Is Eskom getting 20% more, or 40%?

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.