Energy regulator Nersa has confirmed to Moneyweb that it is “considering several scenarios” to ensure a big enough Eskom tariff increase on April 1 to ensure the utility remains financially sustainable.
Nersa did not provide any details.
Consumers however say they are ready to challenge in court any decision to grant Eskom more than 2.2%.
Moneyweb earlier reported that Eskom is only entitled to an average 2.2% tariff increase in terms of the multi-year price determination (MYPD3) granted in 2013. Although an annual increase of 8% was granted until March 31 2018, the percentage increase changed as a result of interim increases Nersa granted Eskom in terms of the Regulatory Clearing Account (RCA) methodology.
Nersa also confirmed to Moneyweb that further RCA increases have been put on hold pending Nersa and Eskom’s appeals against a high court judgement last year, setting aside the RCA increase that was implemented on April 1 2016.
Nersa said the 2.2% increase in terms of MYPD3 would be too low to ensure Eskom’s sustainability and therefore it is “currently considering several scenarios that will ensure the sustainability of Eskom within the confines of the law”. It would take into account the Electricity Regulation Act (ERA) and the Electricity Pricing Policy, Nersa said.
Sources with knowledge of the process have suggested to Moneyweb that Nersa might grant Eskom an increase based on inflation or on acknowledged financial ratios and base its decision on the obligation the ERA places on the regulator to ensure Eskom’s financial sustainability.
Such an increase could at a later stage be adjusted when the appeal has been finalised and possible further RCA applications heard. Eskom has submitted two further RCA applications with a total value of R44 billion. These are the applications that are now on hold.
David Mertens spokesperson for the High Energy Users, members of the Nelson Mandela Bay Business Chamber, however has a different view on the effect of high tariffs on Eskom’s sustainability. “Higher tariffs make Eskom less sustainable as it results in decreased sales,” he says.
It is this chamber that successfully challenged last year’s RCA tariff increase in court, against which the appeal is pending.
Mertens says it is a feather in the chamber’s cap that it succeeded in limiting the Eskom tariff increase to 2.2% and it would not take it lying down if Nersa again deviates from the prescribed methodology to grant Eskom a bigger increase. “It would be hard (for Nersa) to find a solution that won’t be challenged,” he says.
He says in any event the ERA also provides that the approved tariffs should reflect the costs incurred by an efficient supplier. “Whatever Nersa try to do, they would have to demonstrate that the proposal reflects the cost of an efficient supplier. I cannot see how they will achieve that.”
In setting aside the RCA increase, the court further stated that Nersa would have to consult Eskom’s customers, before it could deviate from the prescribed methodology. Nersa has not done that so far. “They should have reacted already,” says Mertens.
And time is running out.
Asked when it plans to announce its decision, Nersa told Moneyweb: “Eskom is required by law to present their tariffs on March 15 2017 to Cabinet. The process will be finalised by then or else Eskom will need to obtain an exemption from the Minister of Finance.”
Even if the minister does grant an exemption, municipalities also need to know the electricity price path. They have to table their draft budgets by the end of March and the increase in Eskom tariffs is a determining factor.
Legal consultant to the Organisation Undoing Tax Abuse (Outa) Ivan Herselman says if Nersa plans to deviate from the methodology prescribed to determine Eskom tariffs, it would need a proper legal basis and consult the public.
He said if the reasons are not rational, Outa would definitely consider a legal challenge.
Should Eskom indeed be granted only a 2.2% tariff increase, it is expected to apply for an increase in excess of 20% in the next year.