Electricity tariff increases “shocking”, says BUSA

Following a highly publicised request by Eskom for tariff increases of between 15 and 17% per year for the following three years, the National Energy Regulator of South Africa (Nersa), has announced its decision to allow Eskom to increase the tariff for electricity by 9,41% in 2019, 8,1% in 2020 and 5,22% in 2021. This increase is over and above the 4,4% increase regulator had already allowed and which will come into force at the same time.

Business Unity South Africa says the increases in electricity tariff allowed by the energy regulator are shockingly high. The body warns that economy, which is already underperforming, will struggle to grow in the wake of such above-inflation increases and that these tariffs could lead to further job losses and ultimately the collapse of Eskom as demand will most probably decline further.

Eskom, which received far less of an increase than requested, has also criticised Nersa, saying that the power utility’s application was based on the need to ensure Eskom’s financial sustainability to enable it to fulfil its mandate to supply electricity to the country.

Table 1: Approved Eskom RCA year 5 (2017/18) balances.
RCA for 2017/18 (Year 5 of MYPD3) R’m Eskom 2017/18 RCA Balance Nersa adjustment Nersa’s decision
Revenue 26 896 -10 956 15 940
Primary energy -4385 -1856 -6241
CESA 925 -3951 -3026
EEDMS -1118 0 -1118
SQI 390 0 390
ECS -1122 0 -1122
Inflation 39 7 46
Revenue from previous year (McKinsey) 0 -1000 -1000
Total 21 625 -17 756 3869

Nersa’s decisions

MYPD3 RCA year 5 (2017/18) decision

The energy regulator approved an RCA balance of R3,869-billion which will be recoverable from the standard tariff customers, local special pricing arrangement (SAPs) customers and international customers. The energy regulator will develop an implementation plan for the MYPD3 year 5 RCA for the 2017/18 financial year balance for approval. The approved Eskom RCA balances for the 2017/18 financial year are provided in Table 1.

MYPD 4 (2019/20 to 2021/22) decision

The energy regulator approved an allowable revenue of R206,380-billion for financial year 2019/20, R221,843-billion for financial year 2020/21 and R233,078-billion for financial year 2021/22. The approved allowable revenue will result in average percentage price increases of 9,41%, 8,10% and 5,22% respectively. The allowable revenues approved are detailed in Table 2.

Nersa will subject the costs in Table 2 to further extensive prudency reviews, efficiency tests and performance thresholds. It will also perform an independent valuation of Eskom’s regulatory asset base (RAB), and conduct performance audits on Eskom’s generation fleet, and make adjustments if deemed necessary.

The regulator ruled that the allowed revenues must be recovered from both Eskom’s standard and non-standard tariffs based on the previously approved tariff principles and structures using Eskom’s retail tariff structural adjustment (ERTSA) methodology as approved by Nersa.

Table 2: Approved MYPD4 allowable revenues.
MYPD4 Decision 2019/20 Decision 2020/21 Decision 2021/22
Total expected revenues from all customers (R’m) 206 380 221 843 233 078
Negotiated price agreement and international customers (R’m) 15 441 16 736 18 480
Revenues from tariffs based sales (R’m) 190 939 205 107 214 598
Forecast sales to tariff customers (GWh) 186 064 184 898 183 856
Standard average tariff (c/kWh) 102,62 110,93 116,72
Percentage traffic increase (%) 9,41% 8,10% 5,22%

The regulator will consider the ERTSA for the 2019/20 financial year following Eskom’s submission. The power utility had already conceded that certain governance failures occurred within the organisation, however, at the time of the above decisions and although some of the adjustments were affected, the extent of the governance failures or amounts associated therewith had not been fully quantified.

Nersa says it may initiate its own investigation into the governance failures at Eskom and may effect adjustments to the utility’s revenue based on the outcome of its investigation and/or those undertaken by bodies or entities, including, but not limited to, Eskom, National Treasury, the Special Investigating Unit (SIU), the South African Directorate for Priority Crime Investigation (also known as the Hawks), parliament or any commission of enquiry as and when they are concluded, or a conclusive outcome is reached and the costs associated therewith have been quantified.

Eskom’s MYPD3 RCA year 5 (2017/18) application, totalling R21,6-billion, and its MYPD4 application for a duration of three years were received in September 2018. Eskom applied for R219-billion for financial year 2019/20, R252-billion for financial year 2020/21 and R291-billion for financial year 2021/22. Upon receipt of the applications, Nersa conducted an analysis to ensure compliance of the applications to minimum information requirement for tariff application (MIRTA) requirements.

The decision was made after due process had been conducted, the regulator says, which included publishing Eskom’s applications and inviting written comments from stakeholders between 19 October and 30 November 2018. Nersa also conducted public between 14 January and 5 February 2019 to afford interested and affected stakeholders the opportunity to present their views, facts and evidence.

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