NERSA gets to bottom of Eskom’s high diesel usage and declining sales volumes

 

The South African National Energy Regulator (Nersa) cornered Eskom about the ‘unnecessary’ use of Open Cycle Gas Turbines (OCGTs) during the first year (2013/14) of the third multi-year price determination (MYPD3) period that amounts to R8-billion of the total R22,8-billion that the power utility is trying to recoup through the Regulatory Clearing Account (RCA) mechanism.

Eskom was also put on the spot in respect of its declining sales volumes (kWh units sold) which have been significantly lower than that budgeted in its MYDP3  application for the 2013/14 financial year, and which is the subject of the current NERSA hearings. This decline in sales volumes from budget accounts for some R11-billion of Eskom’s R22,8-billion claim.

Eskom Transmission group executive Thava Govender explained that the use of diesel power was only done as a last resort when all other avenues were unavailable. Transmission lines from neighbouring countries were severely damaged for several months of the year in question, therefore stopping and limiting Eskom’s imports.

Nersa chairperson Jacob Modise pointed out that it would be more financially viable to repair the transmission lines to import power than to use the OCGTs. Govender responded that “The Southern African Power Pool (SAPP) agreements are such that we cannot go and get involved in the electricity challenges of neighboring countries. We can only offer as much assistance and expertise as we are allowed. Some of the damage was quite extensive and resulted in us not being able to import for several months, which necessitated using the OCGTs during scheduled maintenance on our ageing coal fleet, and on weekends.”

The perception among groups who oppose the tariff increase is that the higher than budgeted diesel usage is a direct result of Eskom’s own failings. Had the Medupi, Kusile and Ingula projects been on schedule, Eskom would not have had to resort extensive operation of its diesel driven OCGTs to meet demand.

Furthermore, had the Medupi, Kusile and Ingula projects been on schedule, Eskom would have had more than sufficient capacity to cope with the plant or line failures in neighbouring countries that impeded power imports. Similarly, there would have been adequate reserve margins to provide sufficient space to do proper maintenance on Eskom’s existing generation fleet, and thus prevent its declining availability and performance in recent years, including 2013/14.

While Eskom blames the weak South African economy for the lower than budgeted sales volumes in 2013/14, electricity customers suggest that significant blame lies with Eskom itself, pointing to its own supply constraints, its massively increasing prices for years, its power buy-back programme which paid large customers to use less electricity, and Eskom’s ongoing marketing campaigns to use less of its product, electricity. The irony of then punishing customers with higher prices to recove the revenue from reduced

The consensus is that domestic, commercial, agricultural and industrial customers should not have to foot the bill for Eskom’s own failings, mistakes and inabilities to complete its new-build projects on time and on budget.

Nico Bruwer, a member of the public, presented at the hearings on 4 February, and highlighted the fact that Eskom tariffs continue to increase but sales and generation do not, which begs the question of why consumers should pay more, and why Eskom needs more and more funds. Further, he asked Nersa to consider whether Eskom can truly claim that its decline in sales in 2013 has nothing to do with Eskom’s own failings of electricity supply constraints and steep tariff increases since 2008 impacted the country’s low GDP rate.

Bruwer also urged Nersa to consider that it would be in everyone’s best interests to ensure Eskom not only re-evaluates its entire business model but also improves its debt collection from municipalities and consumers, instead of punishing paying consumers with unaffordable tariffs.

The hearings draw to a close on 5 February where Ted Blom of the Organisation Uniting against Tax Abuse (OUTA) will highlight how OUTA and the public have pleaded in the past, and Nersa has chosen to ignore the pleadings and has not acted properly and diligently in the execution of its duties. “We will endeavour to hold Nersa to book, and act where we believe Nersa has failed,” he says.

Eskom will have seven days to submit supporting documents to these and other questions raised by Nersa during the proceedings. “The prudency or otherwise of Eskom’s R22,8-billion costs will be determined by the energy regulator on 25 February. We believe we have presented a strong case before the regulator, and we’ll have we wait for its decision,” concludes Eskom spokesperson Khulu Phasiwe.

 

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