Eskom wants another R27bn from consumers

In its latest application to the energy regulator, the power utility is claiming this as an underrecovery for 2018/19, meaning tariffs may rise by 16.6% next year

Eskom, which last week again saw a collapse of its power network that led to nationwide load shedding, wants consumers to cough up a further R27 billion for electricity.

The national energy regulator Nersa has published Eskom’s latest application for public comment.

In it, the power utility said this was the amount that it underrecovered in 2018/19, and that it therefore wanted R27 billion more through power tariffs.

Although Eskom suggested that whatever Nersa granted should be added to electricity tariffs next year and the year thereafter, Nersa’s decision will likely be too late to influence 2020 tariff increases.

However, if Eskom receives the full R27.2 billion that it wants, and it is implemented over two years, this could see electricity tariffs in 2021 increase by 11.38% instead of 5.01%, as things currently stand.

The latest application is in terms of the so-called regulatory clearing account (RCA).

This is a mechanism that Eskom can use retrospectively to mitigate the risk that assumptions underlying tariff decisions might prove to be wrong.

Nersa will now compare Eskom’s actual expenditure in 2018/19 with the tariff that it previously awarded.

Eskom claims that it was awarded only R86 billion for 2018/19, but that its actual costs amounted to R99.4 billion.

The RCA process revisits the assumptions that were previously relied on to decide on a fair electricity tariff increase.

Read: Eskom wants R35bn more from consumers

These include assumptions about what the inflation rate, coal costs, electricity demand and Eskom’s sale volumes would be in the tariff period.

In its application, Eskom has said that it sold less electricity than predicted in 2018/19 and that it must be compensated for this, although it emphasised that it was not claiming for the reduced sales caused by load shedding.

The country experienced power cuts for 418.5 hours during the financial year and Eskom lost R762 million as a result.

Eskom is, however, claiming R5.4 billion for lower-than-expected sales volumes.

Sales to municipalities, mines and households in particular were lower than expected, said Eskom.

This included a decrease of 574 gigawatt-hours in the KwaZulu-Natal area, after Richards Bay Alloys turned off two of its smelters, as well as lower electricity use by Karbochem.

In the Western Cape, power saving by the Cape Town metropolitan council and other municipalities, as well as drought conditions, affected sales by 301 GWh.

The latest application, which Eskom wants heard on an urgent basis later this month, is about the R23 billion a year in bailouts that government has provided to Eskom this year and in the following two years.

And in the Eastern Cape, sales were 122 GWh lower after consumers switched to other power providers.

The gold-mining industry’s power consumption was 1 125 GWh lower than expected, with mining houses selling poorly performing mines and scaling back on activities.

The Gupta-linked Optimum coal mine was also placed in business rescue, affecting electricity sales.

Eskom has ascribed lower-than-expected sales to households to electricity theft.

Another item Eskom is claiming for is the real cost for its source of energy – primarily, the purchase of coal.

Eskom said it spent R16.7 million more on this than what was predicted.

Eskom also sharply criticised Nersa for granting only R39.1 billion for coal burn.

This is less than the R48.6 billion that Eskom applied for, and even less than it got the previous year.

The real cost was R51.5 billion, Eskom said.

The candle with flame in dark background
South Africans once again experienced load shedding after Eskom saw a collapse of its power network. Picture: Supplied/ iStock

According to the power utility, Nersa did not take into account the cost of the existing coal contracts that Eskom was bound to.

The amount that Nersa granted was allegedly based on a theoretical index that ignored Eskom's procurement policy and developments in the mining industry, Eskom argued.

In addition, Eskom is also claiming R4.8 billion for “other costs”, which consist largely of depreciation and operational costs.

The latest application is over and above the five Nersa tariff decisions that Eskom is currently disputing in three high court cases.

The latest application, which Eskom wants heard on an urgent basis later this month, is about the R23 billion a year in bailouts that government has provided to Eskom this year and in the following two years.

Nersa deducted this from Eskom’s allowable revenue over the same period, and Eskom argued that this was irregular because it had the effect of cancelling the bailout.

If Eskom succeeds in this application, electricity tariffs will increase by 16.6% next year.

The other two applications – which relate to a previous RCA application and the 2018/19 tariff determination – are still to be heard.

In its latest RCA application, Eskom makes much of what it believes to be Nersa mistakes in the original tariff decision.

Eskom claims that some of the reasons for the decisions are so irrational that it makes preparation for the RCA process difficult.

Nersa denies that it made mistakes or that it was unreasonable in its past decisions, which are now being challenged.

Members of the public are allowed to comment on Eskom’s latest application until January 20.

Nersa will also hold public meetings about the application in all nine provinces in February and plans to announce its decision on March 24.


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