Regulator grants lower Eskom tariff increases than asked for
The troubled power utility originally applied for a tariff increase of 15% annually over the next three years
The National Energy Regulator of SA (Nersa) has awarded Eskom electricity tariff increases over the next three financial years that fall way short of what it says it needs to be financially stability.
The increases for 2019/2020 will be 9.41%; 8.1% for 2020/2021; and 5.22% for 2021/2022, Nersa chair Jacob Modise announced on Thursday.
This amounted to allowable revenue of R206.38bn, R221.843bn and R233.078bn over the three periods, respectively.
With a previously approved increase of 4.4%, which comes into effect in April, the price increase will effectively be by 13.81% in 2019.
Nersa decides against a 15% tariff hike for Eskom.
The troubled power utility originally applied for a tariff increase of 15% annually over the next three years, but in early February it amended the application, and asked for 17.1% hike in 2019; 15.4% in 2020; and 17.5% in 2021.
Eskom is in the grips of an operational and financial crisis and has highlighted its need for higher revenues. Its electricity sales continue to decline and income from its operations is not enough to cover the cost of servicing its massive R420bn debt burden.
Modise said the regulator will launch a number of initiatives, including its own investigation into governance failures at Eskom and may adjust its decision based on the outcome of this probe or those undertaken by other entities.
“Our challenge has been and still remains regulating the energy industry in a manner that balances the interests of energy producers on one hand and those of customers on the other,” he said. “This is never an easy task, for, inevitably, it is influenced by the greater economic environment, both locally and internationally, and as directed by the policy environment of the government.”
Meanwhile, Eskom is struggling to keep the lights on. On some days, the utility is burning R100m worth of diesel in open-cycle gas turbines as an emergency measure to avoid implementing scheduled power cuts.
Despite a series of double-digit tariff hikes over the past 10 years, Eskom has said the price of electricity in SA remains relatively low.
Economists have warned that Eskom’s requested tariff hike will have an adverse impact on the economy, and SA business called on the regulator to grant an inflation-linked tariff hike to balance the needs of consumers with Eskom’s requirements. The Reserve Bank expects headline inflation to reach 4.8% in 2019 before increasing to 5.3% in 2020 and moderating to 4.8% in 2021.
A number of interventions have been announced to turn Eskom around. Both a sustainability task-team and a technical review team have been appointed and President Cyril Ramaphosa announced the unbundling of Eskom’s three business units in his state of the nation address in early February.
In the 2019 budget, R69bn was allocated for the utility over the next three years. The department of public enterprises has highlighted the need for Eskom to collect the R28bn in debt owed by municipalities.
Nersa’s decision comes on top of another price hike that will kick in next month. As a result of the adjudication of three separate regulatory clearing accounts, last year the regulator gave the utility the go-ahead to claw back revenues through a tariff increase of 4.4%, which will fall away after four years.
CORRECTION: March 7 2019
A previous version of the story stated that Eskom was allocated R69m over the next three years in the 2019 budget; that figure has been corrected to R69bn.