NERSA must reject Eskom price hike application
14 February 2016
Eskom’s application to the National Energy Regulator (NERSA) for an additional price hike of 8.6% comes down to Eskom asking consumers to pay up for the State Owned Company’s poor financial planning and operational inefficiency. Government would do well to give meaning to assertions in today’s reports and allow for the privatisation of our power supply to make Eskom more profitable in the long run.
Eskom is submitting an application for a regulatory clearing account (RCA), which would enable them to hike up energy prices by an additional 8.6% over the 8% annual increase agreed upon for the time window running until March 2018. This would result in additional revenue of R22.6 billion from tariff increases. Meanwhile, the national regulator has paid an excess of R73 million in bonuses to executives and management over the last seven years.
Eskom’s RCA is a mechanism that allows the utility to recover unexpected costs that arise while generating electricity. The costs are recovered from consumers retrospectively by adding them to the next year’s tariffs. The regulator needs to decide that these costs have been incurred prudently and have passed an efficiency test.
At the public hearings on Eskom’s RCA application, the response has been unanimous in its rejection of the application. Objections range from steel and mining interests to local government and the environmental lobby. Representatives and citizens are becoming aware that consumers will ultimately pay for Eskom’s negligence and mismanagement.
Eskom has argued that their current deficit, for which the additional tariff revenue is now needed, arose from being forced to use expensive diesel for its gas turbines to keep the lights on. This is a dubious assertion at best as answers to parliamentary questions clearly indicate that South African energy demand is now below 2006 levels with an additional saving of 2000MW – 3000MW having being achieved during the course of 2015. It has emerged that the deficit has been largely caused by cost overruns at Medupi and Kusile, the coal-fired power plants currently being built.
The RCA and additional price hikes will not make Eskom more financially stable or efficient - they will only push more people and companies off-grid and increase the financial risk of Eskom’s future with reduced customers and demand. If Eskom had direct competitors, it would definitely have gone out of business by now. They should not be rewarded for their inefficiency.
The price hike will also affect the poor and reduce disposable income. Inflationary pressures will increase, which will feed into future interest rate hikes and increased manufacturing costs. These costs will ultimately be passed back onto consumers and reduce our global competitive factor, reducing exports. In the negative economic climate South Africa currently faces, any measure that reduces our competitiveness, raises inflationary pressures, affects the poor and must be thwarted.
It is obvious that Eskom’s application must be declined by NERSA. The public and private sector have spoken with a clear and united voice: enough is enough. Now is the time for government to implement a partial privatisation of Eskom rather than the SOE having to keep on requesting price hikes to cover for poor planning and ineffective financial management. The price hike cycle must be broken.
Statement issued by Gordon MacKay MP, DA Shadow Minister of Energy, 14 February 2016
