Power cuts in focus as Eskom tariffs rise

Nersa has granted Eskom a 9.4% tariff increase from April. (Delwyn Verasamy, M&G)

Nersa has granted Eskom a 9.4% tariff increase from April. (Delwyn Verasamy, M&G)

Eskom does not like it because it wanted more, and its customers like it even less because they think Eskom got too much.

These have been the overriding reactions to the decision by the National Energy Regulator of South Africa (Nersa) to grant Eskom a 9.4% tariff increase from April.

But there may be a silver lining to the increase – the risk of load-shedding has receded, say industrial consumers.

Despite warnings from Eskom chief executive Brian Molefe that Nersa’s decision could have “operational consequences”, large industrial users do not believe it will lead to widespread power cuts.
In fact, it could free up capacity when these users wind down their furnaces in the winter months.

“We don’t anticipate any load-shedding at all, based on our outlook,” said Sean Nel, the spokesperson for the Energy Intensive User Group.

Much of the country’s smelting capacity has already been switched off and those large users that haven’t done so will do it when the significantly higher winter tariffs kick in, he said.

The reaction of large users again highlights the conundrum facing Eskom when it raises the price of electricity – because of its customers’ sensitivity to price hikes, they reduce electricity consumption or find alternative power sources.

This issue was a key element of Eskom’s application for the price hike in terms of its regulatory clearing account, which is a mechanism to compensate Eskom, or its customers, for over- or under-recovery during a tariff cycle, known as a multiyear price determination (MYPD).

About half the R22.8‑billion Eskom was seeking was to compensate for reduced sales of electricity as consumers cut their demand.

The dramatic decline in the country’s economic growth rate in recent years and factors such as labour disputes at many mines during the 2013-2014 financial year also played a role in Eskom’s declining electricity sales.

These facts have led to many of the assumptions and forecasts underpinning Eskom’s third MYPD submission being vastly out of date.

As part of its decision on Tuesday, the regulator instructed Eskom to submit a new tariff application, or MYPD4, based on “revised assumptions and forecasts that reflect the recent circumstances”.

The Energy Intensive User Group has been trying for some time to discuss the problem of price elasticity with Eskom and Nersa, Nel said.

“We run a risk of price elasticity reaching its breaking point, particularly among industrial customers,” he said.

This could affect the electricity subsidies to the poor, as the revenue from large users typically supports these, he said.

In addition, it has implications for Eskom’s cash flow as large industrial and commercial users usually pay their bills within 30 days. It takes Eskom longer to recover its money from municipalities and residents.

One of the reasons why the regulator gave Eskom less than it asked for was that “it would not be affordable and Eskom would not be sustainable” if prices continued rising steeply, said Thembani Bukula, the chairperson of Nersa’s electricity subcommittee.

The matter is of concern to Nersa, he added, and the utility’s new application would allow a new determination that is “reasonable and considers all of the facts”.

But there have been several developments that are not related to Eskom, such as protracted labour disputes in the platinum sector, which have affected sales.

In its decision, Nersa allowed Eskom to recoup about half of what it was seeking. Of the additional R11.2-billion it was granted, about R10.3-billion will be recovered from standard tariff users.

Eskom was also seeking about R8-billion extra because of its reliance on its expensive peaking plants, or open-cycle gas turbines. But the regulator only allowed it to recover a reduced amount of R1.3-billion for that purpose.

Molefe is particularly concerned about this aspect of the regulator’s decision. “We note with concern the decision on open-cycle gas turbines, which will guide Eskom’s operations in the future in terms of balancing the energy supply and demand in a bid to avoid load-shedding.”

Eskom has reduced diesel consumption in recent months and improved maintenance, but the grid remains constrained, he said.

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