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The National Energy Regulator of SA (Nersa) this week only allowed Eskom to recover half of the R22 billion in costs that it wanted to claw back.
The power utility was looking to hike its power tariff by 16% this year. Instead, Eskom can recover only R11 billion by changing this year’s tariff hike from 8% to 9.4%.
Eskom wanted to recover, among other costs, the R8 billion it spent on the diesel it has been burning to avoid load shedding. However, Nersa did approve much of Eskom’s demand for R11 billion in “under-recovery”.
Eskom tariffs are set according to a multiyear price determination (MYPD). The MYPD3 had given Eskom an 8% increase every year from 2013 through to 2018. Nersa’s decision this week relates to the so-called regulatory clearing account – the difference between Eskom’s actual income compared with what the MYPD3 allows.
The under-recovery problem was the major reason Eskom had a case for getting more than 8% every year. The MYPD3 was premised on growth figures and power demand, which now seem very optimistic, and Eskom is going to have massive “under-recoveries” every year.
Shaun Nel, spokesperson for the Energy Intensive User Group of Southern Africa, which represents South Africa’s major industrial energy consumers, said that the power hike Nersa approved was lower than expected and he thought the state power regulator’s ruling had been fair.
Nersa also recognised that local power demand had to be sustained because the continued hikes in energy prices had resulted in a major reduction in demand, said Nel.
One of the few people who were rooting for Eskom to get the full 16% increase was economist Neva Makgetla from the think-tank Trade and Industrial Policy Strategies. She is also a former deputy director-general of the department of economic development.
The maths is simple: the diesel costs R3 per kilowatt-hour, and load shedding costs R10/kWh, at least according to some estimates, Makgetla pointed out in a recent trade and Industrial Policy Strategies policy brief.
As soon as Nersa refused to cover the costs of stopping power cuts, Eskom was incentivised to implement load shedding. That’s what this week’s Nersa decision did, she told City Press. Nersa is foolishly trying to “discipline” Eskom into being more efficient by keeping the tariffs down when all this really does is give Eskom a reason to cut power supply, said Makgetla.
Eskom CEO Brian Molefe almost said as much this week when reacting to Nersa’s decision – he suggested that the decision might herald the return of load shedding.
“While Eskom is certainly structurally inefficient, efforts to use the tariff to address these problems have had severe unanticipated consequences. As Einstein said, a definition of insanity is to repeat the same action and expect a different outcome,” said Makgetla.
The 9.4% hike is based on Eskom recovering an additional R10.3 billion from standard tariff customers. Eskom also gets to recover about R1 billion from its special customers who have negotiated price agreements, including the infamous power-guzzling aluminium smelters.
A large part of Eskom’s claim for R22 billion was, however, due to the fact that it cannot raise the tariffs on these contracts.
When asked how Eskom might recover additional revenues from customers whose tariffs were contractually set, Eskom spokesperson Khulu Phasiwe said the explanation would be part of Nersa’s reasons for the decision, which have not yet been released. Nersa’s spokesperson, Charles Hlebela, did not respond to requests for comment.
