Eskom has applied to the National Energy Regulator (NERSA) for an average increase in electricity tariffs of 19.9%. For municipalities this translates into an average increase of 27.5%. NERSA has advertised ESKOM’s Revenue Application for the 2018 /19 financial year in order to allow for public comment before making a ruling. Public comments will be accepted until 13 October 2017. Say NO to any tariff increase above the CPI. Objections need to be addressed to The Director, NERSA at firstname.lastname@example.org by the 13 October.
The following submission was made by the Far South Peninsula Community Forum in Cape Town:
OBJECTION TO ESKOM’S REVENUE APPLICATION FOR A 19% INCREASE FOR FY 2018 /19.
ESKOM’s application for a 19% increase in the price per kWh of electricity is a public acknowledgement of its inability to provide an affordable service to the citizens of South Africa. Worse still the 19% increase translates into a local-authority tariff increase of 27.5%. This is, as you know, because municipalities continue to pay at the 2017/18 rates for the period 1 April 2018 (when ESKOM increases become effective) till 30 June 2018 when the new municipal financial year becomes effective.
Support for ESKOM’s application for any increase above the CPI index is untenable. Anything more than CPI provides a subsidy to a power utility that is demonstrating an increasing inability to provide an efficient energy service as required in terms of its mandate set out in the Electricity Regulation Act, 2006 (Act No.4 of 2006), Section 15(1).
As the energy service provider with the monopoly to supply electricity to consumers across South Africa ESKOM demonstrates its inefficiency in the following ways:
ESKOM is making costly decisions regarding management of aging plant and new generation, is accused of corrupt dealings with fuel suppliers and service providers and is demonstrating increasingly that it is unable to adapt to the new energy environment. In addition, ESKOM’s continued dependency on coal and its non-compliance with National Air Pollution emissions has significant, direct health implications for communities living within the fall-out zones of these polluting power stations. They also seriously compromise South Africa’s ability to meet its CO2e commitments and to mitigate against Climate Change. In addition to ESKOM’s unacceptable tariff increases, these health and environmental costs are unconstitutional. Our Bill of Rights enshrines the right of every citizen to an environment that is not harmful to their health or well being.
Our objection to the proposed 19%, and for most citizens an effective 27.5% increase, focuses on the serious concerns about the affordability of electricity as a result of inefficiencies arising from ESKOM’s current poor management and planning decisions. Unaffordability is a key reason why forty-eight municipalities owe Eskom a combined estimated amount of R11.54bn. “Apparently Eskom plans to cut electricity to around 42 municipalities due to bills being in arrears.” https://mybroadband.co.za/news/energy/226827-48-municipalities-still-owe-eskom-billions.html (30 August 2017).
The government can be justifiably proud of the huge increase in the provision of an electricity service to previously disadvantaged communities since 1994. However if this electricity is unaffordable to citizens, then access becomes an unfulfilled promise.
ESKOM’s unreasonable electricity increases are motivating municipalities to apply for a determination to buy directly from IPPs. The court application by the City of Cape Town to force the DoE to process the City’s application for a determination is illustrative of Cape Town’s concerns about its ability to distribute affordable electricity to its citizens.
Key reasons for inefficiency of ESKOM supply:
1 Aging Plant requiring costly maintenance. By its own admission ESKOM needs to spend more on maintenance because of its aging plant – mainly coal fired. At the same time ESKOM is refusing to sign off contracts with the outstanding IPPs in round 4 of the REIPPP. Bringing this RE energy on stream would enable ESKOM to phase out the most costly plant while providing clean and affordable energy.
2 Ongoing dependence on costly coal: In its comment on the IRP 2016, Meridian Economics stated that South Africa might have reached the point where it will be cheaper in financial, economic and environmental terms to: 1) Procure more renewables to reduce the use of the most expensive existing Eskom coal fired plant; and 2) Cancel the construction of part of Kusile and instead procure a combination of renewables and gas power when required. In addition the demand forecasts on which Medupi and Kusile were premised is now known to be completely wrong. Yet the build programme and search for expensive funding continues. As an independent energy regulator it has to be NERSA’s role to protect the citizens and the economy from tariff increases that enable such inefficiencies to continue.
3 ESKOM’s continued support for the nuclear power programme in the face of considerable civil society objection demonstrates a critical disconnect from the citizens who need affordable electricity. While funding for new nuclear generation is not part of the 2018 /19 application, ESKOM’s support for costly nuclear is an indication that it does not support least-cost generation options but would rather increase electricity tariffs. Wind and PV are proven to be cheaper but are being constrained by ESKOM. (CSIR studies 2016 and 2017) Consumers have reached the ceiling of what they can pay for an inefficient service.
4 Allegations of corruption: “Debt and corruption scandals at Eskom Holdings SOC Ltd. make the utility the biggest risk to South Africa’s economy and the government needs to replace its management”, Goldman Sachs Group said. The utility is caught up in allegations of corruption related to contracts it signed with companies linked to the Gupta family, who are friends of President Jacob Zuma. It’s also without a permanent chief executive officer and has suspended its finance director.”
The list of allegations of corruption within ESKOM is growing and won’t be dealt with in detail in this objection. Suffice to say that citizens pay far more for far less when corruption occurs and is not dealt with as a crime against the country. We call on NERSA to take a stand against such corruption by refusing ESKOM its excessive tariff hike.
5 ESKOM’s costly inability to adapt to the changing energy environment.
The South African REIPPP has achieved international recognition for its ability to provide clean, affordable energy quickly and with low financial risks. Yet for apparent political reasons, the programme has been stalled and new RE has been capped in the Draft 2016 IRP. Progressive utilities around the world see distributed generation based on RE combined with digitised technology (smart metering, smart grids and Internet of Things to manage Time of Use) as the way forward. ESKOM on the other hand is clinging to its inefficient and outdated model of large scale, capital intensive, centralized electricity generation based mainly on polluting coal.
One of ESKOM’s motivations for its huge tariff increase is the under recovery of costs based on reduced sales. This demonstrates the inflexibility of the out dated generation plant. In addition, the higher the ESKOM tariffs the more citizens and industry will be incentivised to introduce efficiency measures and increase their own RE generation – thereby further reducing purchases from ESKOM. Those citizens, industries and municipalities without the means to purchase efficient technology and RE generation would be stranded. The consequence of ESKOM’s logic of increasing the tariff to compensate for reduced sales will mean that those who can least afford it will carry the burden of paying for expensive ESKOM electricity. The unaffordability of electricity has a devastating effect on economically vulnerable South Africans who are deprived of the electricity required to develop their potential and achieve economic independence. This could destabilize the country as the separation widens between those who can afford electricity with all its advantages and those who can’t and are excluded. Thus, ESKOM’s apparent inability to adapt to the new energy environment is putting the entire country at risk.
Conclusion: While NERSA may not have the mandate to prescribe what technologies ESKOM uses to generate electricity, generation and costs are inextricably linked. This is especially true of a monopoly electricity supplier protected from the competition that encourages a measure of efficiency and good management. We call on NERSA to reject ESKOM’s application for a 19% increase, or any increase above CPI, on the grounds that it would enable ongoing inefficiencies within ESKOM to the detriment of all South Africans.
Kim Kruyshaar of GAIA – Green Audits Into Action
On behalf of the Far South Peninsula Community Forum.
The FSPCF is a forum of community representatives from the majority of civics in the South Peninsula of Cape Town including: Chapman’s Bay Estate, Fish Hoek Community Police Forum, Fish Hoek CID, Fish Hoek Valley RRA, GEESE – Glencairn Environmental Gr, Imhoff’s Gift Homeowners Association, Kommetjie RRA, Misty Cliffs Village Association, Noordhoek Ratepayers Association, Noordhoek Environmental Action Group, Scarborough RRA, Simon’s Town Business Association, Simon’s Town Civic Association, Smitswinkel Bay Residents Assn, Stonehaven Home Owners Association, Sunnydale Ratepayers Association, Sun Valley Eco Watch
03 October 2017
“Eskom as it currently operates, cannot survive financially in any plausible future scenario and should be unbundled and restructured before it drags the South African economy down with it,” said Ted Blom, OUTA director for energy. https://www.esi-africa.com/news/eskom-tariff-increase-economy-outa/