NERSA’s MYPD approval of 8% instead of 16%: response by Eskom & SALGA

PMG 24 May 2013.

Date of Meeting:24 May 2013
Chairperson:Mr S Njikelana
Summary:

The meeting looked at the rationale behind the National Energy Regulator of South Africa’s price determination of 8% in response to Eskom’s request for a 16% tariff increase. The South African Local Government Association (SALGA) was asked to respond to the 8% increase on behalf of municipalities.

Eskom had applied for R1.087 trillion in revenue. NERSA had not approved its application and had awarded a lower tariff, which left Eskom with a revenue shortfall of R225 billion over the next five-year period. Without appropriate interventions, the NERSA decision would impact severely on Eskom, as such a huge shortfall could not be made up with efficiencies alone. In response, Eskom tabled an integrated delivery programme for finalisation. The programme would:
– continue to implement the committed savings of R30 billion and find further efficiencies
– consider how the business could be reshaped
– identify additional support which may be required
– look to the regulatory framework and rules to assist in addressing the challenges

The finalisation of the integrated delivery programme would be done in consultation with stakeholders and with government being the majority shareholder. Key reductions were spread across the requests on primary energy, operating costs, depreciation, Independent Power Producers (IPPs), Integrated Demand Management (IDM) and returns.

Eskom said this winter would be different in that generation maintenance would be done and not deferred. Eskom was committed to maintaining at least nine generation units between April and August to ensure the long-term sustainability of the plant. There was sufficient capacity to meet the demand most of the day.  However, the concern was the peak demand between 5pm and 9pm. If that could be reduced by as much as 2000MW, the security of electricity supply would be adequate. Eskom could not tackle the challenges of electricity supply alone, all partners and stakeholders needed to be actively involved in managing demand. Power stations were ageing as they were being run hard, therefore sustainable high levels of planned maintenance were needed to ensure reliable performance. Eskom usually reduced maintenance to the minimum in winter to meet higher demand but the planned maintenance could not be deferred. Demand during winter evening could rise up to 3000MW in 1 hour, as households switched on lights, heaters and cookers. South Africans were therefore urged to switch off non-essential appliances from 5-9pm. Deferring planned generation maintenance would have severe consequences.

The South African Local Government Association presentation noted the reduced electricity tariff increase of 8%. It spoke about the expected projections on surcharges by municipalities to address possible financial shortfalls. It looked at the reasons for the substantial electricity pricing variation at municipalities and the effect this had service delivery. It discussed infrastructure maintenance and development including skills and capability development and the factoring in of the Approach to Distribution Assets Management (ADAM). Finally it spoke about non-payment by municipalities to Eskom.

NERSA said it had approved the following tariffs for the 2013/14 financial year: Local Authority Tariffs were approved 7.3%, Non Local Authority Tariffs were approved 8.4%, Urban tariffs were 9.6%, Rural tariffs 9.3% and Residential tariffs got an approved tariff of 5.0%. In total the MYPD3 approved tariff was 8.0%. Currently municipal tariffs were approved on an annual basis, and the process involved about 190 municipalities, Eskom as well as private distributors.

Members questions and comments included:
– What financial costs did the delays in Medupi and Kusile have on Eskom as a whole?
– What kind of actions would be taken for complete negligence by contractors?
– How was Eskom and NERSA trying to find a balance in bridging the differences they had?
– What impact did Eskom’s inflation figures have on the economy?
– Eskom had secured about 80% of its funding from guarantees. How much of the guarantees had already been used, and how much was still remaining?
– Was the current building of power stations a sustainable solution in the long run?
– The ADAM pilot project had only been rolled out to seven municipalities. How long did the other municipalities have to wait for the roll-out?
– SALGA was awarding free electricity to people who could afford electricity, instead poor people who could not afford electricity were suffering from shortages…

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