21 February 2020

Key points from the BUSA Submission on Eskom’s RCA application (2018/19)

BUSA broadly opposes this and future RCA applications that would result in electricity price increases excessively beyond those already granted by the Regulator for the MYPD4 period. Further increases will render significant and possibly permanent curtailment of many of South Africa’s industries. BUSA has stated in its response to previous pricing applications the threat of ever-increasing price increases both to the economy and to Eskom, as the death spiral accelerates. We maintain that this threat is very real and growing.


Eskom’s inability to address its challenges is systemic and the utility appears to be unable to adapt to the structural changes of the economy and the international paradigm shifts in energy generation. This is beyond the reach of amendment of electricity tariffs. Indeed, these increasing and uncertain prices, coupled with frequent load shedding only exacerbate the situation.


BUSA asserts that the application is fundamentally flawed as it seeks to recover revenue shortfalls and cost overruns that could have been avoided if Eskom had sufficient low-cost generation capacity. The unacceptably low energy availability factor (“EAF”) of c.70% is the primary driver of variances between actual results and those originally approved by NERSA, which provided for an average of 79%, in line with Eskom’s earlier application. By Eskom’s own admission, the low EAF is the result of years of mismanagement.


Under no circumstances can it be argued that variances related to the low EAF are costs prudently incurred. BUSA maintains that the RCA should be assessed on the basis of what the results would have looked like if operations met global best practice standards. This low EAF must also be considered in conjunction with the human capital efficiency of Eskom as expressed in GWh/employee – based on Eskom Annual Report data the trend shows a decline from around 6.5GWh sold/employee in 2006 to just under 4.5GWh sold/employee in 2018. Over the same period the average price of electricity has increased by approximately 500%.


In the context of a fundamentally flawed application, several aspects of the application should be disallowed because, in BUSA’s view, projected sales volumes could have been achieved and costs were not prudently incurred. These are highlighted briefly below and covered more fully in our comments submitted to NERSA. BUSA further supports the submissions and presentations made by our members to the Regulator and over the course of the public hearings. These include presentations made by the Energy Intensive User Group of Southern Africa and the Minerals Council of South Africa.


BUSA does not believe that a sales volume adjustment is warranted as the loss of sales are directly related to Eskom’s poor performance and unreliability. An efficiently operated Eskom should have met the sales forecast of 213TWh and should have sourced its primary energy as per the production plan. Furthermore, to the extent that average tariffs exceed those approved by NERSA, an adjustment should be made in favour of the consumer.


Eskom’s cost structures include expenditure, direct and indirect, relating to both inefficiencies and its developmental mandate. In BUSA’s view, such costs are not prudently incurred in the supply of electricity and should not be for the account of the consumer. These costs include:

  • Overreliance on expensive OCGT capacity as a direct consequence of the low base load EAF.BUSA believes that it is wholly inappropriate to pass through the excessive OCGT costs to the customer. Such pass through has a material impact on tariffs and therefore contributes towards the death spiral
  • Continued supply to customers that are in arrears. Most recent results indicate that R10bn of annual sales are not recognised as revenue due to the improbability of recovery.
  • Procurement of goods and equipment at prices that are higher than “least cost”.
  • An inflated wage bill.


BUSA accepts and applauds clear government policy statements to affect the restructuring of Eskom and the industry and urges that these necessary changes be expedited as far as possible. In the meantime, BUSA maintains that the regulatory regime regarding licencing and registration for embedded generation be favourably finalised so that those who are able to generate for own use and supply energy onto the grid are able to do so in the short-term.

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