Eskom Says Energy Regulator’s Tariff Hikes Not Enough, Seeking Court Intervention

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Riyaz Patel

Cash-strapped power utility Eskom is heading to the courts in an effort to force the national energy regulator to reconsider electricity tariffs for the next three financial years.

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The move comes after the National Energy Regulator of South Africa (NERSA) outlined the reasons for its Multi-Year Price Determination (MYPD4) for the 2018 financial year. 

The state-owned power utility said NERSA’s decision in March – which set out tariff increases of 9.41%, 8.1% and 5.22% for the next three years to 2022 – had left Eskom with a shortfall of approximately R102bn compared to to the hikes that it initially asked for.

In a statement issued Friday, Eskom said the key reason for this shortfall was NERSA’s decision to offset the envisaged government support or R23bn per year against the return on assets.

“This resulted in the return on assets in the decision being approximately negative 1% for each of the financial years,” Eskom said.

“This is very far below a reasonable return and worsens Eskom’s financial sustainability. The Electricity Regulation Act requires NERSA to set revenues such that it would be reflective of prudent and efficient costs, including a reasonable return on capital,” the Eskom statement added.

Image result for eskom Calib Cassim

Calib Cassim, Eskom’s Chief Financial Officer, said: “Following analysis of the reasons for decision, the Eskom Board decided on taking the matter to court.”

Government’s Electricity Pricing Policy allowed NERSA until 2013 to ensure that Eskom’s revenues and tariffs reached that level. 

Six years later, this has however not yet been achieved, and NERSA’s MYPD4 revenue decision is “worsening the lack of achievement” of this Policy requirement, Eskom said.

“Consequently, we have put in an application for urgent interim relief, which is necessary to avoid financial disaster for Eskom. We are seeking an order to address this shortfall in a phased manner,” said Cassim.

“In addition, we are seeking the court to review and set aside NERSA’s MYPD4 revenue decision and remit that decision to NERSA for reconsideration in the light of the Court’s judgment.”

“The MYPD4 decision has exacerbated the situation further and raises questions about NERSA’s commitment to implementing its mandate that requires considering the balance between the impact on consumers with Eskom’s sustainability when making revenue decisions,” added Cassim.

He said it is their understanding from NERSA’s reasons for the decision that the rules and principles of the Electricity Regulation Act as well as the MYPD methodology have not been duly considered by NERSA in arriving at the decision made in terms of Eskom’s revenue application.

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