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Eskom: Is it raining tariff increases?

No April fool’s joke: Yet another application.

The National Energy Regulator (Nersa) on Tuesday confirmed receipt of Eskom’s application on March 3 for a tariff increase, aimed at compensating it for under-recovery of costs incurred in 2013/14.

This is on the back of Eskom asking for further tariff increases for electricity that South Africans will be using in the next three financial years.

In simple terms Eskom is saying it spent more to supply electricity in 2013/14 than anticipated and consumers have to pay up to cover the shortfall.

Paying for future electricity

Moneyweb reported last week that an application was on its way from Eskom to Nersa to “selectively re-open” the tariff determination for the last three years of the current tariff period, that is 2015/16, 2016/17 and 2017/18.

Eskom is currently in consultation with municipalities and the National Treasury before submitting the application to Nersa. From the submission to municipalities it is clear that Eskom wants a total increase of 25.3% for 2015/16.

Method

Nersa did not disclose any further information about the application it received, aside from that it will be published “once all confidential issues have been cleared with Eskom”.

The amount Eskom wants to recover is, according to Nersa, “still in question” and it will determine whether the public will be consulted in considering the application.

The application is made in terms of the Regulatory Clearing Account (RCA) mechanism that is part of the methodology to determine electricity tariffs. It provides for the annual review of Eskom’s finances and operations.

Variance on different cost estimates and projected electricity sales used to calculate the revenue Eskom should get from electricity tariffs is tracked in the RCA.

If the net variance is less than 2%, it is transferred to the next financial year. If it is more than 2% but less than 10% tariffs are adjusted and when it is more than 10%, the tariff determination is re-opened with full public participation. A re-opener may take 12 to 18 months to finalise.

Done it once before

Eskom used this mechanism only once before and was granted R7.8 billion extra revenue for the recovery of costs incurred in 2010/11-2012/13. This translated into an extra 4.69 percentage points tariff increase that takes effect on April 1 for Eskom’s direct customers and July 1 for municipal customers.

This means Eskom tariffs will increase by 12.69% instead of the 8% annual increase granted earlier for the current five-year tariff period ending March 31 2018.

When and how much?

According to Eskom’s financial results for 2013/14 it over-spent on diesel to the tune of R8.1 billion. It also spent R815 million on buying electricity from independent power producers (in terms of the Short-Term Power Procurement Programme) not budgeted for, because it did not anticipate the delays in the completion of its new power stations, Medupi and Kusile.

If this spending is recognised as prudent by Nersa and not cancelled out by savings on other items, it may result in further tariff increases of several percentage points, probably to be implemented in 2015/16.

Really needed?

Economist Chris Hart said the high increases in electricity tariffs in 2008 were motivated by the need for capital investment in Medupi and Kusile. “That I grudgingly accepted, but now we are asked for higher tariffs to cover operating expenses. I am not sure the need really exists. Are we throwing good money after bad?” he asks.

Hart says the coal price has declined considerably, but Eskom is plagued by inefficiencies in operations and procurement, an inefficient capital structure and an inefficient regulatory environment. Added to this, sales are lower than expected and debts are just not being collected.

“There is an enormous amount of inefficiencies that have to be fixed at Eskom,” he says, adding that corporate governance at the utility seems to be “dodgy” at the moment.

Impact on consumers

He says consumers are subjected to tariff increases much higher than inflation and in addition they simply don’t know what the future cost of electricity will be. To add insult to injury, they also have little certainty about the supply of electricity.

Hart says households are already in deficit financially and are also subjected to rising tax and municipal bills. “Salaries don’t rise at the same rate and one cannot blame the unions if they ask for higher increases, but the economy is just too weak to place more money into their pockets,” he says.

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Can Moneyweb please publish the contact details of a technician who can help me with a connection that bypass the meter? This may be an excellent opportunity for the guys who lose their job at Eskom due to AA. Get back at them guys and save the nation from Luthuli House!

My personal greatest daylight nightmare has now finally come true. The ANC cancer of TRANSFORMATION at all and any cost has now impacted the driver of industrial civilization namely the electricity grid and power supply.
This 24/7 natural disaster known as Eskom is the rock on which modern day South Africa will be holed and sunk.
The entire Democratic Revolution BS from Luthuli House will now be shown up for just what it is and from now on everyday life will simply be this:- “How am I possibly going to have enough buying power left after I have met my electricity bill?”
This Eskom civilization-killer disease will spread like a malignant virus right through the economy from small business ventures to the agri-sector to Mr and Mrs. J6P next door.
There’s a theory that has been around for a decade now called Olduvai Theory in which the author estimates that the globally total loss of electricity is inevitable and will be our ultimate downfall. South Africa has been a first here, sadly it is a few decades earlier down the Olduvai extinction path than the rest of the modern world.
Thanks to the ANC, thanks to TRANSFORMATION and lastly thanks to Eskom.

Translation of this article: The taxpayer has to pay for anc incompetence from a gutterment which is the largest in the world but is incapable of achieving anything positive. This is so disgusting and the sole reason is the appointment of excessively paid anc idiotcadres who are incapable of painting their own toenails even. Throughout parastatals we have anc oafs, idiots, morons, knuckledraggers, apes and thieves getting vast amounts of money to stuff up these large organisations and SA. They are indeed the most disgusting people on Earth.

So when my business operates at a loss, I must go back to the drawing board. Decide how I will be more efficient, save on overheads, look at my value chain, find cheaper suppliers, etc. Most important; I must get ALL my customers to actually pay for the services I provide – while keeping them as customers. Not with Eskom – just ask for a tariff increase and let those view customers who do pay to pay more.

@Beethoven; Unfortunately the average South African is quite happy with the situation, as they keep voting for them in an overwhelming majority. Either that, or they are brainwashed.

JapieM, or they are bribed, like with grants or to keep their grubby little fingers in the public purse, or just plain dumb.

this morning STAR reports funds to be held back from municipalities with money due to Eskom. directly beneath that a photo with township residents ripping up prepaid water meters.how can you win. destruction of government property is tantamount to SABOTAGE. so arrest these people and throw them into the deepest prison throw away the keys. i am sure somewhere there is a law that makes sabotage a major crime.

End of comments.

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