In a response to the National Energy Regulator of South Africa’s (Nersa’s) recent decision to grant tariff increases of 18.65% and 12.74% respectively for Eskom’s 2024 and 2025 financial years, the utility indicated that the hikes would be implemented on April 1 once the regulator “made a decision on the restructuring of its tariffs, as submitted during August 2020 and 2022”. Engineering News editor Terence Creamer approached Eskom GM for regulation Hasha Tlhotlhalemaje and corporate specialist for electricity pricing Shirley Salvoldi for an explanation on the implications of the statement, including whether the increases might not be implemented in the absence of tariff restructuring. Tlhotlhalemaje and Salvoldi’s responses are outlined below.

Engineering News: Does the statement imply that there is a risk that the decision will not be implemented unless the tariffs are first restructured, or can the increases be implemented under the current tariff structure?
Eskom: In the absence of the approval on the restructuring of the tariff by Nersa, the revenue decision can still be implemented using the current tariffs and structures.

What are the implications of implementing in the absence of tariff restructuring?
None of the restructured elements will be implemented, meaning that tariffs will not be aligned to divisional costs and will not reflect the different services being provided in a cost-reflective way. This will expose Eskom to volume risk. However, Eskom can still recover its allowable revenue by applying the increase to the existing tariffs.

Is it feasible for Nersa to decide on the tariff structure in time for implementation?
It is feasible to make a decision by end-January or middle-February. All the consultations have taken place. The recommendation was prepared for the Electricity Subcommittee (ELS) during 2022. However, Nersa required a further workshop before finalising. It seems that certain proposals of the restructuring were acceptable to certain ELS members and others were not. Thus, it is possible that a few proposals will be approved.

By when will Nersa have to have made the tariff restructuring decision, if it is to be implemented on April 1?
Mid-February at the latest.

How do you respond to concerns raised that the proposed tariff restructuring, including the proposal to charge Eskom customers a fixed monthly cost to remain grid connected, could have a chilling effect on new solar installations?
Eskom believes that the tariff structures as proposed send the correct economic signals and with the 18% increase the argument that it will make solar not viable has not been proven.

What are the potential implications for FY2024 given that the National Energy Crisis Committee (NECOM) is talking about implementing either net billing and/or a feed-in tariff (FIT)?
Eskom already has net-billing tariffs being used by agriculture, commercial and industrial customers (called Gen-Offset) and these tariffs provide a credit for energy exported at the same energy rate the customer pays for consumption. Nersa still needs to approve the residential tariff Homeflex, which then will allow Eskom to offer net-billing to residential customers as well, and there is also work being done to establish a national net-billing framework which was proposed in the draft Electricity Pricing Policy. On the FIT, Eskom has in place the standard offer, which we are planning to implement soon. The offer gives a three-year price for the purchase of power and Eskom will still need to ascertain how much was approved by Nersa for this programme. Further to this, work is also being done to expand the standard offer into an FIT and to establish what legislation and rules would be required to make this a national scheme.

Did Nersa set aside revenue for standard offer purchases and additional regional imports?
The standard offer was included in Eskom’s application. Indications are that they have been approved. It is deduced that only the risk mitigation plan (Karpowership project) was not included in the Nersa independent power producer decision. 

What other processes have to take place for the Nersa decision to be implemented on April 1?
Once the restructuring of tariff decision is taken (hopefully by latest mid-February), Eskom will submit the detailed tariffs in terms of the Eskom Retail Tariff Structural Adjustments (ERTSA) methodology, for Nersa approval. This has been done within a week (or less) in the past. Then Eskom, through the Public Enterprises Minister, will need to table in Parliament by no later than 15 March 2023, in terms of the Municipal Finance Management Act. If no decision is taken on the restructuring of tariffs, then the ERTSA process will need to happen to meet the timelines.

Given the strong public backlash to the Nersa decision, are you concerned that the tariff decision may be challenged legally?
It is understood that Nersa did apply the requirements of the Electricity Regulation Act, the multiyear price determination methodology as well the relevant court orders that are applicable to the revenue determination. This required the balancing of the impact on consumers and ensuring the sustainability of the utility. The publishing of the reasons for decision would need to be awaited to fully understand the Nersa decision. If any challenge is considered, the legal basis would need to be clarified.