chairman Jacob Modise said, “The application did not provide the mechanism on how the proposed increase, if granted, will be implemented in the current financial year in a manner that is consistent with the requirement of the municipal financial act 2003.”
Public hearings held the previous week in Nasrec
NERSA (National Energy Regulator of South Africa) held a public hearing on the 23rd and the 24th of June with respect to the additional tariff increase requested by Eskom. A tariff increase was already accepted by NERSA for 12.5% with an environmental levy of 2.5% still to be gazetted. Eskom is demanding a further 9.5% tariff increase, mainly to purchase diesel to power the Open Cycle Gas Turbines (OCGT). The Open Cycle Gas Turbines operates optimally when burning cheaper gas rather than diesel.
The first day was eventful as the NERSA committee ‘grilled’ acting CEO Brian Molefe over the proposed increase and whether he received a letter from Nene stating that the new tariff, if accepted, will only be implemented at the start(next tariff period April? July?) of 2016. Brian Molefe stated that: “He was still new at Eskom and has no knowledge of such a letter.” One of the committee member refuted the claim saying that the letter was forwarded from his office to other institutions. Molefe further said that the cost of increasing the tariff to the specified amount will still be less than that of not delivering power. Even at R3/kWh the country will still save due to having fewer load sheddings scheduled, according to Eskom’s Brian Molefe.
Chris Yelland, CEO of EE Publishers addressed the hearing with several points ranging from the affordability of the tariff increase to the general public and businesses alike, financial impacts on municipalities, etc. He continued saying that the mistakes was made by Eskom and that it is unfair to place such a financial burden on the public. He also spoke about alternatives ways to generate energy as well as controlling the peak electricity demands.
The questions concerning Eskom selling some of its assets to generate money to pay for diesel and maintenance was strongly opposed by Mr. Molefe. Mr Molefe answered: “That is why I think selling shares in Eskom will be inappropriate at this stage, because the cycle is the wrong time to sell,” he continued: “People who buy will just benefit from the … period in Eskom when it becomes cash flush, without having gone through the pain of investing in Kusile and Medupi, which have largely been done … and are just about to be completed.”
On the second day of the hearings the DA president, Mmusi Maimane, said concerning the proposed increased tariff: “Not only is inflation potentially going to go up, but industry and business face the risk of not being able to improve their turnover and this has significant implications on job losses. None of us are going to be getting a 25% increase next, so should Eskom be given the same?” Maimane continued by saying that the acting CEO was not honest with the public: “He has been informing South Africans that there will be no load shedding but there is. I’d rather have a leader who is going to be frank with South Africans.” The DA’s deputy shadow minister Gordon Mackay observed that Mr. Brian Molefe gave the impression that there is no other option but to increase the electricity tariff, he said: “Eskom has access to various other funding models. We fundamentally believe that Eskom should stop borrowing and start selling some of its assets or selling equities in its business.”
Businesses, organisations and municipalities alike who have given presentations earlier, have rejected the tariff increase.Business Unity South Africa’s (BUSA) Martin Kingston was unsure of the future of Eskom and said it must be prepared for the long haul in order to survive. He also agreed on the damage of the increased proposal will have on businesses.
With the final arguments of Mr. Molefe, he reiterated that the tariff increase is still the cheapest option saying that load shedding costs six times more than what they’re asking for to run the open cycle gas turbines on require diesel fuel and he also answered the questions regarding the supposed letter from Nene.
The mood was quite tense between Mr. Molefe and Mr. Bukula over the issue of post-maintenance breakdowns at the coal-fired power stations, which Mr. Molefe dismissed due to wrongful interpretation by NERSA of a graph concerning the post-maintenance breakdowns?. A further issue arose around the implementation of tariff hikes as there are complications surrounding the implementation as the municipalities will not be allowed to increase the tariffs which will put them under strain.
Brian Molefe took a combative stance during his final arguments.
NERSA rejects the application
The National Energy Regulator of South Africa denied Eskom their application to increase the electricity tariff by 9.5%. Eskom’s acting CEO gave several reasons for the need for more funds to be made available especially for running the OCGT’s. Modise further reiterated: “Based on available information and analysis performed, the Energy Regulator has decided not to approve Eskom’s application for the selective reopener of the MYPD3 application for OCGT and short term power purchase programs, and the impact of the environmental levy.”
Modise continued by saying that Eskom must submit an application in accordance with the MYPD procedures: “Alternatively, [Eskom can submit] a new application for the period 1 April 2016 to 31 March 2019 with indicative projections for the period 1 April 2019 to 31 March 2021. The Energy Regulator did not consider the proposed increase to the environmental levy as it was not gazetted.”
The big question that remains is, how will Eskom procure the necessary funds to keep the “lights on?”
What do you think?