Eskom application could mean a 15% average tariff increase

Consumers to pay more, correcting unlawful decision.
The regulator is concerned about the impact of a tariff increase on consumers, who are still trying to recover financially from the Covid-19 lockdown. Image: Waldo Swiegers, Bloomberg

Eskom has submitted a R5.4 billion supplementary tariff application to energy regulator Nersa, and for the first time it has also included interest – to the tune of R1.3 billion – in the application.

This follows a high court order made by Judge Jody Kollapen in March, that found Nersa’s determination of Eskom’s tariffs for 2018/19 was irrational and unlawful. Kollapen set the determination aside.

At that stage Eskom’s R27 billion Regulatory Clearing Account (RCA) application was already before the regulator.

The RCA is a risk-mitigating mechanism that provides for retrospective adjustments – in favour of either Eskom or consumers – for revenue variations if assumptions underlying the revenue determination play out differently in reality.

Kollapen ordered that Eskom would, after the finalisation of the RCA, be allowed to bring a supplementary tariff application, should it still be short of the revenue it was entitled to if Nersa had made the initial decision lawfully. He laid down certain principles to be followed in deciding this application.

Nersa slashed Eskom’s RCA application to R13 billion.

The new application

In its new application Eskom says certain amounts it was entitled to, such as the R511 million it wanted for demand side management, it did not actually spend and is therefore no longer included in the outstanding amounts.

Other amounts were disallowed, and Eskom had no option but to borrow.

While the RCA makes no provision for the recovery of interest, Eskom argues that once the supplementary revenue has been determined, it should be compensated for the carrying cost incurred due to Nersa’s unlawful decision. “Only the interest cost, at a rate of 10% per annum compounded annually, is considered. The effect of inflation is not included”, it states.

Also included in the application is R2.4 billion for employee cost. This comes after Nersa based its calculation of prudent employee cost on Eskom’s generation function only, without proper consideration of the business model that includes transmission and distribution as well.

Summary of Eskom’s supplementary revenue application:

Source: Eskom

In its application Eskom proposes that the R5.4 billion be added to the R13 billion RCA balance and the total R18.4 billion liquidated through increased tariffs next year.

This, Moneyweb understands, will go a long way to ensuring that Eskom gets R23 billion additional revenue next year, which translates to a 15% average tariff increase.

Nersa earlier approved a 5.22% average increase for next year.

Simple corrections

Nersa further must still reconsider three RCA decisions for 2014/15, 2015/16 and 2016/17, and Eskom hopes that the balance to make up the R23 billion it wants can be found by simply correcting some obvious mistakes Nersa made when it first took these decisions.

During a meeting of Nersa’s electricity sub-committee last week, it was however clear that regulator members were concerned about the impact of a 15% tariff increase on consumers still trying to recover financially from the Covid-19 lockdown.

The meeting was concerned about the affordability for consumers and discussed tempering the tariff increase by spreading the amounts over three years.

The committee nonetheless made it clear that these decisions have to be finalised before March 15 next year, when Eskom must table the bulk tariffs it will charge municipalities in the new financial year in Parliament.

Correcting the past mistake

In the meantime Judge Fayeeza Kathree-Setiloane will on Friday hear an application from Nersa for leave to appeal her earlier ruling that it must add R23 billion to Eskom’s allowable revenue next year. That would be the first step in correcting its unlawful deduction of R69 billion from Eskom’s revenue for the three years 2019/20, 2020/21 and 2021/22 after the regulator learnt that government planned to assist Eskom with equity injections of R23 billion per year over the same period.

Nersa argues that the court should have referred the matter back to the regulator for reconsideration, as it did with several other unlawful tariff decisions.

If the appeal process is finalised in Eskom’s favour in time for next year’s tariff decision, Eskom will limit its expectation to the 15% increase this will translate to and will be prepared to defer the 2018/19 RCA and supplementary revenue amounts, Moneyweb understands.

That will however add up to steep increases in years to come.

Listen to Nompu Siziba’s interview with energy expert Chris Yelland (or read the transcript here):

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Raising tariffs is not going to save Eskom, nor will it make a dent in it’s astronomical debt. Eskom will never recover nor do they have the will to recover. Eskom will be a anchor around the Tax Payer’s neck for ever and a day.

Yaa. Operating cost is the largest portion. This includes a bloated labour force that ESKOM now wants the consumer to pay for.

Hopefully someone somewhere will tell them to go and run their business like a business and not like a welfare organization.

No brains.

I agree, this is exactly the point that I raised in the previous Eskom article. How are we having this conversation about increases when they have not reduced the bloated workforce yet? The only reduction they did to the workforce were managers that took packages. Mind you the cost of the packages also still needs to be recouped and will not reflect as reduction in cost for quite some time. They should go ahead and rip the plaster off this infected wound called Eskom, lance it and get rid of the infection.

Have any of you ever tried to deal with Nersa before. It’s as bad as trying to deal with CoJ on a billing enquiry.

The reason our Minister of Energy thinks there is only 50MW of rooftop solar is due to Nersa and all their forms and everyone not bothering to complete them

Don’t increase tarrifs just collect what is owed.

Eskom is around R500 bil in debt. Municipalities owe them around R30 bil. Collecting debt is ‘n drop in the bucket. Eskom have ‘other’ problems.

You can never fix the result/effect, you have to fix the cause first.

I suppose that is just too much for the ANC and every SOE.

So, if Eskom’s shareholder converted R250b of the debt Eskom will never repay and which debt the shareholder guarantees, would Eskom apply for a tariff reduction due to the interest savings?

This is all a pointless game. Increase the 2021 tariffs that most people do not pay in any event as much as you want. Non-payment is the problem compounding by government’s fear of doing anything about it.

Paying more wont help.
Get rid of eskom’s excessive workforce

Just repeat what i previously said: “overstaffed eskom’s solution to their self created financial problem is to up electricity tariffs annually to make up for the lessor electricity sold or simply given away over years to useless municipalities, wonder who is / was in control of their debtor system.

In any normal country the aim is to keep the electricity as low as possible as a main input cost in production of other goods and services – in sa eskom simply does not understand this theory – the taxpayer is seen as the inexhaustible financial source for eskom’s 100% failure in every aspect as a business.”

Will it be immoral to tax the sun?

1. Eskom should be free to charge what they want and raise tariffs by a maximum of 25 percent a year.
2. Anyone should be able to supply power using the tax payers grid.
3. This will help Eskom get its act together and wake up.

Eskom cant survive. Fewer and fewer people pay for electricity. Load shedding is chasing their customers out of SA. The model is a perfect storm. There is NO MORE money, the tank is getting empty and our tax base has been chased out of SA. Only the poor and lower income will be left to fund Eskom eventually, and we all know the masses will rather burn it down / strike and loot. The government is powerless to fix this disaster it created. There is no happy ending here.

So the scamsters, Eskam, want more money to make up for the losses made during the state capture episodes and cover the high salaries paid to their bloated staff complement?

Reality is that Eskom under the ANC regime does not exist to supply cost-effective electricity. It exists to provide overpaid jobs to cadres and lucrative tenders to the ANC well connected. Now that the money is running out, the greed (“we demand”) rises exponentially.

A government within a government.

Eskom for all intents and purposes is just like the ANC government. It has become an unproductive behemoth. When the ANC fails again and again, they just figure like any socialist government or state around the world, that it must be because taxes were not high enough. They never look at why their operations costs are so high and forever climbing – so the solution must be to increase the size of government further and raise taxes/ TARIFFS in the case of Eskom again.

Within the white collar positions at Eskom, is one of the most terrifying salary structures ever created. The old saying of too many chiefs, is alive and well. A top heavy structure that will make your eyes water. Roughly speaking – of every 10 people employed in these nose bleed type positions. At least 5 are not needed. These 10 people are paid on average about 150% the going market rate for a similar job description in the private sector.

The tragedy is that these unnecessary and heavily overpaid employees, are not only a liability in that they are not fit for purpose but in many cases are also part of the internal ESKOM cartels, that control everything from procurement of coal and diesel, to soap and toilet rolls.

ESKOM is a symptom of all that is wrong within government. They have for all intents and purposes lost control of their main coal procurement(quality and price) and very importantly the logistics of same, which is insanely coming in largely by road. It is an operational ponzi scheme, ever increasing costs coupled with ever decreasing revenues.

Like government, ESKOM needs to be gutted and made far more efficient. If not – the failure in one ensures the failure in the other. How does this end and when – goes back to the point already made – what is the REAL WILL to get it done?

Very worrying signs on NERSA incompetence highlighted here

Eskom happy to have some 13,000 to 15,000 surplus staff yet think that ridiculous increases on ordinary citizens and businesses hanging on for dear life is the way to go. If political thugs need to demonstrating anywhere it is at Megawatt Park.

Somebody has to pay for all those ‘free’ connections.

End of comments.

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