Only a few hours before the court-ordered deadline, energy regulator Nersa on Thursday made the “very difficult” decision to grant Eskom a tariff increase of 18.65% for 2023/24 and 12.74% the following year.
This, however, comes with non-negotiable conditions that will become part of Eskom’s licence conditions. Whether the regulator will be able to enforce the conditions remains to be seen.
Those who buy electricity directly from Eskom will pay more from 1 April next year and those who get their electricity from municipal distributors from 1 July.
The increase comes against the backdrop of Stage 6 load shedding “until further notice”, leaving South Africans in the dark for up to 10 hours a day.
It is a further setback for consumers who are battling with tight budgets, high fuel prices, increases in interest rates and inflation. Businesses are suffering loss of production and huge additional expenses due to load shedding, and indications are that many small businesses may be forced to close.
Jannie Strydom, CEO of Agri Western Cape, said in a statement although the increase is lower than the 32% requested by Eskom, 18.65% is intolerable.
“This is a drastic increase in tariffs for electricity supply that is already extremely unreliable. Consumers therefore pay more for less power.”
“The energy needs of farming operations remain the same irrespective of the electricity tariff. Producers are now forced to invest in alternative sources of electricity, which requires enormous capital,” says Strydom.
“Food security cannot rest solely on the shoulders of producers. Food production is currently under immense pressure. Decision-makers need to recognise the seriousness of the problem – urgent intervention is needed.”
Unfair and unjust
Cape Town Mayor Geordin Hill-Lewis said: “South Africans are being asked to pay for corruption and mismanagement at Eskom in the most unfair, unaffordable and unjust way.”
He added: “Eskom has alternative ways to raise funds: by reducing their bloated payroll, by cutting suppliers who are over-charging especially for sub-standard coal, and by ending corruption, including recovering state capture loot.”
Nersa chair Thembani Bukula said it was a difficult decision and Nersa considered the country’s economic challenges and the effect of the increases on the economy in the short, medium and long term.
It had to balance the obligation to ensure Eskom’s sustainability with the impact on the economy and the affordability of electricity.
The regulator received more than 2 000 written submissions about Eskom’s tariff application.
One of the regulator members, Thembeka Semane, opposed the decision and had her dissenting vote note “for anything above inflation”.
Adverse court rulings
After a number of adverse court rulings when Eskom took several of the regulator’s tariff determinations on review, it tried to adhere strictly to the prescribed methodology and the officials initially seemed inclined to largely give Eskom what it was asking for.
One of the most debated issues was the allowance for diesel to fuel the utility’s open-cycle gas turbines (OCGTs). Eskom asked for a load factor of 12%, which is much more than the 1% Nersa allowed when the plant was still used as intended, during periods of peak demand and emergencies. (Load factor is the ratio between the actual time the plant is in use compared to the maximum time it is available for use.)
The officials advised in December that Eskom’s request be granted, and after regulator members had them rework the numbers, reduced it to 10% – which was the recommendation before the regulator on Thursday.
During the meeting the regulator members however decided to reduce it further to 6%, which will give Eskom R8.4 billion at a price of R6.34c/litre.
Nhlanhla Gumede, full-time regulator member for electricity, said during a media briefing on the day that it would be unfair to expect consumers to pay for Eskom power stations that are standing idle and then pay for diesel as well.
He said Eskom must increase the availability of its power stations to reduce its reliance on diesel. He said Eskom has about 39 000MW of installed coal capacity but only 16 000 to 18 000MW is generally available to generate electricity. “They are using OCGTs instead of coal.”
Gumede said the OCGT load factor is currently above 16%.
Nersa therefore put some “non-negotiable” conditions to the tariff increase, namely:
- OCGTs may only be used as intended, for peak-time generation and emergencies;
- Funds allocated for maintenance may only be used for maintenance; and
- The percentage of generation capacity unavailable due to breakdowns must be lowered to 20% in 2023/24 and 18% in the following year.
So far this year breakdowns are at 33%. They have been above 20% for at least the last three years.
Gumede said the conditions will become part of Eskom’s licence conditions but would not expand on what would happen if it does not adhere to them.
A licensee may be sanctioned and even lose its licence if it does not stick to its licence conditions, but Gumede acknowledged that many municipalities do not comply with licence conditions at all. Nersa has been very slow to act against them, which leaves doubt about its ability to act against Eskom, should it fail to stick to the conditions.