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Nersa decides on rate increase Eskom

Energy regulator Nersa will decide on Wednesday what Eskom is entitled to in terms of income, on the basis of which tariffs will be calculated.

The Electricity Regulation Act stipulates that the allowed revenue must be established to allow an efficient licensee – in this case Eskom – to recover the cost of its service and a reasonable return on assets.

The permitted turnover forms the basis for the calculation of the consumer rates. At a recent meeting of Nersa‘s electricity subcommittee, much of the discussion has focused on the Regulatory Asset Base (RAB) which is the basis for calculating such a reasonable return.

This committee makes recommendations to the energy regulator’s meeting, where the final decision will be taken tomorrow. During the previous tariff period (MYPD4), which covers the period 2019-20 to 2021-22, the RAB was RAB 875 billion.

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In the current filing for the next three fiscal years (MYPD5), Eskom has based its calculations on a RAB of R1.263 billion after a revaluation.

Eskom said in its filing that it has followed electricity pricing policies and prescribed methodology by determining the value of its assets based on modern equivalent asset value. The Association of South African Chambers (ASAC), among others, is critical of the increased valuation. In his submission to Nersa, Asac said that Eskom’s generation business is shrinking, so it wouldn’t make sense to foresee the replacement of all assets.

“Asac does not agree with the RAB proposed by Eskom Generation in the application and considers it significantly exaggerated given the company’s future needs,” it said.

But during the electricity subcommittee meeting, the discussion turned to the poor performance of Eskom’s generating equipment. Eskom initially based its application on the assumption that its production fleet would perform with an availability factor of 72%, but in the public consultation it reduced this to 62%, without reducing the allowed revenues allowed.

The committee members agreed that consumers cannot be expected to pay high rates for power plants that do not produce electricity. If the regulator accepts the committee’s recommendation, it can approve a reduced amount of income.

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Nersa also awaited a consultant’s study on the social and economic impact of the proposed earnings decision. This will determine the final decision as its mandate is to balance the needs of the licensee (Eskom) with those of the consumer and the economy. Another aspect of the forthcoming earnings determination that is unclear is whether Nersa will add R23 billion to Eskom’s allowable revenues for the coming fiscal year.

This is part of R69 billion that Nersa deducted from Eskom’s authorized revenues during MYPD4 rather than three annual payments of R23 billion each that the government allocated to the utility over the same period as the capital injections. A high court overturned Nersa’s decision and ordered the money to be returned, meaning tariffs must be increased to accommodate this revenue.

Eskom recovered R10 billion from the R69 billion (in 2021). Nersa appealed aspects of the verdict and the appeal has not yet been heard.

It indicated it could add R23 billion in the year from April 1, but Eskom believes the appeal should be finalized first. The additional R23 billion will translate into an additional increase of 10 percentage points.

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