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Nersa’s plan would see households pay much more, says Eskom

Energy regulator’s proposals met with ‘confusion and even bewilderment’.
Salga says a pricing method cannot solve the dilemma of rising costs. Image: Shutterstock

Eskom has warned that household electricity bills will increase significantly if energy regulator Nersa’s proposals for drastic changes in the way Eskom’s tariffs are determined are accepted.

Other stakeholders are equally critical of Nersa’s proposals.

Nersa published a discussion paper about its proposals on September 24 and invited written comments from stakeholders.

It proposes moving from a “revenue requirement” approach to one that uses “a combination of principles”.

The three principles it provides for:

  • Activity based costing that differentiates between cost associated with, for example, generation, transmission and distribution;
  • Type-of-use tariffs that differentiate between tariffs for base load utilisation and emergency use, for example; and
  • Marginal pricing that differentiates between the pricing for different generating units.

This would be a marked departure from the current methodology that prescribes a formula for Nersa to determine Eskom’s allowable revenue based on its prudent cost and a reasonable return.

The allowable revenue is divided by the projected sales to get an average tariff, after which a further process follows to design detailed tariffs per customer grouping.

In terms of Nersa’s proposals the concept of “allowable revenue” must be done away with and “averaging is the enemy”.

‘Wrongly placed ideas’

In its submission Eskom says the consultation paper seems aimed at correcting industrial tariffs more than anything else.

Industrial customers have been subsidising households to the value of more than R8 billion per year.

Eskom warns that Nersa has not considered adequately what the impact of the removal of this subsidy will be on residential customers and says it is essential to determine the economic impact on all customer groupings before changing the existing methodology.

Read: Eskom in dire straits: Maintenance lags as utility overspends on emergency diesel

The utility says understanding the consultation paper “in the context of the objectives, purpose and applicability of legislative and regulatory framework of the country is challenging”.

It says Nersa is required by legislation to ensure that Eskom recovers efficient costs and a fair return. That will not be achieved by following these principles.

“These are not regulatory approaches at all,” Eskom states.

“It is submitted that many of the ideas and concepts that this consultation wishes to implement are wrongly placed.”

Eskom further warned against what it calls a “big bang approach” to regulatory changes that can lead to instability.

‘No clear link’

The Association of South African Chambers (Asac) says the proposals don’t add any value and have no clear link with government policy.

Asac represents among others the business chambers in Johannesburg, Cape Town, Durban, Nelson Mandela Bay, George and Pietermaritzburg.

In Asac’s response, chair Melanie Veness refers to the association’s “confusion and even bewilderment after studying Nersa’s consultation paper”.

Veness says Nersa “must rather focus on the current mess at Eskom and the catastrophic situation in the municipalities”.

“Basic issues with compliance and waste need to be highlighted and need to be addressed by the executive powers,” she says.

AfriForum welcomed Nersa’s admission that all is not well in the electricity supply industry, but cautioned in its submission that imposing new rules immediately will not bring stability.

Any changes have to be properly considered, the organisation says.

“These proposals are not in line with the Electricity Pricing Policy and do not address the critical problems in the industry.

“It will lead to unnecessary litigation between Eskom and Nersa,” AfriForum says.

Legal action

Eskom has in fact submitted a court application to review and set aside a decision by Nersa to reject its tariff application for April 1, 2022 to March 31, 2025 in anticipation of the new approach.

Read: Dear Nersa, see you in court – Eskom

Eskom is asking the court to compel Nersa to process its tariff application for 2022/2023 in terms of the existing methodology to prevent a situation where it runs out of time for the tabling of the new tariffs in parliament on March 15 next year.

AfriForum calls on Nersa to rather intervene where its licensees (mostly Eskom and municipalities) fail to comply with their licence conditions.

‘Chaos and uncertainty’ must be avoided

In a presentation at a Nersa workshop about its proposals last week the South African Local Government Association (Salga) said Nersa’s tight timelines for the development of a new methodology is “not feasible, and may create chaos and uncertainty in the sector”, adding that “it must be done systematically”.

It has formally submitted a request to Nersa to extend the consultation period.

Salga says changing pricing methodologies will not allow for cheaper electricity. “If the costs are high then the prices will be high.”

It says the consultation paper in its current state has not outlined how the new pricing approach will address social economic issues – “it just assumes that the approach will bring price stability, but stability does not mean affordable”.

According to Salga the “elephant in room is the fact that we have declining sales and inclining costs within the electricity sector”.

“A pricing method cannot solve that dilemma, so [there] has to be a discussion on how cost will be reduced.” This, Salga says, is a difficult conversation, “but one that is necessary”.

Nersa will hold public hearings about its proposals next week.

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The problem with all things related to Eskom and Nersa and all other SOE’s is that it is run/managed by the 30% crowd. Those that took 8 years to complete a 4 year engineering degree. And a lot of people with MBA degrees that do not know that water flows downhill. And people with Admin Degrees that think there is such a thing as File 13.
Things will never come right.

We are decolonizing ourselves because electricity is a colonial thing.

This is not about the academic backgrounds of these people but about the megalomania of the “Administrative State” as Steve Bannon succinctly put it. It’s almost like it is some kind of pychosis/personality disorder that most people in the bureaucratic class have. These are people who have serious insecurity issues about themselves, maybe they couldn’t cut it in the more competitive private sector so they decide to throw their weight around to make everyone’s life a living hell.I wonder.

Well, you are aware that an Engineering degree is a six year degree, which they fit into a four year curriculum, of which the first ten years are the most difficult, eh?

Yes, but then at least you get to the 3rd-semester syllabus!

Largely agree but the real root is that most of the higher paying jobs are occupied by ANC cadres, crooked and incompetent, parachuted in and too many of them. Parasites.

This all seems like one big hot mess to extort more money from consumers.

The biggest cost for many house holds is the fees which are paid to municipalities which are often double the Eskom rate. The government needs to manage this and only allow for administrative charge of 5% to be included on top of the Eskom Rate.

At the moment the average unit of electricity is the same as the US at R2.05 per watt.

Additionally, they Eskom rate needs to include a special debt margin of about 2% and fixed for 20 years specially for the purpose of paying off the debt.

South Africa has become a country where starting a business is both extremely risky and expensive.

Home owners should boycot this entire mess and setup their homes to be independent of eskom.

Purge: those that can will reduce their Eskom dependency for sure.

In July the US average residential was about 208c. Average industrial was 112c
Here in SA my factory average electricity rate sits around 300c and house around 200c.

For factory I am one increase away from changing my whole network:
Currently : around 600kVA peak demand and have 580kVA solar grid tied and 800kVA diesel.
Future : I limit grid to 100kVA, run 1.6MW solar mated to 3MWh batteries and 800kVA diesel run under system that can blend grid, solar, battery and diesel concurrently.

I will have dropped from 3GWh Eskom user to 500MWh.

Nersa has no teeth; Eskom has no integrity. I think we should all face some stark facts: the death spiral has deepened as far as our economy is concerned and Eskom, SANRAL, PRASA, you name it, have ensured the lining of undeserving pockets. Somewhere along the line, we (the tax paying public) will have to step up and say: no more. Bring on the cutting of electricity and basic services. Bring on the unions. We simply cannot afford the excesses of the kleptocrats. What was the 2010 motto? Ke nako. It is time.

For me the telling fact is that SA is now the third largest economy in Africa after Nigeria and Egypt. From number one to number 3 in about the last 10 years indicates that there is a problem. Another issue is that many of the people who create jobs have emigrated so even if idea conditions return they may no be accompanied by economic growth and a resultant decrease in unemployment.

The problem in this country is not everyone is paying for electricity rates and water. Hell, why not make Vat 25% and scrap all taxes

I cannot agree more. Rather have a little more complex VAT system, tax passive income, but leave business and personal income alone.

A consumption based tax system, with protection to mitigate the regressionionary impact is such a simple approach for a developing country.

The problem is this destructive mindset by the commies in govt that the productive and wealthy in SA must be punished and pay more.

Increasing VAT will mean everyone pays, which is not what they want. Their goal is the annihilation of private business and deployment of cadres to fill those gaps.

While I agree that our current tax regime is not ideal and needs changing, I however do not agree with having a VAT only system. But perhaps I do not understand what people who propose this actually mean, so can those who are in favour of this please clarify the following:

1. Person A earns R5000 and has to spend R4000 of it on living expenses. R4000/1.25*0.25 = R800 tax, meaning A has a effective tax rate of 16%. Person B earns R100000 and has to spend R50000 on living expenses. R50000/1.25*0.25 = R10000 tax, meaning B has an effective tax rate of 10%. This would mean that A pays proportionally more tax than B? As wealth is continuously stored and transferred over generations upper/middle class persons would basically escape tax while lower class persons simply cannot?

2. Company A produces a VAT exempt product, while the input materials are not VAT exempt. This company would be able to claim VAT while never having to pay over any VAT, meaning not only do they not pay tax, but tax is being paid over to this company? Admittedly this can be fixed by removing all VAT exemptions and zero VAT products, though I’m not sure how this would politically be done.

3. VAT carrying transactions also do not directly correlate to profit. There are numerous other types of transactions that do not carry VAT but that could negatively or positively affect profit. Take interest as an example. Company A makes a profit before interest and therefore paid VAT in theory, it though has a big interest expense that erodes all its profits. Company B though had a break even before interest and therefore paid no VAT, it though has a big interest income making it profitable. In this scenario A is not profitable but had to pay VAT, while B who is profitable paid no VAT.

In my opinion the income / profit tax basis is the best option there is, the only issue is our progressive income tax table is unfair. SARS need to implement a flat income tax rate of let’s say 20% and exempt the first R50k in order to not tax poor/low income individuals.

A VAT only system makes total sense. It’s transparent, easy to manage and very easy to calculate. No deductions and loop holes, and a simple & fair way to tax everyone.

Firstly. Zero rate the goods and services people NEED. Like bread, milk, water, etc.

Secondly, have a standard VAT rate for all normal goods and services not included in tranche 1.

Finally you can possible have a few % more for luxuries/sin taxes.

So for example 0%, 20% and 30% for the 3 tranches of goods.

The % of income calcs you did are not wrong per sé, but VAT only encourages people to earn more and effectively pay less tax. The 0% helps the poorer parts of SA and those who consume more, pay more.
Tax admin is minimal and simple for all citizens (who’d basically do nothing) and businesses. Tax evasion becomes way harder because you’d have to conduct your whole life in cash, and revenue collection would be high.

Done deal imo.

So much more money to Eskom, and they are complaining? I think there must be more to this then…

There was a plan for Eskom to build 8 nuclear power stations in 2009, to prepare for electricity shortages.

The first of those stations would have been completed in 2018.

We lost 12 years by inaction!

There was plenty of action called STEALING!
And any sign of the Guptas who cleaned the place out? A cabinet minister flew to Dubai and was told to go jump! Any other arrests? None!

managed and controlled by the legally elected ANC-a true reflection on the quality of people in this country…but then Austria with a population of less than 9 million has a GDP greater than ours…with 60 million…says everything about quality!

Corruption is a worldwide phenomenon. The Austrian Chancellor was implicated in corruption this month.

@EFF Commissar
The difference is that the Chancelor resigned.

You use Diesel to generate power and then export it at very low rates to neighboring countries. Some of whom have their own diesel power stations but wont use them. Much cheaper to get power form ESKOM!!!

How F….. stupid can you be????

Maybe de Ruiter needs to stop galivanting and see what is happening under his nose.

that’s what one of my electrical engineer clients told me years ago when the eskom cookie hit the fan:

* diesel generating is the most expensive / uneconomical way of creating electricity;
* the diesel generators available is to be used as ‘standby units” and even the specs of the manufacture of it will show that it is not meant to be used on a long term basis as a mainstream power source as it is used now by useless eskom and
* of cause it makes sa even more of a foreign oil dependable country
* therefor: small wonder that some of these generators simply blows up

What’s the current payback period for a 20kWh per day solar installation with lithium battery? Less than 7 years? Eskom must get ready to say bye-bye to a lot of paying customers….

Payback is about 3-4 years for a household solar installation.

Jip – One of the best investments I ever made for myself and family !!
Laughing at the Eksdom incompetence am I.

Only issue is that all the charges added to the bill, excluding the kWh, form the bulk of the bill.
Those charges are not controlled!

People who install solar and then believe they are off the grid are deluding themselves. Whilst their immediate electricity needs are meet they forget that normally their water and sewage needs are supplied by plants that are on the electrical grid. Furthermore many of their employment and other economic needs have to be supplied by electricity from Eskom.

Solar industry must be drinking champagne and crying with joy.

This statement:The utility says understanding the consultation paper “in the context of the objectives, purpose and applicability of legislative and regulatory framework of the country is challenging”.Is a very nice way of saying how completely dumbfounding this action by NERSA is. It seems the people in charge of NERSA don’t what regulating means.

The electricity network is a parasitic monster, which tentacles reach into every household, to transfer the purchasing power and lifestyle of citizens to the politically connected elite.

“We live in a country where our young ladies who have recently attained the age of puberty cannot afford sanitary pads, but our men and women in public offices have ipads which they do not even know how to use.”
― PLO Lumumba

I don’t mind paying more if everyone is making a contribution at a level they can afford. Illegal connections must be dealt with….electricity generated in South Africa must be for South Africans and not exported to countries that dont or can’t pay their bills…..there must be more investment in alternative energy.
Upping VAT sounds like a good idea but will marginalize the poor even more and will just be stolen so not a good idea.
One thing for sure…there won’t be EV in South Africa for a very very long time! Welcome to the Dark Ages.

However the dispute between Nersa and Eskom is resolved, electricity users will be the losers.

We are likely to see 10+% annual increases for years and years to come.

Two reasons for that:

1. The gigantic pile of money that Eskom borrowed, with nothing to show for it, must be paid back.

2. The ruling party must keep its coal patronage system in place.

Sorry, it is in fact only one reason.

How are we ever going to get out of this dilemma? The ruling party was given a fully functioning enterprise with some nineteen billion in the bank, to begin with. Then they put their buddies in charge who pulled the ring out of the proverbial turkey to what we now have, five hundred billion in debt, and because they are our buddies there won’t be any arrests or recovery from the culprits either. Then, of course, there is the other problem, you know, those that vote for them and live in the townships don’t pay for power and if they dare cut them off won’t vote for them again.

So that just leaves you and me brother, the five percent of us, who pay ninety-six percent of the tax to foot the bill and we are gatvol enough to retire, emmigrate or start a tax revolt.

The law either protects the rights of consumers, or it protects the position of Cosatu members, but it cannot protect both at the same time.

Any effort to “protect jobs” must infringe on property rights in some way or another. Workers tend to see their job as their property, but they ignore the fact that the job opportunity was created by an entrepreneur who was incentivized by a consumer. All job opportunities exist because consumers created them. Therefore, all job opportunities belong to and are the property of, consumers, and don’t belong to workers. Workers have the privilege to enjoy the benefits of that job opportunity, that was created by the consumer, for as long as that worker satisfies the needs of the consumer at a market-related price.

When the law allows militant and extortive labour unions to intimidate employers and taxpayers with wage demands and job security, that law actually expropriates the property and rights of consumers. The free market with the supply-and-demand mechanism provides the only fair and just solution.

The law favours members of the Tripartite Alliance in their comfortable positions at the expense of consumers. We have people, who are unfit to be a janitor at a school, earning huge salaries at Eskom. The law plunders our property for the benefit of ANC members. The high cost and unreliable supply of a basic resource is the direct result of central planning and the abolition of the market mechanism.

We are the slaves to a socialist regime, a worker’s paradise, where unemployment and a lack of services are the inevitable results of all the various infringements on property rights.

What is Nersa’s plan to stop the non-payment for electricity or the theft of electricity?

End of comments.

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