Eskom gets kick in the teeth — and South Africans will feel the pain

The National Energy Regulator of South Africa (Nersa), during its public meeting held on 30 July, decided to wipe nearly R16 billion from Eskom’s application to recover lost revenue, approving an amount of almost R8.1 billion.

Despite Eskom not getting the full R23.9 billion it asked for, the amount of money still in the Regulatory Clearing Account (RCA) means South African consumers will suffer big electricity price hikes for the next few years.

The meeting on 30 July was to process Eskom’s fourth Multi-Year Price Determination (MYPD) RCA for the 2021/22 financial year.

The RCA is an account forming part of South Africa’s electricity tariff methodology that contains a balance for the actual revenue for Eskom’s entire financial year and what Nersa approved for that year.

Eskom applies to Nersa for future tariff hikes based on its cost of supply and projected revenue generation from sales using the MYPD methodology.

The RCA records uncontrollable costs and revenues assumed in regulator-approved tariff hikes and compares them to Eskom’s actual expenses and revenues.

If Nersa’s decision and Eskom’s actual costs and revenues differ, Eskom can recover the balance if it overspent, or it would be given back to customers if it underspent.

However, Eskom is in a lot of debt, and due to its dire operational performance in recent years, the RCA has generally shown that the power utility could not cover all its expenses.

Eskom has also been applying for higher tariff hikes each year, which Nersa then reduces. In practice, the pain is simply being deferred to a later date through the RCA.

“An implementation plan for the 2021/22 RCA balance will be developed for approval by the
Energy Regulator,” said Nersa.

Nersa noted that the approved RCA balance will be recovered from standard tariff customers, local Special Pricing Arrangement (SPA) customers, and international customers.

The RCA is a controversial aspect of South Africa’s electricity tariff methodology.

It has been the subject of several messy court battles between Eskom and Nersa, with the regulator generally losing the fight.

Most notably, Nersa has been taken to task for not recognising a R69 billion government bailout as Eskom’s revenue and excluding it from the methodology.

The courts found this unlawful and ordered the regulator to add this back in — starting with R23 billion in 2021/22, and the balance in RCAs for 2022/23 and 2023/24.

This has been reflected in the latest RCA approval.

Eskom’s revenue in 2021/22 actually overshot approvals by R13.3 billion. However, the RCA adjustment of R22.8 billion (as ordered by the court) gave a balance of R9.5 billion in Eskom’s favour.

The balance of the court order is likely to be reflected in the coming years.

The table below shows the RCA balance for the 2021/22 financial year.

Nersa approved a 12.74% electricity price hike for Eskom for the 2024/25 financial year in January 2023.

Its approval came at the same time it approved last year’s electricity price hike of 18.65% — significantly less than the 32.02% increase Eskom had requested.

The regulator said it had approved revenues of R318 billion for 2023/24 and R352 billion for 2024/25. Despite hoping for more, Eskom welcomed the decision.

“The revenue determination of R319 billion and R352 billion for the financial years 2024/5 will allow a further migration towards a price level that reflects the efficient cost of producing electricity,” said Calib Cassim, Eskom’s chief financial officer.

MyBroadband worked out how the price hikes for 2024/25 would impact Eskom direct customers and found that many of these power users will pay between R168 and R792 more per month on their electricity bills on average.

The state-owned power utility has reportedly applied for a 36.15% tariff increase for the 2025/26 financial year, which will see some municipality-supplied customers pay up to 44% more per kilowatt-hour.

A confidential draft document dated May 2024 contains details about Eskom’s requested electricity price increases and its plans to submit them to Nersa for its 2026 to 2028 financial years.

Eskom reportedly wanted to ask Nersa for a standard tariff increase for non-municipal customers of 36.15% for the 2025/26 financial year, 11.81% for 2026/27, and 9.10% for 2027/28.

Those supplied by municipal power utilities could face increases of 43.55% in 2025/26, 3.36% in 2026/27, and 11.07% in 2027/28.

These amounts could change following Nersa’s RCA determination.

Eskom reportedly said it hoped to generate revenue of R446 billion, R495 billion, and R537 billion in 2026, 2027, and 2028, respectively.

It blamed the delayed implementation of South Africa’s renewable energy programme for putting pressure on it to increase its generation capacity.

It said that between 2019 and 2023, more than 8,000MW of capacity from wind and solar generation was not available as intended in the Integrated Resource Plan of 2019.

As a result, Eskom’s coal-fired stations have to fill in the generation gap.