Changed Competency Building Focus due to the Changed RED end state
5. CHAPTER 5: CONCLUSION AND RECOMMENDATION
5.2. What Is The Future For The Tariff Alignment Course?
of the ominous possibility of financial failure. According to Guernsey's (1994) view of what the future holds globally for tariff structures and ratemaking; the development of flexible pricing will require an understanding of the customer's value (to the utility) in terms of service level received from the utility. To seal this point, Guernsey (1994) made the following comments; "A utility responsive to market conditions (and changes) and offers rate options and flexible market-orientated services can maintain customer satisfaction and profitability without shifting substantial costs to customers".
In light of the completion of the Competency Building phase, the remaining project phases have to continue whether REDs are formed as planned or not. This is in terms of the regional visits that begin at Phase 3: Costing (as explained earlier), to ensure that each
"pilot" region or entity eventually reach the final project phase or tariff design goal where they would have a tariff plan in place for submission and presentation to the regulator.
There is thus a possibility that this project (however much organized it is), may not achieve all its objectives, especially in terms of full rationalization of tariffs. This has already been accepted by the Eskom Distribution Electricity Pricing project team, which will explore mitigation strategies in the coming year, based on these emerging issues.
To conclude on the issue of challenges facing the tariff design sector of the future REDs, one recommends that the available data be shared within the business and regulator audits be done internally per entity by relevant departments, including the finance department before presentation to the regulator. This can promote and improve regulation, as the regulator has no idea of the validity of the data submitted to them; they can only identify discrepancies where they pick up any abnormalities.
As discussed in earlier chapters, the EDI reform should be done in no less than a decade.
The gradualism approach rather than the big-bang approach is advisable to implement the reform "package". It would not be wise to introduce, unbundling, privatization and competitions into the industry all at the same time, especially in South Africa. According to Turkson, this approach has worked previously in countries such as the UK, Chile and Argentina because certain conditions such as adequate institutional and human capacity existed to adopt the "big-bang" approach to implement their reform. In this respect, a gradualist approach to reforming the electricity industry in South Africa is more appropriate. This involves phasing in of the implementation plans in a way that it is safeguarding to the institutions. To further emphasise the need for the gradualist approach, Turkson points out the following; the dearth of relevant institutions and human capacity and inadequate experience to deal with the complexities of a competitive power sector.
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To wind up this discussion, one should consider the following; the EDI restructuring process has been slow and frustrated by the complex web of political interests at local government level, serious resistance from organized labour and the fear of loss of the control of an important infrastructure service. These socio-economic and political pressures have thus contributed to the slow pace that the distribution industry has taken and should also be credited to the reform process being complex and exasperating. This is so because Eskom is still seen as an important instrument of governmental policy, a well- performing infrastructural industry that supports government's economic and social programmes. "The energy sector initiative seeks to promote the consumption of electricity by many citizens around the country who have previously been deprived of this basic service. Thus government still experiences ambivalence and doubts around embarking on a path of full unbundling, competition and privatization" (Eberhard, 2000).
Despite the above principles, "the process of reform in this sector continues and government's intent is to create a more efficient industry in the form of new, commercially-run, public corporations. Any further delay in this overhaul process may mean extensive new government investment to address reliability concerns".
Decentralized supply seems to be the way out! Contrary to that, as discussed earlier, as long as electricity is a key factor in socio-economic development, it is necessary for government to continue to intervene in ensuring that electricity reaches the majority of people as to fulfill its social objective (Jaff, 2003). This is a huge concern for the Eskom Distribution Electricity Pricing group. Clearly, the REDs model adopted by government would not represent a barrier to permitting future competition in wholesale supply. Nor would it necessarily be a barrier to some level of retail competition. As stated, electrification programmes are independent of the electricity entities structure and will thus continue regardless of the direction followed by the EDI. But the burning issue now is how government will ensure this? How will they get the commitment of these Distributors (who will be struggling with building empires on solid financial grounds) to commit time and resources to social upliftment?
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The decentralized route that our electricity industry is moving towards is not widely appreciated locally. This research has lead one to conclude that there is a fear in the industry that tariffs that might emerge from these "private" distributors might not be subject to social considerations (as seen in international trends) and hence not compatible to the level of income in the South African population. To attempt to answer the question posed at the proposal phase of this research; it seems likely that, in the South African context where poverty is an endemic, many people, especially in rural areas, cannot have access to electricity when it is delivered on commercial basis. This would be a misfortune, as it would not address Eskom and NEPAD's vision; "Electricity for air and perhaps that aspect should be separated from the industry restructuring to ensure that it takes place. The latter statement was made on the grounds that, this vision will remain an illusion in our country if profitability remains the guiding rule for supplying electricity and new avenues for decentralized energy production are promoted.
However, one proposes that as South Africans we have to put our trust in the government to make correct decisions for the country not only to correct the mistakes of the past but to ensure that a legacy is left for the future; that is, long term sustainability and economic growth especially in terms of using the correct and generic tariff design methodologies as well as taking all considerations discussed here into account.
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