Eskom applies for 15% tariff increase

Eskom has asked the National Energy Regulator of SA (Nersa) for a 15% tariff increase for the next three years, beginning 2019-2020, the utility announced on Friday.

While Nersa, which will hold public hearings and evaluate the application, seldom grants Eskom its full request, Eskom’s application indicates that double-digit electricity increases will very likely continue into the next three years.

Electricity prices rose 350% in the 10 years prior to 2017, compared to inflation which was 74% over the period.

High electricity prices are viewed as a drag on economic growth and have been a key driver of inflation. With the SA Reserve Bank forecasting inflation to rise in the short-term, an Eskom tariff that outstrips inflation may lead to a rates increase in 2019.

Nersa evaluates Eskom’s tariff application according to a methodology that allows the company to claim a return within certain limits and scrutinises costs to ensure they are justifiable. The Nersa methodology also allows Eskom to claw-back justifiable costs retrospectively by adding them to tariffs for future years.

For the next three years Eskom will be permitted to clawback an additional R8bn from customers as a result of the adjudication of the regulatory clearing account (RCA) for the years 2014-2015, 2015-2016 and 2016-2017.

On Eskom’s current tariff this amounts to approximately an additional 4.41%, which will be added to the tariff. That means that should Eskom be granted its price application in full, tariffs in 2019-2020 will rise 15% plus the 4.4% allowed for by the RCA.

Eskom is in deep financial trouble with falling sales, a declining ability to meet debt obligations and tariffs which are not cost-reflective. With debt of more than R350bn and rising it faces and interest bill of R215bn over the next five years.

In a statement on Friday Eskom said that the tariff being applied for the three-year period “does not cover the entire debt commitment costs equating to a cash shortfall for the 2019-20 and 2020-21 years”.

To mitigate debt service costs, it would use the claw back from the RCA account to make up the shortfall. Eskom has also made an RCA application for the year 2017-2018, which is before Nersa.

Nersa said on Friday that it would hold public hearings on this application and the multiyear price determination simultaneously in January 2019.

Eskom’s latest tariff application is evidence that the company cannot break out of its downward spiral in the foreseeable future.

A plan by management and the board to table a new strategic plan for Eskom by the end of September was delayed.

Government is also grappling with the complex question of restructuring the electricity sector, which may include vertically disaggregating Eskom and creating an independent system and market operator.

patonc@businesslive.co.za