Eskom price hike will have ‘devastating effect’

Electricity tariffs are likely to shoot up by 20% or more following this week’s Constitutional Court ruling that paves the way for the National Electricity Regulator of SA (Nersa) to grant Eskom permission to increase tariffs.

Fin24 reported that the court ruling would give Eskom the green light to pursue up to R60bn in clawback tariffs in the next year.

Responding to the Constitutional Court’s judgment, David Mertens, CEO of Autocast SA and spokesperson for the High Energy User Group, which brought the court action, said if Eskom were allowed to increase tariffs, it would have a “devastating effect” on the South African economy.

Mertens said he rejected the Constitutional Court’s decision as Nersa allowed Eskom to deviate from prescribed methodologies.

“Given the fact that the largest amount in the first Regulatory Clearing Account (RCA) was as a result of Eskom not selling enough electricity, and that this situation was aggravated during the following years, it is conservative to assume Eskom will be granted RCAs of the same magnitude as in 2013/2014,” said Mertens in an interview with City Press.

RCA adjustments deal with funds that Eskom needs to recover unexpected costs.

The court case prevented Eskom from processing future RCA submissions.

Eskom has applied to Nersa for a R19bn clawback for 2014/15, and R22 billion for 2015/16. The 2016/17 application is not yet public, but is reported to be R20bn. This all adds up to R61bn that Eskom will try to recover, possibly over one year, energy analyst Chris Yelland said, according to Fin24.

“In order to recover this money, it would need to increase tariffs by 33%,” Yelland explained.

Mertens said that the quantum of the hike that Eskom was seeking was “hardly realistic as it would kill the South African economy and Eskom itself as there will be nobody to buy electricity. So, hopefully, wisdom prevails.”

He said a lot had happened since the court case was launched at the beginning of last year.

“An abundance of new information has come to the surface in relation to the operational malaise at Eskom [Denton, KPMG and state capture reports]. I trust that this knowledge will be used to such an extent that new tariff determinations will exclude all the inefficient costs that have been incurred by Eskom over the last few years, and that Eskom will be put on the right track,” he said, adding that the law prescribed that South African consumers only paid for efficiently incurred costs.

He said the 2018/19 tariff determination, including public participation, would take place in the next few months, and called on the public to participate.

“It will be in the public’s interest to ensure its voice will be heard in this process and its rights protected. We cannot keep on paying for dysfunctional state-owned enterprises.”

This week, the Constitutional Court ruled in favour of Nersa, which was opposing an appeal by five Nelson Mandela Bay companies who challenged the proposed tariff increases.

Last year, Eskom applied to Nersa to increase tariffs for 2016 by 8%. Five Port Elizabeth companies challenged this in the high court and the tariff increase was then limited to 2.2%.

Nersa and Eskom then challenged the court ruling at the Supreme Court of Appeal (SCA), which in June ruled in their favour, setting the judgment aside.

Last month, the companies approached the Constitutional Court seeking leave to appeal the SCA ruling. They lost the appeal this week as the Constitutional Court upheld the judgment of the SCA.

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