Eskom fights tooth and nail for massive price increases

Through the courts, and a Nersa application, Eskom wants to claw back massive additional revenue from electricity customers via tariffs.
Image: Shutterstock

Electricity customers and the general public may be justifiably confused about the details, timing, outcomes and implications of three court actions by Eskom, challenging a number of previous Nersa determinations.

Customers also need to understand the implications of the latest regulatory clearing account (RCA) application by Eskom for its 2018/19 financial year, which is not yet the subject of any legal challenge.

Eskom insists that its electricity prices are far from being cost reflective, and that they need to rise by some 30% in order to become so. Thereafter, Eskom says electricity prices in South Africa would stabilise, with only inflationary increases in subsequent years.

Eskom’s court actions

  • Nersa’s fourth multi-year price determination for the 2019/20, 2020/21 and 2021/22 financial years

In late 2019, Eskom applied for urgent interim relief pending a full judicial review of Nersa’s fourth multi-year price determination (MYPD 4) for the 2019/20, 2020/21 and 2021/22 financial years.

For this period, Eskom wanted revenue of R219 billion, R252 billion and R291 billion respectively for each year (i.e. 16% increase for each year), but was only allowed R206.4 billion, R221.8 billion and R233.1 billion (i.e. 9,41%, 8,10% and 5.22% increase). This resulted in a R102 billion shortfall for Eskom.

The significant portion of this shortfall was caused by Nersa effectively considering a government bailout of three times R23 billion (R69 billion) in this period as revenue. Therefore Nersa effectively reduced Eskom’s allowed revenue by this amount. Eskom is now seeking to recover this R69 billion through a review of Nersa’s MYPD 4 determination. It’s not clear how Eskom is seeking to meet the remaining shortfall of R102 billion – R69 billion = R33 billion.

Eskom’s urgent interim application to recover R58.5 billion of the R69 billion shortfall through a 16.6% and 16.7% price increase for 2020/21 and 2021/22 respectively – instead of the 9.41% and 8.c10% increase granted by Nersa for these years, was rejected by the court on the basis that the matter was not urgent, and should be heard following the normal court review process.

The full judicial review of MYPD 4 is now expected to be heard in court sometime in 2020. In its papers, Eskom argues that Nersa’s MYPD 4 determination was irrational and made in bad faith, and asks the court to order that the determination be sent back to Nersa for rework and adjustment.

  • Nersa’s RCA determination for the 2014/15, 2015/16 and 2016/17 financial years

In addition, Eskom is seeking a full judicial review of Nersa’s RCA determination for the 2014/15, 2015/16 and 2016/17 financial years.

For this period, Eskom applied to claw back R67 billion from electricity customers via the tariffs. However, only R32 billion was permitted by Nersa, which the regulator allowed Eskom to recover via a once-off 4.4% increase in the Eskom tariff applied over four years (2019/20, 2020/21, 2021/22 and 2022/23).

This results in a shortfall of R35 billion for Eskom, and the utility is seeking a court order instructing Nersa to rework and adjust its RCA determination for the 2014/15, 2015/16 and 2016/17 financial years to address alleged shortcomings of the determination.

This review application by Eskom has not yet been heard in court, and is being opposed by Nersa. It is not clear exactly how much of the R35 billion shortfall Eskom expects to recover through this review.

  • Nersa’s single-year revenue and price determination for the 2018/19 financial year

Finally, Eskom has sought a review of Nersa’s revenue and price determination for the 2018/19 financial year.

For this period Eskom wanted revenue of R219.5 billion (i.e. a 19.9% increase) but was only allowed R190.3 billion (i.e. a 5.23% increase). This resulted in a shortfall of R29.2 billion for Eskom, and the utility is seeking a court order instructing Nersa to rework and adjust its revenue and price determination for the 2018/19 financial year to address alleged shortcomings of the determination.

This application by Eskom was heard in court, and in March 2020 the judge ruled in favour of Eskom. The judgement declared Nersa’s revenue and price determination for the 2018/19 financial year irrational and unprocedural, sent the determination back to Nersa for rework, and ordered Nersa to bear the costs of Eskom’s application.

It is not clear yet whether Nersa intends to appeal this judgement, nor exactly how much of this R29.2 billion shortfall Eskom expects to recover as a result of this judgement.

Eskom’s RCA application to Nersa for the 2018/19 financial year

In August 2019, Eskom applied for an RCA determination by Nersa for its 2018/19 financial year to claw back an amount of R27.3 billion from electricity customers via the tariffs.

Public hearings were held throughout South Africa by Nersa in February and March 2020 in respect of this application, and Eskom and the country are still awaiting the outcome in order to understand its impact on the electricity price going forward.

Summary

Through three court actions, Eskom is challenging Nersa determinations dating as far back as 2014, that resulted in revenue shortfalls totalling R102 billion + R35 billion + R29 billion = R166 billion, and the associated electricity price increases that were well below that which Eskom wanted.

In addition, in an RCA application to Nersa for the 2018/19 financial year, Eskom is currently seeking to claw back an additional R27.3 billion from electricity customers though electricity price increases over and above Eskom’s normal annual price increases.

With Eskom’s electricity sales revenue for the 2018/19 financial year at R180 billion, it is clear that the revenue shortfalls of R166 billion challenged in court actions by Eskom, plus the current RCA application to claw back R27.3 billion from electricity customers via the tariffs, would result in additional price increases very significantly higher than those currently awarded by Nersa for the next few years.

While Eskom is unlikely to be able to recover the full alleged revenue shortfalls in its applications, nor will it be allowed to recover these in a single year, the above figures do indicate the scale of what Eskom is trying to achieve through its various court actions and its latest RCA application.

© Copyright 2020 – EE Business Intelligence (Pty) Ltd. All rights reserved. This article may not be published without the written permission of EE Business Intelligence.

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Get Soweto to pay and then we talk again !!!!!

Absolutely … Its not just Soweto… Its every other informal settlement.

There is also … alot of dead weight in Eskom …. for this facility to run efficiently I believe it requires 2000 workers…..

I understand they have 40000 workers/deadweights …. 40000:2000 …. 20 people doing 1 persons job
Eskom … has been JZs labour absorbing vehicle….Nothing will happens…. unions will protect until Eskoms last day

Eskom needs to be an independent organisation …. separate from the state and a political party….
Their prime focus should be electricity only……
…. and not rolling out shower heads, CFL lamps …etc

The economists predict a massive retraction in our economy, fueling unemployment even more.

After Corona the world will be flung into a recession, (if it’s not already in one) and ESKOM

WANTS A PRICE HIKE!!!!

Dear Eskom, know this.

Before Corona we were at odds with the rest of the world when it came to clean and honest Governance.. Our economy is going to take years to recover, if ever

You won’t have consumers or businesses to bill every month as these will disappear. The jobless won’t have money and you will have excess capacity!

Tell Government to involve the Private Sector particularly with Green Energy to alleviate the challenge on the Grid

They’re on standby and ready to roll out

You now have the audacity to seek more when you keep delivering less!

Take 21 days off to think about how ludicrous your proposal is, we’ll survive on our own make shift energy

Go to every township and collect what hasn’t been paid or what has been stolen for the last 25 years.

This should be reported to the government – price gouging is illegal!!!

No doubt they would like a lot more money – but first the multitude of surplus employees at all levels who caused the Eskom crisis must be disposed of forthwith.

Eskom’s prices are cost-reflective. They are very much aligned with the base cost of generation and routine maintenance.

What they aren’t aligned with is the extra cost of hordes of overpaid zombie staff, wholesale plundering by politicians and their lieutenants, and the capital equipment destruction caused by deferred maintenance arising from aforesaid plundering.

Eskom must get the money back from the people who stole it. Dubai might be a good place to look.

If Eskom was a cost effective, well managed operation, the massive looting’s, over-staffing, heavily inflated remuneration on just about all levels, ridiculous extra luxury employee and management benefits (expensive cars, high cellphone costs, laptops that get stolen by the hordes, travelling expenses, indabas etc), poor and wasted stock management, poor maintenance of facilities, etc – would not have been the case.

Their financial woes were very much self-inflicted and they haven’t as yet restructured and contained the irresponsible operational expenses. Good luck with trying to extract even higher rates out of a bruised and suffering community after the economical turmoil of the Zoo-ma era and now the Corona dilemma.

de Ruyter must be fired if he did not stop this nonsense.

If he is in agreement with this he is like CR. The wrong man for the job.

Go for it Eskom, for the money we pay monthly, 75% availability, environment, network fees etc we are seriously thinking of going back to a generator for the big heavy stuff and solar and wind for the rest. Our R15k monthly bill would be amortised in 2 years.

So Eskom take your limited unreliable product and shove it.

The guys selling solar systems must be smiling – the pay back period gets shorter and shorter! The people who actually pay their bills will go off grid and Eskom can then apply to be a registered charity as they give away free electricity to the comrades. What a shambles.

Actually, as I understand it quite the opposite can happen.
If ESKOM get what they hope for, even residentail tarrifs will broken into 3 portions:
1 – Generation (Eskom and IF they allow Private Generation, those)
2 – Transmission (Eskom 2.0)
3 – Distribution (Municipality)

From those 3, only #1 is variable, and maybe #2 can be part variable.

So imagine #2 and #3 gets hikes massively as a fixed charge, whilst #1 remain relatively cheap. Other than the few who can afford 100% off grid (meaning cloudy days, Sunday Roast and birthday cake baking days can be tied over with banks of batteries), the middle class dude that thought he might be in a position to do solar (i.e. grid tied with Eskom helping the big and nightly loads) will now say heck no, if I have to pay the fixed charge anyway, solar makes no sense at all.

Interesting point – all depends upon the size of the Fixed element. I’m guessing that if this cannot be avoided as it is the “gateway cost” then Eskom are smart enough to work out this is their best chance to get paid & they will, either immediately or over time, hike this having given subsidies to low earners who will not be paying anyway.

If you don’t have money to invest in a solar system then it is academic anyway. My point is that it potentially improves the pay back period of those considering this as an investment proposition. Not only will it reduce the cost of power but it will also improve the marketability of your property.

Of course it has to rise 30% for the “formal” areas, as it has to carry most of the users in the “informal” area’s cost.

Not only has Eskom become a massively overstaffed, bottomless pit to throw money in, the non payment for electricity in SA is far bigger than we all are aware of. Soweto plus municipalities that owe Eskom around R 50 Billion, massive number of illegal connections, plus the massive numbers of households that have a prepaid meter but make use of certain voucher codes, or ways to crook the system in order to get free electricity, while they still are “normally” connected.
In this small rural town the local municipal electrician offers new house owners that he installs a prepaid meter in, eternal free electricity at R 1000 once off, That is this side of town, no doubt in the Lokasie, he will do it all for considerably less. De Lokasie does not pay for electricity, the municipal manager admitted to me 5 years ago. And as the the town was cut off from power a few times by Eskom for being in arrears for R 200 m or so, the Lokasie will still receive power.
The whole electricity distribution and sales system is stuffed, together with the financial and operational side of Eskom.
Eskom must fall, the whole electricity sector has to be deregulated, liberalised and privatised.
Non payment by munis, metros and individual households has to be halted one way or another.

Make Soweto pay or F.R.O.

Hit up the non-paying muni’s, SOE’s and the State Capture gangsters (some still in senior government) before you hit us up. Oh yes, take a scalpel to your salary bill and incompetenctocrcy too

Eskom is mad. They should take drastic steps and reduce expenditure, corruption, bloated workforce, general inefficiencies, etc. Rethink/resize the business and possibly consider privatizing large parts.

Their first call was always to spike prices and/or request bail outs. Why not doing what is needed?

When will price hikes ever stop??

If you are incompetent all your brain cells can perhaps churn out is an increase

Increase the price of fuel with R10-15 per liter. Eskom free to everybody. This is the only way to solve this problem. Nobody can dodge payment, taxes etc. at the pump.

I will just drive to Lesotho to fill up- already a LOT cheaper !!

Why can’t the EFF apply their childish energy to stuff like this which is daylight robbery by the few of the masses.

So, facing the winter freeze, the dinosaur demands that all the efficient little creatures give up more of the dwindling food supply to it, thinking that is how it can survive..
EVOLVE or become a fossil, Eskom.

End of comments.

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