Electricity price increase on the cards
Eskom is one step closer to getting an interim tariff increase after the National Energy Regulator’s (Nersa’s) electricity sub-committee on approved a recommendation on May 9. The recommendation is expected to serve before the regulator for a final decision before the end of the month.
The committee was however at pains to keep the rand value of the increase Eskom applied for and the percentage increase recommended under wraps.
The increase would be over and above the 8% annual increase granted last year for the period April 1 2013 – March 31 2018 and would only be implemented on April 1 2015.
It is aimed at compensating Eskom for lower sales and costs it incurred during the three-year tariff period from April 1 2010 – March 31 2013 over and above costs provided for in the revenue Nersa earlier granted it for that period. The recovery mechanism is limited to prudently incurred costs and escalations outside of Eskom’s control.
Still less than Eskom wants
From the discussion it was clear that Eskom may be granted less than it applied for.
Nersa officials were clearly sceptical of Eskom’s extensive use of its open-cycle gas turbines (OCGTs). These plants are designed to supplement other generation capacity during periods of peak demand and can be switched on at short notice. Its running cost is 16 to 18 times that of a coal-fired power station, Eskom earlier revealed.
Officials said Eskom does not seem to get the benefit from its extensive maintenance programme, since its unplanned breakages increased sharply during 2013. Eskom exceeded its budget for repairs and maintenance by 7% over the three-year period, but its unplanned outages nevertheless increased.
That left the utility with more than 10 000MW of its 43 000MW of generation capacity unavailable due to planned and unplanned maintenance and caused it to rely on the costly OCGTs.
The officials further pointed out that Eskom is reporting an increasingly tight system despite decreasing electricity demand. They agreed that Eskom is not running its plants the way it should and vowed not to reward it for inefficient operations.
The argument that the frequent breakdowns can be ascribed to the age of Eskom’s plants, was not accepted in the light of better performances at some of its peers where plants are just as old.
One official also pointed out that Eskom had its plants revalued at replacement value and was granted returns on these higher values. The utility cannot then, when it suits it, rely on the age of plants as an excuse for bad performance.
Economist Chris Hart from Investment Solutions agreed that if the consumer pays for new plants, it can expect the performance one would expect of new plants.
Nersa reiterated its reluctance to allow Eskom revenue for power buy-backs. This is when Eskom pays industries to switch their plants off in order to lower the electricity demand.
Officials argued that power buy-backs damage the economy through loss of production. Eskom’s revenue also decreases through the loss of sales to these industries. The customer has to first pay for the buy-backs if that is paid from tariff revenue and then is confronted by further increased tariffs to compensate for lower sales.
The regulator is expected to take a final decision on the increase and the way it will be implemented by the end of the month.
Source: Moneyweb
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