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Nersa review of Eskom pricing methodology

The regulator proposes benchmarking tariff increases according to what Eskom pays for coal – Khulu Phasiwe, spokesperson – Eskom.

SIKI MGABADELI:  We are talking now about Nersa’s consultation paper on the review of the multi-year price determination methodology. Nersa is proposing an adjustment to the methodology that Eskom uses in order to justify increases in the annual electricity tariffs by benchmarking the price that Eskom pays for coal.

Let’s get a view from Eskom then, speaking to spokesperson Khulu Phasiwe. Khulu, thanks for your time this evening. First, what do you make of this process that Nersa is undergoing?

KHULU PHASIWE:  Good evening to you, Siki, and to our listeners. We welcome the fact that the regulator has called this meeting when we are going to ultimately review the methodology by which the tariffs are determined.

And one of the key issues that the regulator has always been concerned about was our input costs as Eskom. For example, for issues like coal and the renewable energy projects…. There’s always been contention as to what goes into those prices. We are happy that ultimately this matter will be opened up in public so that we will all know what’s going on there.

What we have been saying all along, Siki, is that, especially in relation to coal, we as Eskom operate within a regulated market. In other words, our prices are determined by the regulator. But our input costs, especially from coal…we are paying a lot of money for this coal and we have to pass on these costs unfortunately to our customers. So the regulator will help us to see what really goes into the pricing of coal.

SIKI MGABADELI:  Currently what actually happens? You are right, coal prices are obviously dependent on the vagaries of the market and we know what’s happening right now with commodity prices. How do you work that out?

KHULU PHASIWE:  Well, when we buy coal we buy it at a particular price based on the methodology that the regulator has given us. Then we give our estimations and we send them to the regulator. The regulator, using its own benchmarks and its formulas, either agrees with us or not.

And obviously the whole process is open to the public where even people within the sector can come and make their presentations – which they have done previously.

So from our side we can only say we give our [presentation] based on what we have and then the regulator makes a determination based on the facts it has at that particular point.

SIKI MGABADELI:  Have you made contributions yet to this Nersa process at the moment?

KHULU PHASIWE:  Yes. Today we made a presentation where we shared it with the regulator. Essentially we agree with the whole process. We’ve always said there are certain things that we feel very uncomfortable about and we felt that it was unfair for Eskom to be working within an operated environment and yet some of the costs that we are incurring are regulated.

So hopefully all of as a country will come to some understanding as to how the contracts are determined and what goes into them and what part of that which comes from coal we will have to pass on to our customers. But all of that will be [determined] by the regulator by the end of this month.

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