Regulator decides on new electricity tariffs

Jacob Modisa

The National Energy Regulator of South Africa (NERSA) announced on 15 December 2017 that it has approved Eskom’s allowable revenue of R190,34-billion for the 2018/19 financial year. This is R29-billion less than the power utility had requested. The approved allowable revenue of R190,348-billion will result in an average percentage price increase of 5,23%/kWh.

Announcing Nersa’s decision, the regulator’s chairperson, Jacob Modise, said the decision was based on the available information and an analysis of the power utility’s allowable revenue.

Eskom had applied for a total allowable revenue of R219,514-billion, which translates to a 19,9% average tariff increase. The application is said to be forward-looking and does not include Regulatory Clearing Accounts (RCAs). Modise said the regulator will consider Eskom’s RCA applications (for 2014/15, 2015/16 and 2016/17) following due regulatory process.

The regulator has also decided that the allowed revenues must be recovered from Eskom’s standard and non-standard tariff customers (NPAs and international customers) based on the previously approved tariff principles and structures using the Eskom Retail Tariff Structural Adjustment (ERTSA) methodology as approved by NERSA. The regulator said it had followed due regulatory processes in considering Eskom’s revenue application for 2018/19.

On 13 September 2017, Eskom’s application was published on NERSA’s website, along with an invitation to stakeholders to submit written comments.

Table 1: Allowed revenue, standard prices and percentage price increase for 2018/19.
Application 2018/19 Adjustment Decision 2018/19
Total expected revenues from all customers (R million) 219 514 -29 166 190 348
NPAs and international customers (R million) 13 308 630 13 938
Revenues from tariff-based sales (R million) 206 206 -29 797 176 409
Forecast sales to tariff customers (GWh) 192 953 -4871 188 082
Standard average price (c/kWh) 106,87 -13,07 93,79
Price increase (%) 19,90 -14,67 5,23

A total of 23 000 written comments were received from stakeholders, consisting of comments from private individuals, small energy users, intensive energy users, non-government organisations (NGOs) and environmental activists, as well as local government and other stakeholders.

The regulator conducted public hearings in eight of South Africa’s provinces between 30 October and 22 November 2017. These public hearings afforded interested and affected stakeholders the opportunity to submit their views, facts and evidence. A total of 96 oral presentations were made.

Table 2: Summary of allowed revenues for Eskom for 2018/19 (R million).
Application 2018/19 Adjustment Decision 2018/19
 Return on assets  22 690  5427  28 117
 Expenditure  62 221 -11 099 51 122
 Primary energy  58 331 -10 777 47 554
 IPPs (local)  34 209 -7613 26 596
 International purchases  3216  –  3216
 Depreciation  29 140 -4237  24 903
 IDM  511  -511  –
 Research and development  193  -81  112
 Levies and taxes  7994  99  8093
RCA  –  –  –
Total allowed revenues  219 514  -29 167  190 348

Modisa said that NERSA hopes the new Eskom board, which Lynne Brown, the minister of public enterprises, announced recently will take the regulator’s recommendations seriously for the benefit of the country’s economy.

Following the announcement, Eskom announce that it noted the regulator’s decision with disappointment. The power utility says it made its application in accordance with the Multi-Year Price Determination (MYPD) methodology which allows it to submit any changes permitted by the methodology which results in a far larger tariff increase than the regulator has allowed.

Eskom says it will await the regulator’s reasons for decision document as this will provide insight into how this decision was made. The reasons for decision document will also enable the power utility to assess the impact to the business the regulator’s decision will have. At that point, the utility will make decisions regarding the way forward.


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