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Eskom tariffs: Will electricity prices go up by a whopping 21%?

Mar 07 2019 11:22
Melanie Gosling, Fin24

South Africans will hear on Thursday how much more they will have to pay for electricity when the National Energy Regulator of SA announces the new tariffs.

If Nersa gives the debt-ridden Eskom the full price increase it has asked for, electricity prices will go up by a whopping 21% from next month.

Eskom has said even if Nersa gives it the full amount it asked for, it would still make a loss of R20bn for the past financial year.

Nersa usually settles on an increase that is lower than the utility has asked for, but higher than the public has called for.

Most of the organisations and individuals who made submissions to Nersa on Eskom’s proposed tariff increases asked that it grant increases only to cover inflation.

Electricity prices have gone up by 300% in South Africa in the last 10 years – although the country’s cost of electricity is still relatively low on a world scale.

Revised request

Engineer and energy expert Chris Yelland believes Nersa will settle on a 15% tariff increase.

"Eskom is actually asking for 21% - and it doesn’t end there. But I would expect it to be around 15% - an 11% price increase with the 4% they have already got."

Originally Eskom asked for an average of 15% increase for the next three years when it first applied to Nersa. This was R219bn for 2019/20, R252bn for 2020/21 and R291bn for 2021/22.

Eskom then changed its request as it said it had reworked its forecast for electricity sales for the next three years, which were lower than what it had worked out the first time around.

The revised request for price hikes was for a 17.1% increase for 2019/20, 15.4% for 2010/21 and 15.5% for 2021/22.

This would be in addition to the 4.41% increase approved by Nersa last year. This would translate into a price hike of 21.5%.

Going through the motions?

Asked if Nersa really took the public submissions on board, or whether it was just going through the legal motions, Yelland said in general, Nersa had never given Eskom as much as it asked for. Nersa was legally bound to have public consultations, but the law also required that Nersa allow it to recover through tariffs all its “prudent and efficient” operating and financial costs and costs on capital.

"It’s not as if Nersa can do anything it likes. But the big issue for Nersa as a regulator is to weed out those costs that are not prudent or efficient," Yelland said.

Nersa makes public its reasons for its decision on the tariff increase.

In its submission to Nersa OUTA (Organisation Undoing Tax Abuse) said the public had to accept that it had to pay the true cost for generating and distributing electricity.

Position of power

However, consumers were now being asked to foot the bill for the consequences of political meddling in Eskom, State Capture’s "ravaging implications", the cost of corruption, weak leadership and mismanagement in Eskom and government, failure to implement the most critical reforms and a business model that was not fit for purpose. In addition, Nersa and Eskom had failed in the previous price hike application to review and correct faulty assumptions in the price determination.

"This implies that consumers continue to pay a heavy price for the ineptitude of both Eskom and Nersa, at the expense of electricity users," Outa said.

Jesse Burton from UCT’s Energy Research Centre said a big question in Nersa’s deliberations was in deciding what were "prudent and efficient" costs incurred by Eskom.

"It’s what is known as a moral hazard in the literature."

Investopedia defines a moral hazard as a situation in which one party to an agreement engages in risky behaviour, or fails to act in good faith, because it knows the other party bears the consequences for that behaviour.

"Eskom knows it can’t be switched off. It knows it is in the position of power," Burton said.

nersa  |  eskom  |  load shedding  |  electricity  |  tariffs
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