Maximum gas price not an ‘actual’ price, NERSA stresses

Terence Creamer | 27 March | engineering news

The National Energy Regulator of South Africa (Nersa), which on Tuesday approved Sasol Gas’ application for maximum prices, says South Africa’s 520-plus gas consumers should not interpret these to be the “actual prices” that will be charged from March next year, as such prices are still to be determined through bilateral contract negotiations.

Therefore, Regulator Member Ethèl Teljeur has dismissed suggestions that all gas consumers will be confronted with above-inflation price hikes as from March 26, 2014, when the new model comes into force.

In fact, she tells Engineering News Online that a number of Sasol Gas’ customers could well receive a decrease as a result of what is “essentially a price restructuring” designed to deal with discriminatory pricing.

Nersa has also instructed Sasol Gas to provide it with quarterly updates of prices offers, as well as concluded contracts, so that it is able to monitor implementation of the new regime. Gas consumers were also in a position to approach the regulator with their complaints should they feel unfairly treated.

The new framework, Teljeur explains, aims to offer price visibility and certainty, while balancing consumer protection with returns that are reasonable for both Sasol Gas and possible future suppliers.

However, the Manufacturing Circle has already raised its concern that the tariff methodology employed, as well as the actual determination, could undermine manufacturing competitiveness and employment.

Executive director Coenraad Bezuidenhout says the maximum molecule price of R117.69/GJ is more than double that of Sasol Gas’ current average pricing, even before transmission and distribution charges are taken into account.

Nersa determined the maximum ‘gas energy’ price of R117.69/GJ as at March 26, 2013, using weighted price indicators derived from various fuel alternatives, including coal, electricity, liquid petroleum gas, diesel and heavy fuel oil.

Using a separate formula, Nersa announced the following maximum gas energy prices for six customer classes:

  • The maximum price for class 1 customers, whose yearly consumption is less than 400 GJ, has been set at R108.86/GJ.
  • For class 2 customers, which consume between 401 GJ and 4 000 GJ yearly, it is also R108.86/GJ.
  • The maximum price for companies in class 3, which use between 4 001 GJ and 40 000 GJ yearly, has been set at R100.04/GJ.
  • The maximum price for class 4 customers, whose yearly consumption is between 40 001 GJ and 400 000 GJ, the price announced is R91.21/GJ.
  • For class 5 users, which consume between 400 001 GJ and four-million gigajoules yearly, it has been set at R82.38/GJ.
  • And for large, or class 6, customers, which consume more than four-million gigajoules a year, a maximum price of R73.56/GJ has been announced.

These prices will be adjusted on a quarterly adjustment, with a lag of one quarter until June 30, 2017.

Owing to the broad customer-class bands employed, Teljeur says consumers should not expect actual prices to simply reflect the published maximum price.

For instance, a company consuming 40 001 GJ/y with an unstable load should expect to pay a higher actual price than another ‘class 4’ customer, which has a stable load and is consuming closer to the 400 000 GJ/y level.

However, Bezuidenhout argues that there is a strong likelihood that the pricing will gravitate towards the maximum prices. But he applauds Nersa’s effort to provide relief to those users that are “clearly charged excessively under the current regime”.

Sasol stresses that the new prices will be below the set maximum prices.

"Once Nersa has published the reasons for its decision and Sasol has had an opportunity to study the detail thereof, Sasol will finalise its standard prices. The actual prices are part of the commercial negotiations that Sasol will undertake with its customers," spokesperson Jacqui O’Sullivan tells Engineering News Online.

"All customers will have to migrate to the standard prices which will require that Sasol concludes new contracts with all its customers. It is for this reason we sought to ensure the process would be concluded well ahead of the 2014 implementation date, to allow sufficient time for the contract finalisation process," she adds.

For her part, Teljeur is convinced that a number of smaller gas consumers, some of which have been paying up to four times what larger customers have been paying, should expect to receive a decrease.

However, she acknowledges that some large customers that have hitherto enjoyed “sweet deals” as a result of what has been a discriminatory pricing system could face double-digit increases.

To mitigate this risk, Nersa has restricted the increases that Sasol Gas can immediately pass on.

For those facing increases of between 15% and 30%, a maximum 15% increase will be allowed on March 26, 2014, while the remainder of the increase must be effected in quarterly adjustments between 26 March 26, 2014 and March 25, 2015.

For those confronted with increases of between 30% and 45%, a maximum 15% increase can be introduced on March 26, 2014, with a further 15% increase effected in quarterly adjustments between March 26, 2014, and March 25, 2015. The remainder of the increase must be implemented in quarterly adjustments between March 26, 2015 and March 25, 2017.

For increases above 45% of a customer’s prevailing price, a maximum 15% increase will be effected on March 26, 2014, followed by a further 15% increase, in quarterly adjustments, between March 26, 2014, and March 25, 2015 and another 15% increase, also effected in quarterly adjustments, between March 26, 2015 and March 25, 2017. The remainder of the required increase must be spread over an appropriate time-period subject to approval by the regulator.

“In order to give heed to the views and fears of large customers and other stakeholders, we decided to amend the transition mechanism that was applied for by Sasol Gas to reach a more balanced outcome. We believe it is a defendable approach,” Teljeur concludes.

Edited by: Creamer Media Reporter


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