Nersa shines light on Eskom’s fuel costs

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Independent Newspapers

Picture: Dumisani Sibeko

Johannesburg - In just over two months from now, the National Energy Regulator of SA (Nersa) will know whether Eskom can recover the higher costs of producing electricity from the public.

If the amount Eskom paid to source coal and other primary energy sources is more than 2 percent greater than what Nersa allowed in its tariff determination process, Eskom would be able to recover this from consumers through higher electricity prices.

Eskom’s unit costs to generate electricity have gone up significantly in the past two years as primary energy costs have risen well ahead of what was allowed for in the tariff determination process.

Nersa said it was expecting to finalise calculating how much should be debited or credited to Eskom for the actual costs it incurred while producing electricity during the second multi-year price determination period (MYPD2) in February next year.

But it said the process could be in favour of either the customer or Eskom.

Nersa spokesman Charles Hlebela said the regulator had not received an application from Eskom to re-open the MYPD3 tariff process, but it had received a regulatory clearing account (RCA) application for MYPD2.

“Nersa is in the process of reviewing the RCA in accordance with the provisions of the MYPD methodology. The outcome of the Nersa assessment of the RCA will determine if there will be any clawback in favour of either the customer or Eskom,” he said.

The RCA is created at the beginning of each year and is used to debit or credit the difference between the primary energy costs approved in the MYPD application and the actual costs Eskom incurred.

On coal costs, for instance, Nersa states that gains and losses resulting from good or bad coal procurement processes by Eskom should be shared among Eskom and customers. The basic rule for sharing these costs is that the risk would be allocated to the entity that is more able to manage such risk.

Nersa does not allow Eskom to pass on to consumers extra costs incurred on primary energy sources other than for coal-fired plants and open-cycle gas turbines.

The regulator said it did not place any limitations on the use of the open-cycle gas turbines but required satisfactory explanations if Eskom’s use of this technology differed from the original plans submitted during the MYPD application.

“[Nersa] wants to ensure that these are run only when necessary. Where this cannot be demonstrated to the satisfaction of the energy regulator, the resultant costs will not be allowed as a pass-through,” the regulator said.

This summer, Eskom has made much more extensive use of its open-cycle gas turbines than usual when its reserve margin was depleted and it has reported that its fuel costs for these have risen significantly. Nersa said where the cost of fuel caused the variance between costs approved in the MYPD application and actual costs of running the turbines, a full pass-through would be allowed. But Eskom’s extensive usage of turbines this year falls under MYPD3 and not MYPD2, to which the RCA relates.

Hlebela said Nersa envisaged that the RCA assessment would be finalised by February.

If the RCA balance is 2 percent or less of the allowable revenue, there would be no immediate pass-through of costs to consumers but the RCA balance would be carried over to the next financial year.

If the balance is between 2 percent and 10 percent, the amount would be allowed as a pass-through in the next financial year without the need for a full stakeholder consultation. - Business Report

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