Bay business chamber claims power utility did not follow correct channels
POWER utility Eskom was taken to task at the Nelson Mandela Bay leg of the national public hearings yesterday, with the region’s business chamber calling for energy regulator Nersa to reject its quest for a nearly 17% increase because the application was “unlawful”.
Presenting its submissions at the East Cape Training Centre in Zwide, Nelson Mandela Bay Business Chamber vice-president M C Botha queried Eskom’s attempt to recover billions of rands three years after the fact, saying it was a desperate bid to change the 2013 agreement (MYPD3) to increase prices by 8% each year until 2018.
The chamber said the timing of Eskom’s application rendered it irregular and unlawful as it should have been done within the 2013-14 financial year.
Botha said Eskom was trying to recover costs incurred as a result of its own inefficiencies, which was in contravention of the Electricity Regulation Act.
If Nersa gives the nod – a decision expected around February 26 – consumers could see themselves paying 16.6% more for electricity by April as the power utility tries to recover R22.8-billion in additional costs incurred in the 2013-14 financial year.
This translates to an additional 8.6% increase on top of the 8% agreed upon two years ago, which had got industry players jittery about the impact on business.
The chamber hammered the power utility for its submission that it needed to claw back R7.3-billion because it did not sell enough electricity, yet Eskom had appealed to consumers to reduce consumption.
Botha, accompanied by chamber member David Mertens, did not hold back, saying Eskom did not follow the correct channels in applying for the Regulatory Clearing Account (RCA) as it had based its application on a 2011 consultation document that was replaced by the MYPD methodology document adopted in 2012.
“Quite simply, the way it is supposed to work is that during the tariff year, Eskom on a quarterly basis must approach Nersa and tell it of its variations,” he said.
“During that year, nine months into the year, they must make an RCA application, which must include nine months of the year and the balance of the year forecasts of the expenditure.
“That must be approved and adjusted as soon as the financial statements are approved and available.
“There is no evidence available that Eskom, in fact, for the 2013-14 year followed any of these steps. “It does not appear in the annual financial statements.
“We have seen its financial statements and while there is mention of it, there is no suggestion that it had applied for RCA adjustments whatsoever.
“As we’re standing here today, we should be considering the 2014-15 adjustments ... they’re a year-and-a-half late.
“On that basis alone, we submit that the RCA application is irregular,” Botha said.
He also slammed Eskom, accusing it of bringing the economy to the brink of collapse.
“The chamber’s submissions to the Eskom RCA application are indicative of a continued and persistent disregard of Eskom’s mandatory responsibilities, the impact that its conduct has on the economy and the applicable rules and regulations,” he said.
“It underlines a belief on the part of Eskom that it has an unfettered right to plunder the consumer to compensate Eskom for its failure to discharge its core functions efficiently – being the supply of electricity.”
Botha said if Eskom needed to recover that much for just one year into the MYPD3 period, consumers should brace themselves for a similar application next year for the 2014-15 financial year, which could be in the region of R30-billion.
Eskom, however, said the chamber based its presentation on the wrong premise.
It said the chamber simply did not understand the regulatory process as it had followed the proper processes to the tee.
In a statement issued after the hearings yesterday, Eskom said the RCA process was a means to cover the difference between the MYPD3 agreement and actual costs incurred that year. “It is, therefore, incorrect to say that Eskom is seeking to change the MYPD decision under the guise of the RCA,” it said.
“The RCA looks at what costs were incurred and compares this with the decision that was taken by the regulator.
“However, the Nersa decision at the time may be lower or higher in reality.
“The economy also did not grow at the rate that was anticipated at the time of the decision. This further impacted [on] Eskom’s operations.”
Eskom’s representative at the hearings, Calib Cassim, said if Nersa approved its application, it would go a long way in restoring the power utility’s financial situation.
“More importantly from other stakeholders’ perspectives, embedding confidence in the regulatory mechanism will be seen in a positive light by lenders and rating agencies into the future,” he said.
The presentations – preceded by the tense first round of public hearings in Cape Town on Monday – left Nersa with a tough balancing act ahead.
The energy regulator will have to keep in mind the poor who are already struggling to buy electricity, while considering the financial impact on Eskom.
Asked by Nersa panellists how Eskom suggests the proposed increase would protect the poor, Cassim said that could entail charging those on the other side of the spectrum more.
“Once the amount of the RCA is determined, whatever that amount is needs to be recovered from a consumer base,” he said.
“And if within that determination, you want to protect a certain sector of that consumer base, it means other elements of that consumer base have to pick up the shortfall.”
Hearing chairman Thembani Bukula said the chamber had raised some key points about the legality of Eskom’s application.
“The issue of the legality of this application, the prudence and the inefficiency of the course have been the main focus areas in this one,” he said.
Bukula said in deciding whether to grant the application, Nersa would have to consider its effect on various sectors of the population and the power utility.
“When we finally conclude on the price, we will have looked at the sustainability of Eskom as well as the affordability of the electricity prices.
“In some cases, we have made decisions where we have a different price increase for the low-income consumer and the rest is taken by the rest of the consumers.”