Eskom – we need a public conversation

By Richard Calland and Gary Pienaar

Picking holes in the governance of electricity supply, and energy policy more generally, is like shooting fish in a barrel. Whether it is the development and sequencing of key policy documents, the absence of proper stakeholder consultation, leadership failure, or the lack of clarity about intragovernmental roles and responsibilities, there are more hooks on which to hang a public debate than in a cloakroom — as a new analysis of electricity governance reveals.

Putting aside for the moment the unseemly recent tussle over the leadership of the state-owned entity, Eskom, the immediate issue is pricing. The National Energy Regulator of SA (Nersa) could face a difficult choice in coming weeks — whether it should proceed with its scheduled consideration of Eskom’s second m ultiy ear p rice d etermination (MYPD2) tariff-increase application.

Eskom’s initial application asked for a 45% electricity price increase in each of the three years covered by the MYPD2. Subsequent pressure from all quarters led to Eskom announcing yesterday that it would submit a revised request for 35%.

After MYPD1 lapsed, and without an agreed funding model for Eskom, Nersa has, in the past few years, approved interim electricity tariff increases.

Eskom’s current application accepts that a funding model for the electricity utility is a fundamental prerequisite to its ability to plan efficiently to undertake infrastructure maintenance, build new generation capacity, develop clean energy supplies, or purchase imported electricity or from independent power producers. It remains unclear, however, whether this process has been concluded and, if so, what it looks like.

Equally fundamental, and required by the Energy Act of 2008, is a clear and comprehensive national integrated resource plan (IRP) that sets out a 20-year plan for the country’s energy future. This plan is intended to determine Eskom’s priorities and choices, including the selection of the appropriate technologies to meet energy demand.

Though some in the government see the IRP more as a vision-like document — offering thoughts on the general energy mix that would be desirable, for example — than a precise roadmap, it is in the nature of such a longer-term plan that it will entail immediate choices with long-term consequences.

Yet it is precisely such a choice that Eskom’s MYPD2 application asks us to make now — without this plan. Crucially, before finalising the plan, the act requires the energy minister to engage in a public consultation process. So far, she has not done so. On the contrary, a draft plan reportedly prepared by Eskom and submitted to the government last month, remains a secret.

Eskom’s application recognises three important things about the reasonableness or otherwise of its tariff increase request. First, is the existence and adequacy of the funding model. Second, what it terms a “country debate and country choices” on SA’s future energy security.

But, third, the main driver of its desired price increase is its plan to build primarily coal-fired power stations. However, the costs of this coal-driven “new build” plan are premised on a pre-emption of the broad, open “country debate” that the application accepts is necessary. The product of that debate, a legitimate and lawful IRP, does not exist.

To the extent that any decision by Nersa on the MYPD2 fails to allow this debate to take place, it may be open to a legal challenge as not following a lawful process intended to give life to the constitutional right to just and reasonable administrative action contained in section 33 of the Bill of Rights.

Additionally, the piecemeal nature of the information placed by Eskom in the public domain could render meaningless the right to informed public consultation.

Analysts are saying Eskom’s application is also premised on assumptions of questionable accuracy and plausibility, backed by little explanation, which is raising concerns in the Treasury. For example, recovering the costs of proposed new infrastructure is contingent on Eskom’s projected increasing levels of electricity sales at these new high prices.

Nersa’s “Issues Paper” inviting public comment questions whether Eskom’s plan reflects an appropriate use of resources raised through the tariff increase.

Thus, Eskom’s demand projections apparently fail to take adequate account of the cheapest and quickest way to ensure SA has adequate electricity to avoid rolling blackouts, and to allow economic growth and advance equitable access: incentives for existing consumers to improve energy efficiency and to reduce their demand for grid electricity.

One way to reduce electricity use, and create jobs, is to implement the government’s stated plan to install a million solar water heaters. This option seems not to be given much consideration in Eskom’s application.

Moreover, while Eskom’s application proposes increasing the f ree b asic e lectricity allowance to 70KwH/m, it fails to come to grips with how to ensure that those that have the least resources but the greatest needs can afford electricity, while those who use the most and profit the most, pay the most.

The implications are that South Africans are being asked to approve a plan that requires very significant price increases, but which is not based on a comprehensive and cohesive set of least-cost or environmentally responsible choices, and with no proper consideration of price-differentials.

Eskom declines to disclose significant portions of its reasoning on the questionable basis that it is “commercially” confidential. But clear authority exists requiring public disclosure of substantial summaries that protect legitimate confidentiality, while making public participation and comment a meaningful — and legally compliant — exercise.

So, for example, we don’t know what Eskom has agreed to pay companies that supply coal to its power stations. The contracts are secret. How, then should one assess whether Eskom’s requested tariff increase is based a fair price paid to its suppliers and a fair price to be paid by electricity users?

With so many gaps in the information publicly available, meaningful public participation in Nersa’s consideration of Eskom’s application is almost impossible, so that the process may be of questionable legality.

If the contents of Eskom’s MYPD2 application are anything to go by, the IRP has the potential to predetermine our future in significant ways. These two documents/processes signal important decisions that will have long-term consequences.

Much like the arms deal, but significantly more expensive, they have the potential to lock South Africans into paying dearly for Eskom’s apparently oversimplified plan that seems inadequate to meet the country’s energy needs, and its national and global environmental responsibilities. Unless we get the governance right — and quickly — we will all be paying for hasty, poorly constructed decisions for decades to come.

What we need now, as a matter of urgency, is a multi-stakeholder process — as former Eskom chairman Bobby Godsell suggested recently — to enable us to have a “joined up” national conversation about energy policy and sustainable development.

– Calland is director of Idasa’s Economic Governance Programme, which convenes the multi-stakeholder Electricity Governance Initiative of SA (EGI-SA), and associate professor in public law at UCT. Pienaar is senior researcher: public ethics and governance. The EGI-SA’s report on electricity governance will be published in next month.

First published in Business Day


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