Consumers punished by Eskoms ‘bad planning’

The big question is whether the South African economy and South Africans are ready for another unaffordable electricity increase at this point, Nhlanhla Ngidi, responsible for energy and electricity matters at the SA Local Government Association (Salga), said on Monday.

He addressed a panel of the National Energy Regulator of SA (Nersa). Nersa heard an application by Eskom for a R22.8bn adjustment for its 2013/2014 financial year. If this is granted, it is expected that it would lead to a 16% electricity tariff increase.

The RCA (Regulatory Clearing Account) application by Eskom is for cost recovery and revenue adjustments based on actual past variances and not a revenue application based on future estimates. Its application regarding the 2014/2015 financial year will come at a later stage.

Ngidi said Salga understands and accepts the RCA process, but it has unintended consequences and defeats the purpose of having a 5-year multi-year price determination.

In Salga’s view the RCA process, therefore, creates uncertainty and instability, which could end up punishing consumers because of “bad planning and grossly inaccurate projections” on the part of Eskom.

“With the existence of RCA Eskom may never reach the level of efficiency that is expected from it,” said Ngidi. “RCA needs to be reviewed to provide for predictability.”

“Affordable and reliable electricity still underpins every aspect of the social and economic life of the citizens of a country,” Ngidi told Nersa.

“Still too few South Africans have work and there is persistent jobless growth. Research shows that in 2015 58% of all South African households are still deemed poor.”

He said the weakening rand leads to inflationary pressures and means higher food and fuel prices resulting in stagnant wages and salary increases and deepening income inequality.

The non-payment of rates to municipalities and theft more than doubled in 2015, while debts owed to municipalities rose sharply, he pointed out. Municipalities also had to absorb a 12.69% tariff increase approval by Nersa in April 2015.

“Due to SA’s economic challenges, tariff increases and other funding challenges, most municipalities went into the red. Some even defaulted on Eskom bulk supply accounts,” said Ngidi.

“We support a financially viable Eskom and we also want sustainability for the industry. Sustainability, however, cannot be achieved without affordability for customers, predictable tariffs, an efficiently and effectively managed Eskom and municipal financial viability.”

He emphasised that higher tariffs lead to decreased sales, especially since Eskom regularly calls for demand reduction due to generation shortages.

“Eskom’s revenue shortfall needs to be addressed, but it cannot be solved by simply demanding higher tariffs from hard-pressed consumers,” said Ngidi.

In Salga’s view it is time for Eskom to rethink its model and restructure itself to become more lean.

Ngidi pointed out that a large part of the R22.8bn RCA Eskom is applying for, was because of the use of open cycle gas turbines (OCGT). These should actually only be used for electricity supply as a last resort.

“The use of gas turbines is due to deteriorating plants and a lack of maintenance of the cheaper options of Eskom’s generation fleet,” said Ngidi. “This error must now be paid for by customers.”

Of concern to Salga is Eskom’s over-expenditure, which forms part of its RCA application.

“Eskom does not point out the exact causes of over-spending in the application,” said Ngidi and added that Salga wonders whether poor project management and unnecessary expenses in building projects could have something to do with it.

“Eskom is a national strategic asset. Its viability is supported, but its business must be conducted responsibly,” said Ngidi.

“Electricity is a strategic asset for the implementation of the National Development Plan. Making electricity unaffordable would most likely affect the poor and is against the spirit of the NDP.”

Carin Smith, Fin24