Why Eskom was allowed to hike electricity prices by 9.4%

The National Energy Regulator of South Africa (Nersa) on Tuesday released a much-anticipated report detailing the reasons for a 9.4% Eskom tariff hike.

In a summary of its decision Nersa said that the the Regulatory Clearing Account (RCA) balance of R11.241bn would be recoverable from standard tariff customers, local Special Pricing Agreements (SPAs) and international customers in the financial year 2016/17.

“The amount of R10.257bn would be recoverable from standard tariff customers for the 2016/17 financial year only; the average tariff for standard tariff customers increased by 9.4% for the 2016/17 financial year only.”

“The amount of R983m would be recoverable from Eskom’s local SPA customers and international customers for the 2016/17 financial year only; and Eskom must submit a new Multi Year Price Determination (MYPD) application, within three months, based on revised assumptions and forecasts that reflect the recent circumstances,” the report said.

Head of energy regulation at Nersa Thembani Bukula told Parliament’s Portfolio Committee on Energy on March 8 that the regulator had to perform a delicate balancing act, weighing up the various needs of electricity consumers and providers in making its decision.

Nersa was called before the portfolio committee to explain the rationale behind the decision to grant Eskom an additional R11.2bn in revenue for 2016/17 – 50% of the amount the power utility had requested.

Responding to questions from MPs who accused Nersa of not taking public interest into account, Bukula said the regulator was required to balance the interest of investors, Eskom and customers who consumed electricity from Eskom.

The group acknowledged that the increase in electricity tariffs will have a negative economic impact.

“The electricity industry plays a significant role in enabling economic activity and growth within the South African economy,” it said.

“The approved 9.4% increase in electricity tariffs will increase the CPI by 0.86% over a three-year period. Furthermore, the approved increase will increase PPI by 0.77%.”

“The low income household group will be the most vulnerable to the increase in electricity prices. With a 9.4% increase, low income households will experience a CPI increase of 1.03% compared to the high income household group’s 0.84% increase.”

“The main reason for this is the relatively high proportion of electricity costs in the low income households’ total budget expenditure,” Nersa said.

With Fin24

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Why Eskom was allowed to hike electricity prices by 9.4%