Eskom gets a kick in the teeth
The National Energy Regulator of South Africa (Nersa) has decided it will only allow Eskom to recover billions of rand in outstanding 2019/2020 revenue from its 2024/2025 financial year.
Eskom is owed R3.461 billion in revenue from that year that it is permitted to collect in future tariff hikes as part of its Regulatory Clearing Account (RCA) tariff application.
The RCA is a mechanism that lets Eskom add additional allowable revenue through tariff hikes due to unexpected costs out of its control in a previous financial year — like the price of diesel.
During a meeting of Nersa’s electricity subcommittee on Wednesday, the regulator’s electricity pricing and tariffs department head, Brian Sechotlho, tabled a proposal to recover the RCA amount after the next financial year.
“Our proposal, after deliberations and considering affordability, sustainability and impact to the economy, is that this amount be implemented over a period of three years, starting from 2024/2025 until the whole amount has been liquidated,” he stated.
The committee unanimously approved the proposal.
The decision might reduce the electricity tariff hike in the next financial year, starting on 1 April 2023, but will negatively impact prices in the three years after that.
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Nersa is yet to announce its decision on the overall price hike Eskom will be allowed to implement next year.
Eskom has applied for an allowable revenue of R335 billion in the 2023/2024 year, compared to roughly R250 billion in the current financial year.
The utility said that would require an increase of roughly 32.02% in the average electricity tariff.
But Nersa has previously calculated the amount as R346.8 billion, which would require a 38.1% increase over this year’s tariffs’
That determination included the R3.461 billion RCA amount for 2019/2020 and a further R10.645 billion RCA amount for 2020/2021, which is yet to be approved by Nersa.
It also added another R15 billion from an equity injection incorrectly deducted by Nersa in previous tariff approvals.
Deducting the R3.461 billion RCA amount and assuming Nersa will not yet add the R10.645 billion for the previous financial year, works out to R332.694 billion.
Based on Nersa’s calculations, that would still result in an effective tariff increase of about 33% over last year.
Eskom justifies 32% price hike
Eskom has advanced three reasons for its enormous price hike application.
Firstly, it has explained that 10.67% of the price increase was to correct Nersa’s valuing of Eskom’s regulatory asset base (RAB) in its 2023 price adjustment decision, particularly assets in its generation business.
A court order has given the regulator until 24 December 2022 to revise the RAB.
Secondly, the utility’s primary energy costs are anticipated to increase by 7.8%, primarily due to higher diesel and fuel oil prices, and more reliance on these products for Eskom’s open-cycle gas turbines (OCGTs).
Lastly, the cost to procure electricity from independent power producers is expected to increase by 9.05% due to using more of their generation, including for emergencies.
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