We want 20% more, says Eskom

No, says Nersa. You want a 54% increase.
Eskom has accused Nersa of misrepresentation. Image: Waldo Swiegers/Bloomberg

The tension between Eskom and its regulator Nersa escalated on Wednesday after the regulator published a discussion paper on Eskom’s revenue application.

In a statement issued barely two hours later, Eskom accused Nersa of “misrepresenting” its application “to include various matters that are still under consideration by both the courts and by Nersa itself.”

Eskom CFO Calib Cassim has confirmed that Eskom has applied for an average tariff increase of 20.5% for the next financial year. The new tariffs will apply from April 1 next year for Eskom’s direct customers and from July 1 for municipalities.

This includes R14.4 billion in revenue in relation to underrecovery in previous years. Nersa has already finalised its decisions relating to the quantum and the timing of the recovery regarding these amounts.

Source: Eskom

According to Nersa’s discussion document the total increase may amount to 54.35%, taking into account additional amounts Eskom applied for as clawbacks from previous years that Nersa has not yet determined as well R46 billion under consideration by the Supreme Court of Appeal.

Source: Nersa

The high court earlier reviewed and set aside a decision by Nersa to deduct a total of R69 billion of government assistance to Eskom from Eskom’s allowable revenue.

In terms of a settlement Eskom has received some of this amount, but the larger part is still outstanding pending Nersa’s appeal against the high court ruling.

No court date has been set yet and it is doubtful that the case will be decided before February 25 next year when Nersa has to determine Eskom’s new tariffs – but the regulator has included it in its calculation of the possible tariff increase.

‘Toxic’ relationship

Chris Yelland, managing editor of EE Business Intelligence, says Nersa is not acting in good faith.

He says the relationship between Eskom and Nersa is toxic and that this is driven from Nersa’s side.

Yelland is concerned that the Nersa board just rubber stamps the recommendations from the electricity sub-committee without properly interrogating and understanding the impact.

Last week Nersa burnt its fingers for the umpteenth time when the high court granted a semi-urgent application by Eskom to compel Nersa to process this tariff application with regard to the next financial year according to the existing rules.

Since January 1, 2017, Eskom has taken each and every Nersa tariff determination on review.

The latest events follow Nersa on September 30 rejecting the Eskom application, which was submitted early in June.

Read: Nersa rejects Eskom’s plan, wants sustainable prices

The court rejected Nersa’s argument that the multi-year tariff methodology had lapsed and that Eskom mistakenly used it to prepare its application.

Nersa had to concede that it left a vacuum by failing to fulfil its mandate and prepare a new methodology in time.

It takes Eskom about nine months to prepare the complex application and Nersa usually takes about six months to process it before the legislated deadline of March 15 to table the new tariffs in parliament.

The court subsequently ruled that the methodology does not lapse until it is replaced. It ordered Nersa to process the application for the next financial year according to the existing methodology.

It also set a timeline, which compelled Nersa to publish the Eskom application on Wednesday for stakeholder comment.

The deadline for written stakeholder submissions is January 14 and after that Nersa will hold virtual public hearings before taking a decision.

From the Nersa discussion document it looks as though Nersa may deviate from the methodology the court ordered it to use.

“The court order did not appropriate or prohibit the powers of the Energy Regulator from exercising discretion when considering the application which discretion may be on, deviating from portions of the methodology if the strict application with result in irrational and unreasonable outcome or exercising a balancing act if the outcome will render the decision unreasonable … ” reads the discussion document.

Such deviation will require additional consultation within the already very tight deadline.

Nersa full-time regulator member for electricity nersa Nhlanhla Gumede emphasised that Nersa will fully comply with the court order.

He pointed out that the court order does not exclude lawful deviation from the methodology where strictly following it would lead to irrational or unreasonable results. If Nersa considers such deviation necessary, it will ensure that the necessary consultation takes place in an administratively fair way.

While Nersa will only consider Eskom’s tariff application for the next financial year, the utility’s submission for the two years thereafter is included in the published document.

Eskom wants 15.07% more in 2023/24 and a further 10% increase in 2024/25.

Impact on consumers

The utility has given the following indication of what the average increase could mean for different groups of consumers. Municipal tariffs in this table refer to the bulk tariff municipalities pay to Eskom. Each municipality must use the ultimate Nersa determination to calculate its own set of electricity tariffs to be paid by end-users from July 1.

Nersa must also approve those tariffs before implementation.

Source: Eskom

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My Solar system will turn out to be one of the best ROI’s I ever had on a purchase.

if I apply the increases to my factory I will be paying a blended price of 575c/kWh in three years time.

Since I anyway have sunk the capital cost of generators to cover loadshredding, I may as well just run the whole show on diesel. The diesel and maintenance cost per kWh is far less than Eskom price.

I better apply for 50,000 liter bunded storage permit before the rush!

Eskom is creating a perfect business case for microgrids. Battery storage was a bit of a stretch before, now it is a slam dunk as soon as the covid supply chain has relaxed.

Johan is is possible to use liquifeid natural gas to power your gennies? Do you know how costs compare to diesel?

Boepens : in western cape we have no supply of LNG.

That is a monster document, but on a scan:

Eskom should explicitly indicate debt service in the expenses it seeks to recover. The allowable revenue table does not.

If one digs deeper it seems Eskom debt service in year 3 is about 90b of the 365b revenue application. It is time we face facts and take most of that out the picture. A look at US utilities shows debt levels at least 80% lower and our debt costs more in SA.

Why take it out? Councils add 65% margin to the Eskom is one major reason. As in the past, councils will apply the tariff increase to our tariffs. Never mind that the rands margin on electricity is supposed to cover other council expenses, WHICH DO NOT INCREASE BY 20%

Leave debt service out (it would become a Treasury expense which is the reality of what it is since the debt is government underwritten) and the eskom total drops by about 30%

In the document Eskom allocates pages to how cheap our electricity is. They are delusional. For industrial they claim our industrial price is $0.06 per kWh. I pay $0.24!!!

End of comments.

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