Brace for a R1 per kilowatt-hour electricity bill

2015-01-18 17:00

Consumers could be looking at paying more than R1 per kilowatt-hour (kWh) of power from April 2017, compared with 70.75c currently.

That means a household buying 480kWh directly from Eskom each month could be looking at a bill of R463.06 from April next year – and R564.91 in 2017.

Economists at Barclays Africa Corporate and Investment Banking see tariffs rising between 21% and 22% in the last two years of Eskom’s multiyear price determination (MYPD) window, prompted by a cash crunch and an equity injection deemed too little to plug the shortfall.

Managed power cuts and a heavy spend on diesel could see Eskom go cap in hand to the National Energy Regulator of SA (Nersa) for higher tariffs.

Charles Hlebela, the regulator’s spokesperson, said Eskom hadn’t yet applied for higher tariffs. He could speculate neither on possible cost overruns from the R1 billion a month Eskom is reportedly spending on diesel to run its gas-fired power stations, nor on revenue shortfalls from recent and upcoming managed power cuts.

“Eskom’s audited financial report will give the correct status.

“Once Eskom has made an application, Nersa will evaluate this and then a determination will be made,” said Hlebela.

While the outlook for municipal customers is currently unclear, their bills could be slightly higher if Nersa’s municipal tariff guideline is anything to go by.

This tariff was placed at 14.24% for 2015. Hlebela said it could be approved by the end of this month.

But members of the Energy Intensive User Group, among them miners Anglo Platinum and BHP Billiton, water board Rand Water, brewer SABMiller and cement producer PPC, face a collective bill of R92.5 billion if electricity consumption stays at 2014 levels. All consumed 78.6 billion kWh last year, according to the group’s website.

Eskom needs to plug a R225?billion shortfall due to Nersa’s decision to grant only an 8% tariff hike instead of the requested 16%.

In September, Treasury unveiled a financial rescue package for Eskom, which included an unspecified equity injection and support for tariff adjustments. In his medium-term budget policy statement in October, Finance Minister Nhlanhla Nene said the equity injection would be at least R20?billion, to be raised from the sale of non-strategic assets.

But the regulator recently allowed Eskom a one-off hike of 12.69%, from April this year, to claw back previous costs of R7.8 billion through the regulatory clearing account mechanism.

It was likely to use this mechanism again to boost revenue, said Peter Worthington, senior macroeconomist at Barclays.

“To get an additional R100 billion in the remaining years of the MYPD – assuming it’s now too late to increase the April tariff further above the 12.69% – then the annual tariff increase needed in 2016 and 2017 would be 21% to 22%.”

There are two “buts”.

According to Worthington, Eskom needs “considerably more” than the R100 billion in the current MYPD.

“Eskom says it has a funding gap of R225?billion in the current MYPD – the difference between the 16% it asked for and the 8% it got. We think it could be even bigger than that,” he explained.

Secondly, before the regulator can allow expenses to be recovered under the regulatory clearing account, it will be subjected to various tests to determine if they are prudent.

“Once costs are determined to be prudent, Nersa will also determine the over- or underspending by Eskom,” noted Hlebela.

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