Eskom’s 20.5% price hike — Nersa to decide this week
The National Energy Regulator of South Africa (Nersa) will decide whether to award Eskom’s controversial 20.5% tariff increase this week, reports City Press.
South Africa’s Chamber of Commerce and Industry has said that the approval of the increase could spell disaster for the country’s businesses.
Additionally, the proposed electricity price hike, combined with substantial increases in fuel prices, would mean that private customers would also struggle.
According to the report, Nersa is expected to be stern in assessing Eskom’s proposed tariff increase given the state-owned power utility’s poor performance and poorly maintained fleet.
Eskom had a difficult 2021 with extensive power cuts, illegal connections, and corruption plaguing the company throughout the year.
The high levels of load-shedding experienced in 2021 were mainly due to unplanned breakdowns of power generation units at Eskom’s power stations, and Nersa representatives have indicated that the power utility’s customers cannot be expected to pay for its failures.
Several civil action groups, municipalities, and business groups have also criticised the utility over the proposed increase, which is far larger than South Africa’s official inflation rate.
However, Eskom has said the tariff hike is necessary to cover the cost of its debt, carbon taxes, and the higher price of electricity purchases from independent power producers (IPPs) compared to its own coal fleet.
Eskom submitted its application in June 2021 and was initially rejected by the energy regulator.
Nersa rejected the application because Eskom had used what the regulator claimed was an outdated methodology to calculate its fifth Multi-Year Price Determination (MYPD5) revenue application.
The power utility had used the MYPD4 methodology.
“After due consideration of the rationality and legality of applying an expired MYPD4 methodology and whether this was in the public interest, the Energy Regulator rejected Eskom’s MYPD5 application,” Nersa said.
The energy regulator plans to base future pricing calculations on a new procedure designed to take the “rapid transformation of the electricity sector” into consideration.
That includes energy security concerns, rising electricity prices, and increased self and private electricity generation.
Eskom explained that there was not enough time to implement a new methodology.
“Even if the new methodology is developed in time, Eskom will not be able to make a new price application for implementation by 1 April 2022 until full statutory compliance, due process, and legislative consultation have been complied with,” Eskom said.
Eskom took Nersa to court after the regulator rejected its pricing application and won.
In December 2021, Judge Jody Kollapen ruled in Eskom’s favour saying that the existing methodology could only lapse once Nersa replaces it with something else.
He explained that failing to do this would leave a vacuum — which would be illegal and impractical.
Eskom had previously cautioned that it would need a R300 billion bailout if Nersa’s decision to reject its tariff application stuck. Municipalities would also require a once-off R100 billion injection, Eskom warned.
“The impact on the country’s economy, specifically on National Treasury, will be catastrophic,” Eskom board chair Malegapuru Makgoba wrote in a letter to Nersa.
“It is inconceivable that the national energy regulator recommends that the only legally correct and viable option for the continued operation of Eskom from 1 April 2022 be rejected.”
As per South African law, the current tariffs will expire on 31 March 2022. If no new tariff determination is made, Eskom will not have legal grounds to charge electricity users from 1 April 2022.
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