Eskom wants to hike electricity prices

Eskom wants to hike electricity prices again and has made a submission just in time for the festive season that economist Mike Schussler says may lead to a 17% increase next year.

And, because the latest increase is meant to cover budget shortfalls dating back to 2013/14, it will probably ask for even more in the following year, but that submission will be made at a later stage.

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In a departure from previous practices, Eskom has publicly disclosed its latest application.

The utility said yesterday it had applied to the National Energy Regulator (Nersa) “for the evaluation and approval of the regulatory clearing account (RCA) balance for the first year (2013/14 period) of the third multi-year price determination (MYPD3) amounting to R22.8 billion”.

In terms of the agreed framework for electricity pricing, Nersa may adjust tariffs after the end of every financial year with regard to the over- or under-recovery of Eskom’s costs from the tariffs. If over-recovery occurs, the adjustment is downward, in favour of the consumer, but under-recoveries trigger hikes in Eskom’s favour.

This mechanism is called the Regulatory Clearing Account (RCA). Eskom is therefore saying it under-recovered costs totalling R22.8 billion in 2013/14 and now it wants that money back by asking Nersa to add the amount to future tariffs. If approved, the R22.8 billion will translate into a tariff increase of about 14%, says Schüssler.

This increase will be over and above the 3.5% increase granted to Eskom in terms of earlier Nersa decisions. Initially Nersa determined that electricity tariffs would increase by 8% per year in every year of MYPD3, which stretches from April 1 2013 to March 31 2018. On April 1, 2015, however, tariffs increased by 12.69% instead of 8%, after an adjustment was made for under-recovery in the previous tariff period (MYPD2).

This increased the base amount for the next year, with the result that the expected 8% increase next year decreased in percentage terms (in comparison with the current year) to 3.5%. The increase applied for now will be in addition to the 3.5%, which indicates a possible increase of more than 17%. Eskom earlier submitted an application for a 25% hike, but Nersa rejected it.

In terms of the methodology Eskom is entitled to recover prudently incurred costs and a reasonable return. The prudency requirement has often been a hurdle for Eskom.