The National Energy Regulator of South Africa (Nersa) has formally initiated the process of adjudicating Eskom’s next tariff increase with the publication of a consultation paper on the utility’s allowable revenue application for 2023/24 and 2024/25.
The paper includes a pro forma tariff calculation indicating that Eskom’s tariff could increase by as much as 38.1% on April 1 next year, followed by a further 5.12% increase in 2024/25.
The regulator typically does not grant Eskom the full allowable revenue for which it applies, but in recent years the utility has made several successful court applications against the regulator in which it has shown that Nersa has not properly applied its methodologies.
The calculation in the consultation paper includes an application made by Eskom for R317.7-billion in allowable revenue to be recovered from standard-tariff customers.
The figure arises from an application made by Eskom in June last year as part of the utility’s three-year fifth multiyear price determination, or MYPD5, submission.
The first year of that MYPD5 application was eventually adjudicated only after the intervention of the courts and, in February, the Energy Regulator announced that Eskom’s tariff could rise by 9.61% on April 1.
The increase was less than half the 20.5% hike for which Eskom had applied.
In addition, Nersa’s 2023/24 calculation includes two regulatory clearing account (RCA) amounts with a combined value of R14-billion (of which R3.5-billion has been approved to date) and a R15-billion amount, arising from a legal settlement associated with Nersa’s illegal decision to remove a R69-billion equity injection from Eskom’s allowable revenue in 2019.
The settlement stipulates that the regulator must add an amount of R15-billion to Eskom’s allowable revenue for the financial years 2023/24 through to 2025/26, as well as a further R14-billion in 2026/27 so as to remedy the exclusion of the injection.
The publication of the consultation paper has been made following a more recent court order, issued in July, stipulating that Nersa should adjudicate the 2023/24 application under the existing MYPD methodology and make a final determination by December 24.
Nersa indicates that it intends announcing its decision on November 7, having given stakeholders until September 8 to make written comments, after which public hearings will be held from September 19 to September 23.
In parallel, Nersa is consulting on a new methodology for setting electricity tariffs to replace the MYPD methodology, which it intends finalising by September 30.
In response, Eskom has highlighted that the sweeping changes being proposed depart from cost-to-serve methodologies used internationally and, thus, recommends that an iterative approach should be adopted to any change.
It has also called for an impact assessment to be undertaken before any new methodology is implemented.
Such an assessment, Eskom argues, should include an evaluation as to whether the proposed methodology can indeed be implemented, as well as its impact on various customer groupings and the sustainability of licensees, including Eskom and municipalities.