Eskom power station. Picture: REUTERS
Eskom power station. Picture: REUTERS

Apart from running Eskom, the most demoralising job in SA might be regulating electricity prices.

For the National Energy Regulator of SA (Nersa), it’s a “damned if you do, damned if you don’t” situation. In its efforts to strike a balance between the interests of Eskom and the consumer, it is only when no-one is happy with the regulator’s decision that it can be sure it has done its job properly.

The regulator’s latest price determination made in March struck this balance, allowing for a tariff hike of 9.41% in 2019, 8.1% in 2020 and 5.22% for the 2021/2022 financial year. This fell short of Eskom’s original request of a 15% hike each year for the next three years, leaving it with an estimated revenue gap of R102bn.  

Nersa has a critical role to play. It is unfair to expect consumers to foot the bill for years of corruption and inefficiency at the utility (especially as load-shedding rears its head again). And Nersa, which decides what can go into Eskom’s allowable tariff, is vigilant to ensure that costs are prudently incurred.

But Eskom, which is imposing load-shedding for the first time in six months this week, is not happy, saying on Friday it would challenge Nersa’s decision in court and seek an order to address the shortfall to avoid financial disaster.  

In making its decision on tariff increases, the regulator considered the sizeable Eskom bailouts of R23bn a year provided for in the February budget and treated these as revenue in Eskom’s hands. The effect has been to allow Eskom a negative return on assets and neutralise the bailout, which surely could not have been the Treasury’s intention.

The utility says this is not a reasonable return and further threatens its financial sustainability. Nersa has meanwhile noted Eskom’s intention but says it is confident its determination is consistent with the governing legislative and regulatory requirements.

Over the past 10 years Eskom has enjoyed tariff hikes well beyond inflation (as high as 31% in one year), and electricity prices ballooned by 350% over the 10 years before 2017. Industry has termed it a slow poison that has quietly taken its toll on business.

But Eskom says that, since 2013, the tariff increases it was awarded by the regulator have not provided an adequate return on capital. Often they do not even cover Eskom’s spiralling costs, most painful of which are the monthly repayments on its R440bn debt.

Most of that debt stems from Eskom’s 2007 decision to embark on mega coal-fired power stations Medupi and Kusile, in response to an encroaching power supply shortage.

But a decade later it is clear that the decision to embark on the new-build programme, and the manner in which it was done, has imperilled Eskom. The projects are now years delayed and R147bn over budget and have been coloured by corruption and ineptitude.

The true cost of the two new power stations — that is, with interest included — is guarded like a state secret, with even the parliamentary standing committee of finance failing to access this information at a recent site visit of the two plants.

Eskom finds itself in an untenable position, as does the government, which must prevent its collapse. It is not unexpected therefore that Eskom decided to challenge the regulator’s decision on the bailout in court.

Should it win and Nersa is sent back to the drawing board on the treatment of the bailout, the effect will unfortunately be even higher electricity tariffs in the future. That is because Eskom will win the right to claw back from consumers the extra 10% or so more that Nersa should have awarded in the first place. This will be added to electricity prices in future years.

The tussle over the tariff creates the impression that South Africans can be spared the cost of Eskom’s sins. In truth, they cannot. The Eskom crisis is now hard-baked into the future. Consumers and business will have to pay the price.