Uncertainty about Eskom tariffs to continue into new year

Energy regulator Nersa has postponed its decision about Eskom’s allowable revenue for the next three financial years from the scheduled date on 20 December to the end of January as it closed its offices until 2 January 2025.

This extends the uncertainty about the widely opposed application for increases of 36%, 12% and 9% in each of the next three financial years.

If granted, Eskom’s allowable revenue would increase from R352 billion in the current financial year to R445 billion in the next, R495 billion in the following one and R536 billion in 2027/28.

Nersa also postponed the public hearing about Eskom’s Retail Tariff Plan (RTP) that was initially scheduled for 18 December until 24 January.

It is not clear whether the announcement of the final decision, which was scheduled on 25 January will also be postponed by one month.

ALSO READ: Nersa publishes Eskom’s request for hefty 36% electricity tariff hike

Tighter timeline

If so, it may result in a very tight timeline to finalise Eskom’s retail tariffs, which must be tabled in parliament by 15 March every year and factored into the municipal budget process that has already started. All of these are building blocks towards the determination of municipal electricity tariffs.

Eskom’s new tariffs take effect on 1 April every year for all its direct customers, excluding municipalities.

Municipalities pay Eskom’s new tariffs from 1 July every year, which is also the date when those consumers who buy their electricity from their local electricity authorities start to pay the new tariffs for that financial year.

Once Nersa has determined Eskom’s allowable revenue, Eskom must allocate the revenue to each customer category and submit these tariffs also to Nersa for approval. Nersa is required to consult with consumers, which adds several days to the process.

It is only once the Eskom retail tariffs have been approved that the utility’s consumers really know what they will be paying from 1 April.

Eskom has however since 2020 been asking Nersa to fundamentally review the structure of these tariffs and if its latest RTP is approved, it may result in big changes to the cost of electricity usage.

One of the proposals is the unbundling of tariffs, which are currently largely rolled up in one variable energy charge, to properly account for the use of the transmission and distribution networks.

ALSO READ: Eskom’s 36% tariff increase: Parliament to debate necessity of massive hike

Solar PV users

If approved, it will have a significant impact on consumers with solar PV who are linked to the national grid, but only use it as back-up. Where they currently pay Eskom or their municipality small amounts based on their low energy usage, they will in future be subjected to substantial fixed charges for the use of the network, irrespective of whether they use energy from the grid or not.

This is expected to have a material impact on the calculations for funding of solar PV systems.

The Association of South African Chambers (Asac) has commended Eskom for its RTP and says it provides a significant step forward towards more cost-reflective tariffs and tariff structures which ensure costs are recovered in line with fixed and variable portions.

“Unfortunately, Eskom’s tariffs remain burdened by municipal inefficiency, the catastrophe of Medupi and Kusile [cost overruns], unnecessary legacy costs of IPPs, transparent and non-transparent subsidies, inflated costs and a lack of downsizing in line with a shrinking market,” says Asac.

“This makes tariffs unaffordable for most South Africans, both big and small.”

Whether municipalities will be able to implement any changes in their retail tariff structure in the next financial year to align with Eskom is doubtful in the light of the tight timeline.

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Nersa has so far also failed to address the uncertainty about the municipal tariff methodology as its appeal against a high court order that set aside its approval earlier this year of the tariffs of more than 100 municipalities is still pending.

The issue at stake was that the tariffs were not based on formal cost-of-supply studies as required by an earlier court ruling.

The regulator also withdrew from the agenda of its electricity sub-committee meeting on 17 December – a discussion about Eskom’s application for an additional R9 million to be clawed back in terms of the Regulatory Clearing Account (RCA) methodology. It was expected to make a firm recommendation to the energy regulator that has the final say about the application and it is not clear when this will now be dealt with.

In addition, Eskom has challenged Nersa’s RCA decisions as far back as 2015 with at least five of these cases still pending.

At the energy regulator’s meeting in October an agenda point about a settlement proposal by Eskom to finalise the RCA court challenges from 2014/15 to 2020/22 and the liquidation of the RCA balances for 2020/21 and 2021/22 was withdrawn, because “it was not yet ripe” for consideration.

Nersa earlier approved a R8.1 billion RCA balance for 2021/22 in favour of Eskom, which has not been added to Eskom’s tariff application.

This article was republished from Moneyweb. Read the original here.