The Energy Intensive Users Group (EIUG) in its public hearings submission has welcomed the opportunity to comment on State-owned power utility Eskom’s Regulatory Clearing Account (RCA) application for full-year 2022, which formed part of the fourth multi-year price determination (MYPD4).
“We do not believe that the National Energy Regulator of South Africa (Nersa) should approve Eskom’s application for R23.86-billion and that, based on our analysis, Nersa should not grant them anything more than R1.13-billion,” EIUG CEO Fanele Mondi says.
The EIUG says the Eskom application is premised on a view that the utility should be guaranteed revenue, irrespective of its operational and financial performance or the causes of cost drivers and reasons for sales losses.
Mondi says guaranteed revenue is not the intention, nor in the spirit, of the price determination methodology.
He adds that Eskom seems to believe that its operational performance is owing entirely to external forces, such as delayed government decisions, Nersa not granting its requests, the Russia-Ukraine conflict and lower electricity consumption owing to loadshedding.
However, the EIUG is of the opinion that government made bad decisions over 20 years ago and Eskom should have found ways of mitigating related external and internal effects during this period.
This has not been the case and, instead, generation performance continues to deteriorate, the organisation avers.
The EIUG believes Eskom’s poor performance is a significant contributing factor to lower consumption and sales.
“Eskom is on record highlighting the pervasiveness of corruption which continues to siphon huge amounts of monies out of the business and associated deliberate damage to plants in pursuit of corruption.
“Yet in its pricing application Eskom provides only five sentences in dealing with corruption. No information is provided on management’s actions to stem corruption since the MYPD4 application was made, other than supporting a four-year-old statement issued by Nersa,” the EIUG states.
The EIUG says that, according to Eskom, until investigations are completed, and hopefully better controls are in place, consumers must foot the bill of corruption.
Eskom’s revenue was 23%, or R68-billion, lower than its own forecast and R9.5-billion less than Nersa’s allowable revenue decision.
Understandably, certain unknown impacts at the time of forecasting, such as Covid-19, intervened but these are unlikely to have been the only cause for this R68-billion variance, the EIUG says.
It posits that the more logical answer for a significant portion of the R9.5-billion variance is owing to discouraged sales and loadshedding, as Eskom also implies, both of which are a direct result of Eskom’s poor performance.
Poor coal-plant generation performance also led to inefficient use of primary energy resources like coal, diesel and fuel oil, the EIUG points out.
In the case of coal, Eskom burnt R2.1-billion more coal to produce less than planned electricity production. The EIUG is of the view that this Eskom inefficiency cannot be simply transferred to the consumer, it emphasises.
For the open cycle gas turbines (OCGTs), Eskom burnt R9-billion more diesel compared with its own forecast and Nersa’s decision of R1-billion.
“Burning diesel is understandably the last measure to prevent or minimise loadshedding but considering that this risk is caused by Eskom poor performance it cannot just be passed through to consumers.
“In the EIUG’s opinion this risk must be shared, at best Eskom compensated for OCGT energy (GWh) at standard tariff rate of 133c/kWh, the same rate Eskom uses to offset the impact of loadshedding to consumers or else the true cost of loadshedding impact to consumers needs to be also calculated,” the EIUG suggests.
This will mean Eskom is, at best, entitled to only R2.2-billion of the R9-billion RCA claim.
Regarding fuel oil, Eskom used R4.1-billion more fuel oil against its own forecast of R1.9-billion and R4.2-billion against Nersa's decision of R1.7-billion. This is against the reported R100-million fuel oil corruption a month in just one power station and demonstrated poor performance (higher unplanned outages and trips than anticipated), the EIUG outlines.
This fuel oil claim should not be passed to consumers, it avers.
The EIUG notes that Nersa incentivises Eskom Transmission and Distribution to improve quality of service through the Service Quality Incentive. However, Eskom Generation is not incentivised to improve its performance, nor is it penalised for poor service, it points out.
The EIUG is once again calling on Nersa to consider service quality incentives for Eskom Generation to stem, and turn around, its deteriorating performance.