Regulator challenges rampant Eskom tariff hikes

On 1 July 2023, embattled South Africans felt the full force of Eskom tariff hikes with a massive 18.65% increase from the power utility. This, combined with rising fuel and household inflation, has created a full-blown cost-of-living crisis for the majority of South Africans.

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But there’s good news on the way. Business Tech reports that a huge overhaul of Eskom tariff hikes is in the offing from the national regulator.

ESKOM TARIFF HIKES

The National Energy Regulator of South Africa (NERSA) has published new papers for the proposed overhaul of Eskom tariff hikes. In brief, NERSA wants to do away with Eskom’s Multi-Year Price Determination (MYPD) methodology and find a new system.

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NERSA also proposes dropping another revenue guarantee that has been hugely beneficial to Eskom tariff hikes. Currently, Eskom can apply for price increases based on a ‘clawback’ clause, which allows for the recovery of ‘lost’ revenue.

WHAT IS ‘CLAWBACK’ REVENUE?

Amidst record levels of loadshedding and the utilities deepest financial crisis in history, it is this ‘clawback’ methodology that has led to Eskom applying for increasingly higher tariff hikes each year. Like the 18.65% one that kicked in on 1 July 2023. NERSA added that the recovery or ‘clawback’ mechanism had been misused to recover lost revenue.

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Business Tech reports that Eskom and NERSA have been at odds over this methodology for years, which has led to several high-profile court battles. NERSA is now proposing a new tariff structure – called the Electricity Price Determination Methodology (EPDM) – that does away with ‘clawback’ and has a five-step price-setting structure.

HOW WILL THE NEW STRUCTURE WORK?

NERSA plans to take into account changes in the regulatory landscape, including the unbundling of Eskom, as well as the growing number of independent electricity producers in the country.

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“The unbundling of the electricity supply industry, changes in legislation and the introduction of independent power market participants have imposed a need to review and change the existing pricing methodology,” said NERSA.

“The reviewers remain cognisant that a new price approach must enable greater transparency, efficiency and cost reflectivity. They also recognise that services might be provided by different service providers who must have clear unbundled, cost-reflective tariffs to compensate them for their costs.”

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“Reviewing the cost of supply framework is considered the most practical path to complying with the court judgement. NERSA has put much effort into ensuring that licensees submit compliant cost of supply studies, and licensees have also invested resources to ensure that they comply,” NERSA said.

Public hearings on NERSA’s proposal will take place on 15 September 2023. Written comments on the proposed EPDM rules can be sent to epdm@nersa.org.za on or before 14 September 2023.

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