Eskom responds to industry concerns over electricity pricing

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JIMMY MOYAHA: About two weeks ago we had a conversation with Tshepo Kgadima [independent energy analyst] around the pricing that Eskom had employed in regard to its electricity tariffs. We took a look at the increases in those tariffs.

Following that conversation, we also had a conversation last week with the Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, around the new pricing policy that the department is putting forward.

Today we have a conversation with the power generator of South Africa, Eskom, to look at how it is approaching these conversations. I’m joined on the line by the [acting group executive] for distribution at Eskom, Agnes Mlambo, to look at this and see what we make of it.

Ma’am Mlambo, lovely having you on the show. Thanks so much for taking the time. Let’s perhaps start with an overview of where Eskom currently stands from a pricing and distribution point of view. We know that over the last couple of months Eskom has been able to improve its energy availability factor, and has been able to have more electricity available on grid. Where do we currently stand around pricing and distribution in that respect?

AGNES MLAMBO: Good evening, and good evening to you and your listeners. I think what is important is that currently we are governed by the MYPD [Multi-Year Price Determination] process that we followed more than two years ago.

Therefore our tariffs are as determined by Nersa [National Energy Regulator of South Africa], and will expire.

We are in the last financial year of that period – and we will then follow a new application process.

So, as of now, the prices and the tariffs that we have are as approved by Nersa more than two years ago.

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JIMMY MOYAHA: Ma’am Mlambo, from a pricing perspective can we look at how Eskom arrives quite simply at the proposals it puts forward? Some of the comments that were made by Dr Ramokgopa related to perhaps including things like historical costs that Eskom would seek to recover in some of the pricing arrangements of the past. As it stands at the moment, we know that there is the new electricity-pricing policy that is being gazetted and being tabled for public comment at the moment. Would that impact how Eskom approaches its own pricing?

AGNES MLAMBO: Yes, it would impact how we approach the pricing. What is more important is that currently the way our tariffs are done, is they are all bundled into one tariff. So if you ask any ordinary South African ‘How much are you charged for actual electricity, how much are you charged for the network, how much are you charged for the meter, and how much are you charged for billing – or are you paying for billing?’ they would not be able to give you that detail.

So what this pricing policy allows us to do is to unbundle these tariffs so that all our customers will have a clear view of how much they are paying for each element that makes up – or gets the electricity into their household.

So that’s the key element or the key benefit in terms of unbundling the tariffs.

By the way, by ‘a customer’ we’re not just talking about a residential customer; we are talking to all customers, including customers who are generating electricity, who are the IPPs [independent power producers], and who are using our grid to transmit that energy to the end customer they may have a contract with.

So, as a generator, you will be able to tell how much it’s going to cost that generator to transport the energy into Eskom’s network – depending also on where that customer is connected as a generator, and where the other customer is connected as an off-taker. One would then be able to determine the cost.

So instead of all these costs being bundled as ‘cost per kilowatt-hour’, you are able to segregate the fixed cost, the backup cost, the actual cost of that energy, depending on when you utilise that energy, together with all other subsidies that come with it.

JIMMY MOYAHA: Ma’am Mlambo, I want to take a look at those costs in more detail – but from the perspective of how Eskom determines those costs.

There are what we have been told are ‘negotiated price agreements’. We’ve seen them happen in various sectors, predominantly with the smelters in South Africa. They seem to be able to arrive at a cost of under 87 cents per kilowatt-hour in some respects, while average consumers in South Africa have had more than a 900% increase over the last 19 years. Consumers would easily say this is unfair on the part of Eskom.

How does Eskom determine who gets a negotiated price agreement, and who gets the other side of the tariff?

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AGNES MLAMBO: You would also recall that the minister had a couple of media statements where a commitment was made to save some of the industries which are currently in distress.

As for the distress – one, it’s assumed to be temporary; secondly, that it has a major impact economically, and therefore electricity is one of the levers that can be used to assist.

It is but one of the levers to assist those companies going through distress.

In there, we spoke about smelters. We have a framework that has been developed, and that framework has qualifying criteria. Therefore any smelter can apply. However, they’ll be taken through a process as to whether or not they qualify.

Even when you do qualify, there’s an assessment process that we go through to determine whether or not you should have a concessionary tariff. And when you do have [that], up to what level, and what would be the terms and conditions coupled with that tariff?

So it’s not just the tariff that you would get without any conditions, or that you get just because you’ve applied.

There’s an intense process that we follow for us to be able to determine that.

But ultimately the body that makes the approval for that tariff is Nersa. All that we do is to facilitate that process. We manage that process; we then submit things to Nersa for Nersa to do the determination and the approval based on our submission.

JIMMY MOYAHA: The national power utility has provided us with some clarity around its electricity pricing tariffs and how those tariffs could be affected by the introduction of the new pricing policy that we looked at last week.

We’ll leave this conversation on that note. The Eskom [acting group executive] for Distribution, Agnes Mlambo, joined us to take a look at electricity pricing.

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