VIRGIN ACTIVE SOUTH AFRICA

Transcription

1 VIRGIN ACTIVE SOUTH AFRICA NERSA Public Hearings Eskom s Regulatory Clearing Account (RCA) Applica>on Third Mul> Year Price Determina>on (MYPD3) 18 / 19 January

2 Virgin Active South Africa n 124 clubs in Southern Africa, suppor>ng c.13,500 employees and contractors and with more than 730,000 members the business is the largest health and fitness facility provider in South Africa n Our clubs are priced from R199 to R1,900 and cater to a range of market segments. n Virgin Ac>ve received the South African Associa>on of Energy Efficiency's Energy Patron Award in Costs escala*ons of 22% p.a. since 2007 n Our electricity bill has risen from R34m in 2007 to R170m in 2015 a CAGR of 22%. This is more than 4 >mes infla>on. n This has resulted in our Electricity cost as a % of revenue increasing from 2.8% to 4.9%. This is despite revenue growing at a CAGR of 14%. Price increases could not be completely absorbed n Capital investment and best prac>ce efficiencies have allowed us to save an average 4.5% p.a. in consump>on, but s>ll meant that we have had to pass a por>on of the growing electrical cost on to our members. n This places member volumes under pressure, meaning fewer consumers can enjoy a healthy lifestyle. Inability to access healthy lifestyles op>ons means less produc>vity for employees and increased pressure on the public health care system. 2

3 Consumption, efficiency and sustainability n Virgin Ac>ve currently consume an average c.11,000 MWH a month and c.131,000 MWH annually. We an>cipate this to grow as we open further clubs within South Africa and Africa and it becomes increasingly difficult to drive further efficiencies. n Through consump>on savings ini>a>ves, including investment of over R100m and best prac>ce, we have saved on average 4.5% annually on our 2011 like-for-like base consump>on. n Efficicncies across our exis>ng clubs have anabled us to slightly reduce overall consump>on despite 7-10 new club openings per annum. n With 150,000+ members per day acessing our facili>es, we believe Virgin Ac>ve is: 1. an efficient alterna>ve to many people all showering in their homes the scale and efficiency of our water hea>ng plants is far greater than individual home geysers 2. a useful way of spreading the morning and evening home consump>on peak 3. An important catalyst in enriching peoples lives through ac>veness and healthy lifestyles 3

4 Recommendation to NERSA on the RCA MYPD3 n The reasons advanced by Eskom, in par>cular the R11.7bn revenue shorfall and R14.2bn of addi>onal Primary Energy spend, do not warrant a recovery through the RCA / tariff increases. n The R11.7bn revenue shorfall resulted from lower than an>cipated electricity sales which, together with a lower Energy Availability Factor ( EAF ) of 75% vs. an assumed EAF of 82% 83% should have resulted in commensurate opera>ng and input cost savings. None of these have been detailed. n It is not clear whether the R14.2bn in Primary Energy costs driven by OCGT (R8bn), addi>onal coal spend (R2bn), IPP spend (R1.7bn) and Other Primary energy (R2.5bn) could have been avoided through beker management and planning. Un>l NERSA estabishes this conclusively, the consumer should not be bearing these costs through the recovery mechanism. n Business is no longer able to absorb further tariff hikes, par>cularly given the impact on an already weak South African economy. n A further tariff increase has a massive compounding effect and is baked into the base forever - compound effects of previous years' increases should be more than sufficient for Eskom. n Allowing Eskom s proposed increases has the poten>al to perpetuate the poor management and planning issues at Eskom. Tariffs are easily used as a convenient "release valve" rather than Eskom being forced to find more innova>ve ways to address their issues (including various inputs, capital planning and maintenance schedules). 4

5 Recommendation to NERSA on the RCA MYPD3 n It is acknowledged that there is a new leadership team at Eskom, but they are, as yet, unproven. They came on board at the end of the last major maintenance outages and haven t led through the crucial winter months. It would be beker for NERSA to consider the need for further tariff increases aoer the impact of the new management team on addressing Eskom s challenges in other ways, has been assessed. n In the absence of a compe>>ve market for electricity supply, NERSA is obliged to play the very important role of protec>ng the consumer from Eskom merely increasing prices, we feel that this includes not allowing the recovery through the RCA and proposed addi>onal tariff increases. 5