The Nelson Mandela Bay Business Chamber got it wrong: Eskom

JANUARY 21, 2016

The Nelson Mandela Bay Business Chamber got it all wrong, says Eskom, after the National Energy Regulator of South Africa (Nersa) public hearings in Port Elizabeth on Wednesday into Eskom's application for the approval of the regulatory clearing account (RCA) balance for the first year (2013/14 period) of the third multi-year price determination (MYPD3).

During the hearings that were held at Struandale, the Nelson Mandela Bay Business Chamber rejected all increases beyond the original MYPD schedule because the Business Chamber’s calculations of a real estimated year-on-year increase of 24% versus the 8% as approved by the five-year price determination, would massively impact on the sustainability of business in the city.

The main reasons for the rejection highlighted by Business Chamber Deputy President MC Botha and Member Company Autocast Executive Director David Mertens in a joint presentation were:

  • Eskom is seeking to recover inefficiencies through the RCA;
  • The application is unprocedural and irregular in various respects;
  • The consumer is being penalised for acting in accordance with the request by Eskom to reduce electricity usage.

“Next year we will be back here for an even bigger RCA adjustment application by Eskom, estimated to be in the region of R30 billion,” Botha said.

He said it is the opinion of the Business Chamber that the RCA should be rejected on the basis alone that Eskom did not follow Nersa’s RCA methodology and that the application was in fact, irregular and unlawful.

Mertens said it was quite irrational from Eskom to ask businesses and the consumer to pay more money because Eskom had not sold enough electricity, this after Eskom’s continued appeals to consumers to reduce electricity consumption.

“Do we really owe Eskom R7.3 billion because we did not buy enough power in 2013/14? Electricity tariffs must stabilize in order for us to become globally competitive. The vicious circle of price increases and reducing consumption must be broken,” Mertens said.

“Will anybody need the Medupi or Kusile power stations when this goes on? Eskom is not dealing with poverty alleviation, what they are doing is creating the poor by trying to enforce these tariffs. Further drastic reduction of employment is inevitable if Nersa does not manage to constrain the increases.”

Read more on the NMB Business Chamber's presentation; click HERE. 

"Messrs Mertens and Botha of the Nelson Mandela Bay Business Chamber based their whole presentation on a wrong premise – that Eskom’s submission has not followed the RCA methodology. Their presentation showed a misunderstanding of the regulatory process as a whole," the power utility said in a statement.

"The RCA process is entrenched in the current Nersa methodology and is a globally-accepted regulatory principle that reconciles variances between the Nersa MYPD3 decision and the actual costs that Eskom incurred in 2013/14 (as reflected in the audited annual financial statement) in the supply of electricity.

"It is therefore incorrect to say that Eskom is seeking to change the MYPD decision under the guise of the RCA. We have made a submission following a credible regulatory process that is provided for in Nersa’s MYPD methodology.  Additionally, we had our application independently verified.

"The RCA looks at what costs were incurred and compares this to the decision that was taken by the regulator. However, the Nersa decision at the time may be lower or higher in reality.

"The economy also did not grow at the rate that was anticipated at the time of the decision. This further impacted Eskom’s operations. The methodology allows for costs that are incurred prudently to be recovered and there is reasonable cause for us to submit to the regulator asking for an adjustment."

Eskom said consequently, they have submitted an RCA application to recover R22.8 billion, which is driven substantially by revenue under-recoveries, higher expenditure on coal burn, Independent Power Producers, Open Cycle Gas Turbines and other primary energy costs.

"A successful RCA will go a long way in giving confidence in the regulatory system by stakeholders including lenders and rating agencies, which will make it easier for Eskom to raise debt in capital markets to enable us to finish our build programme.

"Mr Badenhorst from Buffalo City said Eskom prices will cripple municipalities who cannot afford and requested the regulator to consider the socio-economic impact of the submission," the power utility said.

"Our stakeholders can be assured that we are sensitive to the impact the RCA submission has on the wider economy. It is a matter of balancing the needs of the country with the sustainability of Eskom and protecting the vulnerable sectors of our society.

"To ensure that we remain efficient in our operations, we have optimised our capital programme and put in a cost-saving programme that is intended to yield about R60 billion over the five years of the MYPD3 period. Additionally, we have not claimed R10.5 billion of operating costs incurred by Eskom that are not recoverable under current RCA methodology."

Eskom said it had only three events of load curtailment and one of load shedding in 2013/14 (the year to which the RCA submission relates), which was 13 hours out of the entire year.

The hearings move to Durban on 21 and 22 January 2016.