SUBMISSION ON

1
SUBMISSION ON ESKOMS PROPOSED INTERIM PRICE
INCREASE APPLICATION TO NERSA Mthobeli
Kolisa Executive Director Infrastructure Services
2
Local government and ESKOM

• Municipalities constitute some 40 of Eskoms
  customer base by sales and are therefore one of
  Eskoms key stakeholders.
• Undermining the financial viability of ESKOM is
  not in the interest of local government.
• Compromising the financial viability of 187
  electricity distributing municipalities is not in
  the interest of ESKOM.

3
Overall comment on timing

• In terms of the MFMA Eskom is required to provide
  Salga with a motivation for its proposed tariff
  adjustment at least 40 days before making its
  final application to Nersa.
• Section 42(2) of MFMA provides that any price
  adjustment not tabled in parliament before 15
  March of that year may not take effect for
  municipalities in the year in question.
• On the 16th April 2009 SALGA received an
  invitation from ESKOM to submit comments.
• ESKOM proceeded to submit the same motivation to
  Nersa on 5 May 2009

4
Overall comment on timing

• Whilst recognising that Eskom has struggled to
  reach finality with national government on its
  funding model, Salga cannot understand why Eskom
  was not able to submit an interim tariff
  application to Nersa at an earlier stage, rather
  than delaying the application to a point where
  statutory timeframes are ignored and meaningful
  consultation becomes impossible.
• The challenge of funding the investments
  necessary to ensure long-term security of supply
  has been recognised for some time.
• It is therefore inexplicable that Government and
  Eskom have not finalised a sustainable pricing
  and funding plan to secure the required
  investment by now.

5
Overall comment on timing

• This chaotic and incoherent approach appears to
  have become the norm for the electricity sector.
• SALGA is deeply concerned about the state of
  affairs within the energy sector
• Appeal to Nersa consider legislative compliance
  regulation to be as important as price
  regulation.

6
Impact of noncompliance with LG legislation w.r.t
timing

• The late submission of the interim tariff
  increase, and the anticipated further MYPD tariff
  increase application creates substantial
  practical and legal problems for municipalities.
• Section 24(1) of the MFMA requires that a
  municipalitys annual budget be approved 30 days
  before the commencement of the financial year
  (before end of May).
• Municipalities find it difficult to justify draft
  budgets that reflect tariff increases that are
  based on bulk electricity tariffs that have not
  been set in terms of the law.
• If NERSAs ruling differs from the increase
  anticipated in municipal budgets then there will
  be problems related to budget adjustments.
• NT recommends one budget adjustment per annum and
  in terms of Section 28 of the MFMA such an
  adjustment does not include adjustment of tariffs
  themselves this will compromise the financial
  viability of municipalities if the increase is
  more than what is budget for by municipalities.

7
Impact of noncompliance with LG legislation w.r.t
risk

• Section 42(2) of MFMA provides that any price
  adjustment not tabled in parliament before 15
  March of that year may not take effect for
  municipalities in the year in question.
• Likely to lead to steep increase(s) in the
  following year(s) and resultant decline in levels
  of payment by consumers!
• In 2008 the Minister of Finance issued notices
  that purported to exempt municipalities from
  complying with the budget process requirements of
  the MFMA
• This practice poses substantial adverse
  implications for municipalities.
• NMBM obtained a legal opinion which indicated
  that the Ministers notice could have been
  unlawful.
• This put municipalities at considerable risk of
  having their tariff approval and budget processes
  set aside by an aggrieved consumer on the basis
  that the notices are unlawful.

8
Scale of the requested interim tariff increase

• Concerned about the impact of a 34 tariff
  increase on consumers, and in particular on the
  poor, many of whom are already struggling to pay
  municipal services.
• Also sensitive for the need for Eskoms tariffs
  to cover operating costs and to enable the
  financing of the utilitys large capital
  expenditure programme.
• Notes that the 34 increase excludes a range of
  cost items, including the
• pending 2c/kWh environmental levy,
• cost of road construction and maintenance,
• cost of non-Eskom generators,
• cost of DSM,
• cost of climate change mitigation, and
• additional cost of liquid fuels.

9
Scale of the requested interim tariff increase

• Salgas understanding is that Eskom has not
  requested Nersa to make an adjustment to the
  proposed tariff increase to factor in these cost
  items.
• The application itself does not include details
  of how Eskom arrived at 34
• Cognisant of the fact that, based on information
  available at the time, an indication was given to
  Eskom by Nersa in 2008 that Nersa may grant a 25
  price increase (in real terms) and that
  municipalities were advised by National Treasury
  to budget for 34 bulk electricity price
  increase.

10
CONCLUSIONS AND RECOMMENDATIONS

• Will accept a Nersa decision that
• takes into account the parameters envisaged in
  the NT circular - an increase above these
  parameters will jeopardise the financial
  viability of municipalities.
• minimizes the possibility of steep increases in
  the future
• minimizes the risk to municipalities of having
  their tariff approval and budget processes set
  aside by an aggrieved consumer on the basis that
  the process was unlawful.
• The amount of national fiscus FBE subsidy for the
  poor must take into account the costs that
  municipalities will have to incur to provide FBE
  to the poor.
• Wish to state categorically that any further
  tariff increase during the 09/10 municipal
  financial year will be unacceptable
• The next tariff adjustment will have to coincide
  with the FY10/11 municipal budgeting process, as
  mentioned above.

11
CONCLUSIONS AND RECOMMENDATIONS

• Wish to propose to Nersa that the following cost
  items that are not included in the Eskom interim
  price application should be considered in the
  context of the MYPD2 and not in this interim
  increase application
• 2c/kWh environmental levy
• the cost of road construction and maintenance
• the cost of non-Eskom generators
• the cost of DSM,
• the cost of climate change mitigation
• the additional cost of liquid fuels
• Moving forward, it is proposed that bulk
  electricity price increases should be approved
  for implementation with effect from 1 July for
  all customers.