Eskom victory to hit SA consumers’ pockets hard

Huge electricity price hikes will hamper economic recovery

CONSUMERS can expect massive electricity price hikes following Eskom’s court victory against the National Energy Regulator of South Africa (Nersa), which had sought to keep the parastatal’s spiralling tariffs in check.

Eskom won its tariff hike battle against Nersa in the Gauteng High Court on Tuesday when Judge Fayeeza Kathree-Setiloane ruled that Eskom was entitled to claw back R69 billion in tariffs from consumers over the next three years.

Energy analysts yesterday described the ruling as “scathing” of Nersa’s miscalculations, saying it was “bad news” for consumers and businesses and that it would translate to annual price hikes of 15%, hampering the country’s economic recovery.

Eskom had asked the court to review and set aside Nersa’s decision to deduct the R69bn equity injection given to it by the government in 2019 as part of its allowable revenue method for the 2019/20, 2020/21 and 2021/22 financial years. Nersa had applied the R69bn to Eskom’s income statement in its tariff calculations, but the parastatal had included the bailout in its balance sheet to offset debt. Nersa had later conceded that it had made an error, but the court had to rule on the recovery.

The court revised and set aside Nersa’s decision on allowable revenue and tariffs for the years 2019/2020 to 2021/22 and ruled that the average standard Eskom tariffs approved by Nersa for the 2021/2022 financial year be increased from 116.72 c/kwh to 128.24 c/kwh.

Eskom welcomed the ruling, saying in a statement that it would work with Nersa to implement recovery of the R69bn “in a phased manner over a three-year period”.

Eskom chief financial officer, Calib Cassim, said: “It aids in instilling confidence in the regulatory regime within the country, by ensuring that the Nersa methodology is adhered to.

“This judgment will assist Eskom in paving the way forward towards financial sustainability.”

Eskom said it already had systems in place to assist poor residential customers and certain industrial sectors which would require “special consideration”.

Nersa said it was studying the judgment.

“The judgment, if left uncontested, will not only disrupt the industry, but will further suppress economic recovery, considering the current threat that the country’s economy is facing. This case was not merely a case between Eskom and Nersa, but rather a case of Eskom versus the South African economy and electricity consumers,” Nersa said.

Energy analyst Ted Blom said Eskom’s price hikes had been “unconstitutional” since 2017 and he planned to take the matter to court later this year.

Blom said the government had initially provided the R69bn bailout to Eskom to alleviate tariff pressure on consumers, but when Nersa had applied its mind to ensure this happened, Eskom had approached the Treasury, which then agreed that the funds should be used to offset debt.

He said consumers would now be faced with a 15% price hike for the next three years starting from April 1, 2021, which municipalities would pass from July 2021.

“It’s terrible and there are more increases in the pipeline, and Eskom has more cases in the pipeline. It’s disastrous for the economy and for unemployment, because more companies are going to shut down. We already have 3 million more unemployed due to Covid19,” he said.

Another energy analyst, Chris Yelland, said the judge had been “very scathing” and had questioned Nersa’s competence regarding its miscalculation of the R69bn.

He said the judgment was one of a string of rulings courts had made against the regulator regarding calculation errors and wrong methodologies.

“This will have a big impact on consumers at a time when consumers are ill-prepared to cope. The economy is set to contract at 8% this year, there are a lot of job losses and a lot of people are not going to be able to afford it,” Yelland said.

“We can expect there to be an impact on non-payment and theft of electricity, and municipalities will come under increasing pressure because they will be unable to collect from customers,” he said. Yelland said higher tariffs would hamper economic recovery, especially in the industrial and mining sectors, and make products less competitive.

“There’s also going to be an impact on Eskom. There are many people at Eskom who are gloating and jumping for joy thinking they’ve got these price increases and that it’s going to help them. If prices go up more than 30% in the next three years, the business case for renewable energy is going to become better and better,” he said.

“It’s about affordability – if people can’t pay they won’t pay, so when people start not paying and stealing, and moving to other forms of energy like wood and paraffin, it means Eskom is going to sell less electricity, and when they sell less they want to put prices up even more. And then they get into a debt spiral where the ultimate result is the death of Eskom’s business case.”

“It’s disastrous for the economy and for unemployment. Ted Blom ENERGY ANALYST