More thoughtful consultation is needed on the new electricity price methodology

OUTA wants NERSA to set up a longer public consultation process, with greater transparency on electricity supply costs and more expert input, to ensure that these crucial rules on pricing are fair, appropriate and support economic growth

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08/11/2021 12:01:04

        More thoughtful consultation is needed on the new electricity price methodology 

        Don’t rush these crucial pricing rules, NERSA.

        South Africa needs a better method of setting electricity prices, but this needs a more thoughtful and longer public consultation process.

        On 30 September, the National Energy Regulator (NERSA) issued a “Consultation Paper to Determine a New Price Determination Methodology” with a view to revising the existing Multi-Year Price Determination (MYPD) methodology, which is used to set the electricity prices. At the same time, NERSA rejected Eskom’s pricing application for 2022/23, saying this application must be made under the as-yet-to-be-finalised new methodology. Eskom, which had submitted the price application four months before the NERSA decision, is currently legally challenging NERSA’s rejection.

        NERSA set less than a month for public comment on the pricing review, announcing the review on 30 September, while the paper set a deadline for public comment of 22 October.

        OUTA has made a formal submission to NERSA on the pricing review, welcoming the review.

        OUTA is pleased that the regulator has acknowledged that change is needed as far as the methodologies behind our country’s determination of electricity prices are concerned. Although this is a very welcome move by NERSA against the backdrop of a changing energy sector in South Africa, a hasty approach for the mere sake of consulting the public will simply not cut it. There is no silver bullet to solve our electricity issues.

        OUTA thus believes that a more thoughtful, inclusive and longer public consultation process is needed.

        The methodologies behind electricity price determinations are very complex and is not a case of what looks good on paper. If NERSA gets this crucial approach wrong, the economic consequences will be felt across all spheres of society – from industries to homes.

        OUTA wants a more precise public consultation process, with greater transparency of the issues and costs relating to the electricity price, and technical input from energy experts and industry stakeholders.

        NERSA may be the national regulator, but it cannot take on this mammoth task on its own. We recommend that the consultation process be slowed down to allow for meaningful public participation.

        OUTA believes that industry stakeholders, experts and civil society should assist NERSA in reaching a revised methodology. We need a national solution to the electricity price.

        OUTA’s submission includes these concerns: 

        • Greater transparency is needed on the cost of electricity supply.

        • The cost implications of Eskom’s ongoing unbundling into three divisions (generation, transmission and distribution) are still unknown but will undoubtedly affect electricity prices so must be taken into account.

        • Currently hidden costs, such as the future costs of disposing of nuclear waste, decommissioning nuclear power stations and the cost of Koeberg’s apparently unlawful refurbishment need to be made clear and included.

        • The cost of reducing emissions should be taken into account in pricing, as this would ensure that all social burdens currently paid for by people living near particular power stations are included in the cost of supply.

        • Transparency on municipal wheeling tariffs and how these will affect customers is essential.

        • Transparency on municipal cross-subsidies is essential.

        • The poor should not be penalised and further marginalised by unaffordable prices.

        • The pricing methodology must be adaptable to future energy developments such as increased use of Independent Power Producers (IPPs).

        • NERSA’s Guidelines for Prudency Assessment, produced in 2018, could be implemented in the meantime until a new methodology is finalised, as these could protect consumers against the worst excesses of the clawback system in the current pricing methodology.

        “Civil society has observed the fallout of state capture and an energy policy mired in inertia as well as unfounded investment in fossil fuel, with little regard to the changing international environment. Not only has transformation of the electricity industry been delayed, but the economic implications were felt across various sectors in society whereby economic growth has been hindered,” says OUTA's submission.

        “An alternative system would need to put the customers’ needs first, rather than balance reasonable profits versus electricity service. Electricity is supposed to be a driver / enabler for economic development and not a means of extracting profits from a captive audience. The restructuring and unbundling of Eskom and the setting up of the ISMO [Independent System and Market Operator] would hopefully assist with this.”

        More information

        OUTA's submission to NERSA is here.

        Picture: Shutterstock