Gauteng Business News

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ENERGY: NERSA Appeal: Power Tariffs Could Rise By Up to 22%


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AfriBusiness is of the opinion that Eskom consumers may be facing further power tariff increases of 22%.

This comes after the National Energy Regulator of South Africa (NERSA) announced last week that he wants to appeal against the setting aside of the increase of 9.4%, which he granted to Eskom on 1 March 2016.

This increase took effect on 1 April 2016 for Eskom’s direct consumers and was devolved by municipalities to their consumers on 1 July 2016. If NERSA had not granted the increase, Eskom’s tariffs would on average have increased by only 3.51%.

According to Stefan Pieterse, spokesperson for AfriBusiness, however, there is much more at stake with the NERSA appeal than the 9.4% increase. “If the appeal is upheld, consumers may be exposed to further Eskom increases of 22%.”

This comes after Eskom has submitted two applications for interim tariff increases based on higher than expected costs and lower than expected sales in 2014/15 and 2015/16.

The decision against which NERSA wants to appeal, was given in the North Gauteng High Court on 16 August 2016. Judge Cynthia Pretorius granted an application by a group of heavy power users of the Port Elizabeth area and the Nelson Mandela Bay Business Chamber. The applicants among others argued that Eskom and NERSA deviated from the prescribed methodology for interim increases and the court accepted the argument.

Some of the flaws included that Eskom had failed to open the so-called Regulatory Clearing Account at the beginning of the 2013/14 financial year and to quarterly report to NERSA on deviations from its budgeted revenue and expenditure projections for the rest of the financial year.

This account is a mechanism in the methodology according to which Eskom’s tariffs are determined, which provides for interim adjustments if Eskom’s income or expenses deviate from that for which provision is made in the initial multi-year tariff determination. NERSA is supposed to review the quarterly reports and to announce the results to Eskom’s consumers so that they can be warned in time about rate increases that could follow. This never happened.

The tariff application was also submitted hopelessly too late – a full 27 months after Eskom had received its audited financial statements and therefore had all the necessary information in order to submit the application.

Pieterse adds that companies such as Eskom are supposed to lead from the front, but the exact opposite is visible – it is inconceivable that a private company would act in this way without being penalised.

AfriBusiness also pointed out these deficiencies to NERSA during the public hearings before NERSA granted the increase.

The second part of Judge Pretorius’s ruling orders that all future interim tariff increases must comply with the prescribed methodology. This is where Eskom can experience serious trouble.

Thembani Bukula, NERSA’s regulating member for electricity, confirmed that Eskom had not submitted quarterly reports in 2014/15 or 2015/16. The 2014/15 application was submitted by NERSA on 13 May this year, about ten months after receipt of the audited financial statements, and it was therefore late. The 2015/16 application was filed on 15 July 2016, and therefore on time.

Bukula admits that neither the applications completely complies with the prescribed methodology. “If the decision of the High Court therefore stands, NERSA will have to reject the two applications.”

This will mean that Eskom will potentially be deprived of an additional income of respectively R19,1 billion and R23,6 billion. For the unstable power supplier, this will be a serious setback. It is almost double the R23 billion cash injection which Eskom received from the state recently.

If the appeal is successful, however, consumers must be prepared to pay those amounts. If the two increases are fully permitted and both come into effect next year on 1 April, it will amount to an additional tariff increase of 22%!

“The first step is now for NERSA to apply for leave to appeal. If the judge believes that there is a reasonable chance that another court may come to a different conclusion, the leave should be granted,” Pieterse added.

A further twist is that NERSA is working on changes to the methodology. In particular, the regulator wants to scratch the section on the announcement of Eskom’s quarterly reports to the public to send out timely price signals.

“There is a breach of trust between Eskom and the wider public because the public feel they are being exploited by a company that demands excessive power tariffs, has a monopoly, and does not abide by the rules itself. It is high time that the electricity industry is privatised so that healthy competition can lead to healthy prices and reliable service,” Pieterse concluded.

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