Tariff rush job ‘unwise’, Minerals Council tells Nersa

The Minerals Council South Africa on Wednesday (10 August) advised energy regulator Nersa to stop its “unwise” and rushed overhaul of the way electricity tariffs are determined in South Africa.

Addressing a Nersa panel on the proposed new methodology that it is currently consulting stakeholders on, Minerals Council technology analyst Christian Teffo said it is not ready for implementation, and it is unfair to expect stakeholders to accept an incomplete methodology on the basis of principles only, without knowing what the impact will be.

It would be better to improve the current multi-year price determination methodology (MYPDM) incrementally while the electricity supply industry is in flux and until the current revision of the policy and legislative framework has been completed, he said.

The Minerals Council and the Energy Intensive User Group (EIUG) made a joint presentation to the public hearing Nersa hosted about the methodology. The regulator published a consultation paper on its proposal at the end of June and has set 30 September as the target date to have it finalised.

Feasible?

Nersa said in a statement on 4 August that it plans a phased implementation of the methodology, but Eskom general manager for regulation Hasha Tlhotlhalemaje questioned during the hearing whether this is feasible.

Nersa’s proposal is aimed at a methodology that will apply to both Eskom and municipal distributors. The regulator will source information from all licensees every five years to set electricity tariffs. These will be adjusted every quarter.

The regulator further plans to link the kind of load, that is the profile of electricity use, to the cost of specific generation units that supply such loads.

‘Impossible, inappropriate’

The three principles underpinning the proposal are activity-based costing, type of use tariffs and marginal pricing, which according to Eskom are not regulatory principles at all and wholly inappropriate.

Eskom severely criticised the Nersa proposals in a document submitted to the regulator and published on the Eskom website.

Among other things, it refers to “the impossible; the inappropriate and the violation of policy, legislation, regulatory rules and codes” contained in the proposed methodology.

The EIUG conceded during the public hearing that the current MYPDM has some shortcomings. It however stated that no discernible effort was made to identify the actual shortcomings and address them in a systematic manner.

Vague

Fanele Mondi, CEO of the EIUG, said there is also no indication of how the three Nersa principles will affect actual tariffs.

He said the main concern of large users, the predictability and certainty of prices, is not addressed. “It is in fact made worse by the proposal to have quarterly or even monthly price adjustments.”

Mondi said large users carry the biggest burden with regards to cross-subsidisation of electricity tariffs and have long been asking for it to be phased out. As such they welcome the Nersa proposal to remove it, knowing it cannot happen overnight.

Eskom earlier pointed out that this may result in a sharp increase in household tariffs, since households are the biggest beneficiaries of the subsidies.

Could ‘create havoc’

Mondi expressed large users’ concern about the proposal to charge users according to their load profiles.

He said EIUG members that are currently making plans for their own generation to assist in alleviating the supply shortage may, as a result, present as peak time users when they tap into the grid after the sun has set.

These users will then in effect be penalised for their efforts, he said.

This will also apply to households as well as some businesses that cannot shift their load to other time slots due to their electricity usage during peak time being central to their business model.

Read: Eskom wants households to pay hundreds per month before using power

He said this could “create havoc” and asked Nersa to provide more information on the impact of the proposed new methodology on electricity tariffs.

Mondi also said time-of-use tariffs, which Nersa proposes abandoning, are still the best way to send pricing signals to electricity users.

Dr Leslie Rencontre, director of electricity at the City of Cape Town, pointed out that municipal legislation does not allow for in-year adjustment of tariffs. He raised concern that municipal laws have not been properly taken into account in the development of the proposal.

He stated that the Nersa proposal is dependent on smart meters, but it will require a large investment to move to smart meters. It is City of Cape Town policy to switch to prepaid meters though, because of the benefit that clients pay revenue upfront and the municipality avoids bad debt.

The benefits associated with smart meters will not outweigh those of prepaid sales, he said.

The public hearings will continue on 11 and 12 August.