Nersa leaves Eskom in R34 billion lurch

Energy regulator Nersa has once again left Eskom disappointed by awarding it R32.7 billion in response to three interim tariff applications, R34 billion less than it applied for.

This could be devastating for the struggling power utility, which stated in documents supporting a court challenge to another Nersa award that the R66.7 billion it applied for in interim increases is crucial if it is to retain its status as a going concern.

The R32.7 billion Nersa award will be recovered from consumers through increases in electricity tariffs, which could be spread over three years starting in April next year.

To give a sense of scale, it would amount to a 15% tariff increase if implemented once off in the next financial year, according to economist Mike Schüssler.

Over and above this award, in July Eskom is expected to submit another application for an interim increase in relation to cost overruns and revenue shortfalls in 2017/18, as well as its regular revenue application for the next three years (2019/20 to  2021/22) in terms of the fourth multi-year price determination tariff period (MYPD4).

Even if the tariff increases to raise the R32.7 billion Nersa awarded Eskom on Thursday are spread over three years, the cumulative effect of this and the two outstanding tariff applications could result in a shock increase for consumers in the first half of 2019.

In its latest decision Nersa once again hit Eskom on prudency and efficiency. When asked if the reduced award would be enough to maintain Eskom’s sustainability, Nersa chairman Jacob Modise said a licensee (like Eskom) couldn’t fail to operate prudently and be spared the consequences. He said it would be unfair to transfer imprudent cost to consumers.

Nersa will within three months provide detailed reasons for its decision and will at the end of September announce how and when the R32.7 billion will be recovered through increased tariffs.

During the consultation process that preceded Thursday’s decision, Nersa received 85 000 written submissions from stakeholders, including private individuals, intensive energy users, non-governmental organisations, environmental activists, local government and trade unions.

Modise said these stakeholders were concerned about the affordability of electricity, the economic impact of tariff increases, Eskom’s operational efficiency and the prudency of its expenditure, delays and cost overruns on Eskom’s Medupi and Kusile projects, its poor management and wrong decisions, and the potential rise in poverty, unemployment and inequality.

Modise said that during the public hearings Eskom conceded that certain governance failures occurred within the utility, but was not yet in a position to quantify the cost. He said once investigations have been finalised and the cost quantified, Nersa might in future recover such costs from Eskom.

He said Nersa is very confident about the way in which it makes its decisions. If Eskom is unsatisfied with the decision, it could take it to the High Court on review, as it is doing with the current year’s award of a 5.23% tariff increase.

Modise said Nersa will defend that action and added that while Eskom is free to exercise its rights, court challenges take long to finalise and contribute to uncertainty about the price path of electricity.

Eskom said it noted the decision and will be able to understand it once Nersa releases the reasons for its decision.

Listen to interview with Nersa regulator member Nomfundo Maseti here.

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