business@iafrica.com reader 'Ike', a former Eskom employee writes from Canada to give his views on Eskom's proposed tariff hike.

I worked in Eskom for 15 years and left South Africa in 2000 to join an energy company in Canada. My current company used to be a crown corporation but has been privatised now for more than a decade. Since privatisation the number of employees has decreased by some 35 percent, yet we deliver more energy that at any time while being government run. We also have considerably more customers.

Even though the working conditions are more austere than way back, we have had to increase our rates due to international coal price increases over the years, normally by about nine percent every second year. Electricity in the USA and Canada is much more expensive than in South Africa, but we are tightly regulated and rate increases are openly contested events, where intervenors can inspect every cost aspect including the pay levels and qualifications of employees, not only executives.

For instance we may be asked to state the qualifications of all persons who buy coal on behalf of the company, or trade power into the USA. Electricity in South Africa is too cheap to attract foreign investment, so for now you are stuck with Eskom as the monopoly supplier and will have to make use of the Regulator as a counter balance.

Growth was unsustainable

Back in 1997 I came to the conclusion that Eskom would run out of generation capacity within a few years, but was ostracised for saying it, as I was viewed as being against the electrification of the townships. This was not the case, I could not care where the growth came from; it was a simple engineering calculation to show that the growth was unsustainable without generation investment or serious demand side management. This view was ridiculed, not by affirmative action managers, but by executives who were in senior levels of the company at that time. I knew I could not win the battle, resigned and left for greener pastures.

The problem with electricity in South Africa is much wider than the incompetence in Eskom. The blame must be shared by industrial, commercial and residential customers who have not organised themselves into lobby groups to appoint knowledgeable intervenors in rate hearings with the regulator. If regulation is to work, then intervenors should have access to all the underlying costs that makes up the revenue requirement, including items such as number of local and international flights by staff, cost of vehicles and other perks, and Eskom executives should be able to defend such costs in a public hearing.

Customers must take responsibility

Customers should also have access to the long term plans, load growth statistics and strategy to manage load and generation. The customers are as much responsible for the final tariff as the company, as lax intervention gives Eskom free reign to do as they please.

Nobody wants price hikes, but nobody wants to sit in the dark due to lack of power generation capacity either. The investment decisions should be open to public debate, with all options explained. The day to day operational costs should also be a subject of public debate, including succession planning for loss of knowledge due to retirement and associated costs. The cost of service study models used to set tariffs in the USA and Canada are open to the public, and only intelligent debate on each cost item will render a fair return to the company and not exploit the consumer.

Regulation is a proxy for open competition, but without proper and knowledgeable intervention by customers during all proceedings, regulation will be weak, not by fault of the regulator. It would be similar to having only one lawyer in a dispute that has access to all of the evidence. Such a trail would never be fair.

I attach the list of principles often cited in rate proceedings that capture the balance between rate payer and supplier.

Principles of Public Utility Rates by James C. Bonbright

• Rate attributes: simplicity, understandability, public acceptability, and feasibility of application and interpretation
• Effectiveness of yielding total revenue requirements
• Revenue (and cash flow) stability from year to year
• Stability of rates themselves, minimal unexpected changes that are seriously adverse to existing customers
• Fairness in apportioning cost of service among different consumers
• Avoidance of "undue discrimination"
• Efficiency, promoting efficient use of energy and competing products and services

Do you agree with 'Ike'? Write your comments below or mail the business team at business@primediaonline.co.za

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