Is Eskom getting 20% more, or 40%?

You have until Friday to have your say.
The whole affair is very confusing, but extremely important for electricity users to understand and engage with. Image: Shutterstock

Stakeholders have until Friday (January 14) to submit written comments to energy regulator Nersa on Eskom tariffs that may increase by more than 40%, according to Nersa’s latest pro forma implementation plans.

The week thereafter, Nersa will hold virtual public hearings for various provinces.

Eskom previously took issue with Nersa’s initial position, as reflected in the consultation paper stakeholders have been asked to comment on, that the increase may amount to as much as 54.35%.

The utility said in a statement issued on December 8, shortly after the consultation paper was issued: “Nersa has misrepresented Eskom’s revenue application to include various matters that are still under consideration by both the courts and by Nersa itself.”

Read:

Eskom chief financial officer Calib Cassim stated that Eskom has applied for an electricity price increase of 20.5% for the 2023 financial year, which commences on April 1, 2022.

Two scenarios

Nersa’s latest pro forma implementation plans show two scenarios, with an average increase to standard customers of either 40.38% or 41.18%, depending on whether R3.461 billion regulatory clearing account balance arising from the 2019/20 tariff year is clawed back over one or two years.

Clawed back over one year

Clawed back over two years

Standard customers include most power users, except the very limited number of large users that have special pricing agreements with Eskom, international customers and end-users who buy from municipalities and a few other licensed distributors.

These end-users will nevertheless feel the pinch indirectly as the increase in Eskom’s bulk purchase price is passed on to them.

Starting point, and differences

Both Eskom’s and Nersa’s scenarios take as a point of departure the full allowable revenue Eskom is applying for in the next financial year, starting on April 1. Eskom has applied for R261.8 billion from standard customers. Including other customers, the amount increases to R279 billion.

It has to be noted that it is not at all a given that Eskom will get everything it is asking for.

The big difference between the two parties’ calculations is that Eskom only included the amounts to be clawed back in terms of the Regulatory Clearing Account (RCA) methodology, which Nersa has already approved in quantum as well as in terms of the timing of the liquidation of it.

Eskom therefore adds “only” R14.4 billion, whereas Nersa initially added R28.1 billion, including the R3.4 billion relating to 2019/20 that Nersa has determined after Eskom submitted its application, but for which the liquidation period has not yet been determined.

Nersa’s latest two scenarios make provision for the recovery of the R3.4 billion over one or two years.

Nersa has discretion to recover this amount over more than one tariff year and has often done so in the past.

Clawback

It further included R10.7 billion relating to 2020/21 that Eskom applied for as a clawback. Nersa will only in the next month or two decide on the amount it will approve and will thereafter determine the liquidation period.

These RCA amounts are calculated when tariffs that were determined in advance based on certain assumptions result in an over- or under-recovery when the actuals differ from the initial assumptions. Over the recent past this has mostly resulted in Eskom being compensated for such under-recovery through additions to the tariffs in subsequent years.

In the latest two scenarios Nersa has not taken the R10.7 billion into account.

The further big difference in the Eskom and initial Nersa calculations is the inclusion of R46 billion of the R69 billion government equity injection that Nersa unlawfully deducted from Eskom’s allowable revenue in 2019/20, 2020/21 and 2021/22.

Read: Court allows Eskom to claw back R69bn over three years

Nersa earlier conceded that it acted unlawfully and was ordered to add it back to Eskom’s allowable revenue in equal parts over three years.

Appeal

Nersa appealed the court order, arguing that it only erred by failing to consult Eskom when it deviated from the prescribed methodology, but that it was not precluded from making such a deduction. It wants the court to remit the decision to the regulator.

Eskom strongly opposes this.

No date has been set for the appeal and the order has been suspended pending it.

In the current tariff year Eskom and Nersa agreed that R10 billion of the R69 billion be added to the allowable revenue to ensure Eskom’s ability to continue to operate in the light of severe pressure on its liquidity.

According to Nersa full-time member for electricity Nhlanhla Gumede, Eskom has relinquished the balance of the first R23 billion and still has to be refunded R46 billion of the R69 billion. (It seems Eskom differs and still considers its entitlement to total R59 billion.)

The full R46 billion has been included in Nersa’s initial calculations.

In the two latest ones it included R23 billion.

‘Discussion needed’

Gumede told Moneyweb he believes Eskom and Nersa will have to have a similar discussion to that when they agreed on the R10 billion payout. “We will have to consider [the repayment of the equity injection],” he said.

All of this is very confusing for electricity users, but also extremely important to understand and engage with.

The fact of the matter is that Eskom’s latest tariff application as such has to be thoroughly interrogated even before taking into account all the additional amounts.

In recent years what Eskom got was very far from what it asked for. Clearly too far to ensure its sustainability.

Further, the courts have found the regulator wanting in its tariff determinations time and again.

On the other hand, the inefficiencies at Eskom are often mind-boggling and operations are becoming less and less efficient.

Consumers can now have their say and should do what they can to ensure that Eskom gets only what it is legally entitled to – and that is to recover from tariffs its efficiency cost and a reasonable margin.

Not a penny more and not a penny less.

Click here for Nersa’s invitation to submit written comments.

The closing date is January 14 at 16:00.

COMMENTS   14

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

I’m a Eskom fan. Since 1994 they have done well to provide electricity to Everyone, rich and poor.

While this has put strain on the grid, it has provided millions of poor South Africans with free electricity!

A 40% increase might sound excessive, but it is necessary for the rich to subsidize the poor.

So presumably the theory is to make the rich poor to make the poor rich. History has proven time & time again this does not work.

Overpopulation breeds poverty – perhaps Eskom can incentivate birth control initiatives by making electricity free to those that stop breeding at such an appalling rate expecting tax payers to foot the bill!

You are 100% wrong. A 20%+ increase in the price of electricity will hit the poor the hardest and not the people actually paying for it.
It will increase inflation, and the poor are most affected by higher inflation.
The “rich” will also start to generate their own electricity as solar products become more affordable, leaving fewer people to pay for electricity.

Jip – We have already entered that virtuous circle a year or 2 ago !!

Aagh dear Effy – who cares – I am fully on solar so enjoy paying — Oh I almost forgot – you are in Australia ne !!

When wealthy people voluntarily subsidize the poor it is called philanthropy. When naive and ignorant socialist individuals use the law to force wealthy people to subsidize the poor, it is called false philanthropy and plunder. The false philanthropists always expect other people to finance their plans. They never use their own money. They never put their own money where their mouths are.

That brings us to the question EFF Commissar – how many households are you providing with free housing and electricity? How many people depend on you for an employment opportunity? Are you paying the minimum wage? Or are you like the leadership of your party who exploit the ignorance of destitute people?

Wow, so my post was instantly wiped off !?!
My main message was that commissar is probably just trying to poke and provoke, a contrarían, and not even worth any replies or down votes.

As proud South Africans, we should be interested and keen to see all of our SOE’s turnaround and thrive. What Eskom really needs is a solid Turnaround Recovery Strategy. But tough questions should be asked about its Cost Efficiency Strategies, “Is there an effective cost efficiency strategy in place?”; Assets Retrenchment Strategies, “Is the asset retrenchment strategy necessary?”; Focus on Core Activities, “Is the competitive strategy clear?” and Change of Leadership, “Is there a need for a change in leadership?” If these questions are not thoroughly answered, Eskom will continue asking for “more”, suffer major losses and decreased profit.

Eish – You use big words so I doubt that the cadres will be able to understand the questions.

In simpler language, it is no difference than any turnaround – maximize collections, minimize expenses, sweat the assets to reduce debt service cost.

Cut the Eskom workforce radically.

Weed out and prosecute the corrupt supply agreements.

Cut off non-payers.

Sell surplus to requirement assets, especially property. Eskom bought all the Thyspunt land for example. Must be thousands of those kinds of property assets that have no purpose and cost to own.

The first comment i think pretty much sums up the line that has been sold to the electorate and it allows the organized crime that is clearly still rife in procurement and operations etc to operate at full tilt.

20% or 40% – does it really matter – one way or another ESKOM will get it, through tariffs or bail outs/ “loans” and to the delight of some, the ever-shrinking group of rich will cough – until they do not or are not there anymore.

With the predicted 2% growth for the next 2 years even burning half the country down isn’t going to help with getting free welfare money and / or free electricity, there simply is no more money.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Subscribe to our mailing list

* indicates required
Moneyweb newsletters

Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.
INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us: