Nersa tightens leash on Eskom’s procurement costs
National Energy Regulator of SA reviews MYPD methodology - the basis on which it evaluates Eskom’s applications for electricity price hikes.
|||Johannesburg - The National Energy Regulator of South Africa (Nersa) is currently reviewing the multi-year price determination (MYPD) methodology and is tightening the leash on Eskom’s coal procurement and open-cycle gas turbines (OCGTs) costs.
The MYPD methodology is the basis on which Nersa evaluates Eskom’s applications for electricity price increases. The regulator uses the methodology to determine Eskom’s revenue requirements. Nersa will complete the MYPD review by the end of next month.
“Lessons learnt from the previous regulatory clearing account, as well as the stakeholder comments during the methodology consultation process, highlighted that certain sections of the methodology did not adequately address some of the intended objectives, particularly with reference to open-cycle gas turbines and coal procurement, among others,” said Nersa.
Expenditure
Nersa said inaccurate sales volumes and plant availability projections were among major risks.
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“Sales volume variations have been one of the largest components of revenue variance in the previous regulatory clearing account,” said Nersa.
In the year to March, Eskom’s expenditure on OCGTs amounted to R8.7 billion against an original budget of R2.9bn. During the course of the past financial year, the Eskom board approved a revised budget of R9bn.
In the revised methodology, Nersa said gas turbine generation cost would be conditionally allowed as a full pass-through cost.
But this would be limited to volumes the regulator had allowed except where such use was necessary to ensure security of supply due to events outside of Eskom management’s control.
Nersa said the OCGTs, which are supposed to supplement Eskom’s peak power demand, could be used outside of peak hours if the generation capacity was constrained. But such a move would be assessed for prudency and efficiency taking into account, among others, the reasons for the constrained supply condition, according to Nersa.
“It must be demonstrated by Eskom that all available, dispatchable and cheaper sources have been exhausted prior to the usage of OCGTs, including (integrated demand management) and (demand market participation) options.”
The regulator raised its concerns about Eskom’s coal costs, describing coal procurement as a key risk area.
The North Gauteng High Court last month ruled against Nersa regarding the regulator’s approval of Eskom’s MYPD 3 regulatory clearing account for the 2013/14 financial year. The court said Nersa’s decision to allow a 9.4 percent tariff increase with effect from April was irrational, unfair and unlawful.
Public hearings
The regulator said the court’s decision had no bearing on the contents of the revised methodology.
“The process of reviewing the tariff methodology had already started when the court ruling was made. Nersa published a consultation paper on the review of the MYPD methodology on 15 April 2016 and the public hearing was held on 02 June 2016.
“However, due to the growing interest/request from stakeholders Nersa re-advertised the document with stakeholders’ comments incorporated and extended closing date for further comments to 22 September 2016. The public hearing will be conducted on 30 September 2016,” said Nersa spokesman, Charles Hlebela yesterday.
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