On Friday, the National Energy Regulator of South Africa (NERSA) announced it had received state-owned power utility Eskom’s application for the selective reopening of the Third Multi-Year Price Determination (MYPD3) decision for the 2015/16 to 2017/18 period.
According to NERSA, the parastatal’s selective reopener application requires a cost recovery of ZAR32.9 billion for Open-Cycle Gas Turbines (OCGTs) and ZAR19.9 billion for the Short-term Power Purchase Programme (STPPP).
The STPPP involves Eskom contracting private generating capacity on a short-term basis.
According to Eskom’s application, the selective reopener will result in a total price increase of 25.30% for 2015/16. This will consist of the 12.69% approved by the energy regulator, the 10.10% selective reopener for OCGTs and STPPP, and a 2.51% increase in the environmental levy by ZAR0.02c per kWh, NERSA explained in a statement.
Increased electricity tariff
In March, the power utility confirmed an electricity tariff increase of 12.69% for direct consumers with effect from 1 April 2015 and 14.25% for municipalities from 1 July 2015, which NERSA had approved in November 2014.
Eskom said the tariff hike was necessary due to past non-cost reflective tariffs. The utility also said the delay in recovery of eligible expenditure does not allow the power company’s balance sheet “the ability to pre-fund further costs that are necessitated by a constrained power system such as short term power purchases from independent power producers and municipal generators and the increased use of open cycle gas turbines”.
Eskom said these restrictions are pushing the energy provider to seek alternative solutions for the review of tariff increases for the 2015/16 financial year.
Selective reopener application
The statement issued by NERSA stated that Eskom submitted its selective reopener application for consideration by the energy regulator on Thursday, 30 April 2015. This follows Eskom’s conclusion of its consultation process with the South African Local Government Association and National Treasury.
The regulator is considering the application taking into account the urgent need to stabilise the electricity network to avoid a possible total blackout and Eskom’s operational and financial challenges.
Eskom submitted a multi-year price determination methodology to NERSA for a third time in October 2012 to determine an increase in electricity tariffs.
Eskom stated that it has “initiated a selective reopener of the MYPD3 application from the 2015/16 financial year onwards that proposes an adjustment in the tariffs. This is due to costs incurred securing further short-term power purchases and increased use of open cycle gas turbines.”
In a company statement Eskom explained: “In terms of the Municipal Finance Management Act, Eskom is required to first consult with the National Treasury and the South African Local Government Association prior to submitting to NERSA for consideration. Eskom will consider these comments before submitting to NERSA. NERSA will then follow their normal governance processes before making a decision.”