Power hike could surge beyond the 10% hinted to by Nersa as Eskom hunts R23bn more in courts

Nhlanhla Gumede

Nhlanhla Gumede

28th January 2021

By: Terence Creamer

Creamer Media Editor


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South Africans should brace for power hikes of about 10% this year after the National Energy Regulator of South Africa (Nersa) finalised a court-ordered re-adjudication of Eskom’s previous applications. However, the increase could be materially higher should Eskom prevail in its legal endeavour to have a portion of a R69-billion equity injection added immediately to its allowable revenue.

Nersa announced on January 28 that the utility was entitled to recover an additional R6-billion through the electricity tariff following its re-adjudication of three regulatory clearing account (RCA) applications for the 2015 to 2017 financial years and a supplementary tariff application for the 2019 financial year.

The decision, which was delivered by fulltime regulatory member for electricity Nhlanhla Gumede, will definitely result in higher tariff hikes than those already awarded for implementation on April 1.

The final tariff implications, however, will become visible only in late February when the energy regulator will meet to decide on how, and over what period, the R6-billion should be liquidated.

It is already apparent, though, that the increase is unlikely to be less than 9.53% and could be 10.95%.

The hike could be significantly higher, however, should Eskom prevail in its legal attempt to have R23-billion of a larger R69-billion government equity injection, unlawfully subtracted from its allowable revenue, added back in its upcoming financial year.

Eskom has launched an application, using Section 18 of the Superior Courts Act, in a bid to have the amount added back automatically during the last year of the fourth multiyear price determination (MYPD4) cycle in line with a July 28, 2020, High Court order.

The order, part of a judgment that Nersa is appealing, stipulates that the R23-billion, representing one year of the three-year R69-billion equity injection, be added back automatically during Eskom’s 2022 financial year, the last year of the MYPD4 period.

In so doing, the average standard tariff would rise from 116.72c/kWh to 128c/kWh, a second order in the judgment states. The R46-billion balance, the court ruled, should also be added back when Nersa adjudicated Eskom’s next MYPD application.

Gumede said he could not comment on the implications for the tariff should Eskom succeed in its application, which would be heard on January 29. However, he acknowledged that it represented a major “overhang”.

Justice Joseph Raulinga was expected to make a ruling by the end of February, which would allow sufficient time for the ruling to be implemented in the upcoming tariff.

Gumede did confirm, however, that the tariff would be higher than the 5.22% increase originally sanctioned as part of the MYPD4 determination, made in early 2019.

For one, Nersa had determined that half of the R13.2-billion approved following Eskom’s 2019 RCA be liquidated in the upcoming financial year, which would translate to a hike of 8.12% on April 1.

If the full additional R6-billion approved on January 28 is recovered in the same financial year, the tariff would increase by 10.95% on April 1. Should Nersa decide to liquidate the amount over two years, the increase will be 9.53%.

If Eskom succeeds in securing the R23-billion it is seeking before the courts, however, the tariff could rise by 15.6% on April 1, exclusive of the amounts now sanctioned as a result of Nersa’s adjudication of the various RCA applications and the supplementary tariff application.

Eskom stressed that all three decisions referred to costs that had been determined to be efficient by Nersa, and urged the regulator to liquidate all of the outstanding amount immediately to minimise the burden on the fiscus.

“The  efficient costs have been incurred between financial year 2015 and 2019, which Eskom can only recover at the earliest in the 2022 financial year. This implies delays up to seven years,” Eskom said in a statement.

“It is best to enforce the ‘user pay’ principle, where the consumer of electricity pays for the efficient cost of electricity,” Eskom added, noting that it had been required to depend on more and more debt as well as further equity support from government to continue to provide electricity service.

“Thus, the consumer is continued to be provided a subsidy funded by the taxpayer, which has a negative impact on other government priorities.”

Edited by Creamer Media Reporter



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