32% electricity price increase for South Africa – Nersa still has no answer

Despite already once delaying the urgent approval or dismissal of Eskom’s application to hike electricity prices by 32% in 2023, energy regulator Nersa says it still has no decision to deliver.

In what was supposed to be the electricity subcommittee’s final meeting for the year, the regulator said that it was still not ready to make a determination on the application.

Eskom’s submission, given to Nersa in September, applied for a 32% tariff hike in 2023, which, when added to court-ordered backlogs, could see electricity prices climb by over 38%.

Nersa was expected to announce its decision to approve or dismiss the application at the end of November but instead postponed the matter to 14 December so it could deal with ‘numbers that were not adding up’.

However, the subcommittee heard on Wednesday that more time was needed.

“Eskom’s submission was received in September, and there was a lot of guidance on how to proceed,” it said. “Certain numbers didn’t tally, and the regulator was asked to expand the work. The work still needs to be done. There are vast areas that need improvement.”

When asked how much more time was needed to resolve the issues, the response was “a day and a half”, working flat-out.

This raised eyebrows among subcommittee members, who noted that the time given since 29 November was clearly insufficient, so another day and a half could hardly make a difference.

“Work needs to be done on an urgent basis,” the subcommittee said, adding that the decision needs to be made soon: Nersa only has until 24 December, a deadline issued by the courts.

The meeting closed without clarity on when the decision will be made, with only a vague guideline that a rushed decision could be made before the end of the week. The subcommittee chair requested a timeline and plan of action be submitted by the end of the day.

“We will indicate from the plan in terms of when issues will be done. We may need to explore alternative requests, with some engagements we may have to have with the applicant (Eskom) as well in this matter.

“In essence…although this matter was referred back, we still have a lot of gaps…they are requesting more time to fill these gaps,” it said.

One decision the subcommittee managed to approve was the RCA allocation of R3.61 billion for the 2019/20 financial year, which Eskom will be able to recover. This will be implemented over three years starting from 2024/25, it said.

Out of options

Eskom has applied for massive electricity price hikes over the last few years, each of which has been rejected by Nersa, citing general unaffordability.

Eskom has argued that its tariffs do not reflect the cost to produce electricity, and Nersa’s limitations are creating a ‘backlog’ of hikes – a bubble that is about to burst.

The embattled power utility needs funding urgently to tend to its operational needs, such as securing more diesel for its open-cycle gas turbines to help keep high levels of load shedding at bay.

The latest application has been widely rejected by major metropolitan municipalities, civil action groups and even Nersa insiders, who have said that consumers and businesses cannot afford the hike and should not be the ones to suffer for Eskom’s inefficiencies.

But the situation is more complicated than that.

Eskom is owed billions of rands by municipalities and customers who choose not to pay up. Municipalities in South Africa owe more than R50 billion to Eskom, which the group has claimed is exacerbating the ongoing power crisis in the country.

On top of this, Nersa’s decisions on Eskom’s applications have repeatedly been challenged – and overturned – with the regulator’s methodologies deemed unlawful.

According to Intellidex analyst Peter Attard Montalto, the country has simply run out of options regarding electricity pricing.

In October, the analyst said that cost-reflective tariffs for Eskom are 40% to 45% above current levels, and the power utility is trying to get there as quickly as possible to address its revenue shortfalls, growing debt and operation needs.

Eskom’s original plan was to smooth this out over several years, but Attard Montalto said this had been stymied by Nersa, which has prevented more significant increases in the past.

However, court cases over the years have shown that Nersa has acted illegally in blocking Eskom from recovering funds, so now this substantial historic ‘backlog’ of increases is coming out in one go.

“For Eskom, there really is no choice – either it recoups the costs through tariffs, or it recoups through bailouts,” the analyst said. “You can have a zero percent increase, but then Eskom needs a bailout of R80 billion. Clearly, that is not viable.”

“We’re running out of options here, and unfortunately, despite it being very challenging, we’re going to need a very large tariff increase.”

Read: Eskom bites back