Tag: NERSA

Source: Supermarket & Retailer

In a discussion document this week, the group said it would continue to use the historic method of tariff setting, but due to time pressure, there will be no public hearings on the matter.

The proposal comes after Nersa approved a 9.6% tariff increase for Eskom customers which took effect from 1 April 2022. This is separate from the proposed July increase which will apply to municipal customers.

The national energy regulator’s chairperson Nhlanhla Gumede said Eskom’s increase constitutes a 3.49% increase for the 2022/23 year, alongside legacy costs from previous years.

Gumede said this increase was decided on to balance the interests of the economy, consumers, and the utility. The price hikes take the average electricity tariff in South Africa from just over R1.33 per kWh to around R1.46.

Eskom had pushed for a 20.5% tariff increase for the 2023 financial year, warning that the hike is necessary for the continuation of its operations.

On 5 March 2021, Nersa approved a hike of 15.06% for Eskom’s direct customers, which was subsequently implemented on 1 April 2021. A hike of 17.80% for municipalities was implemented on 1 July 2021.

Not transparent

The opposition Democratic Alliance has criticised Nersa’s decision not to have public hearings on the matter, which it says undermines the concept of procedural fairness.

The party’s shadow minister of mineral resources and energy Kevin Mileham said consumers are already struggling to keep the lights on at current electricity prices cost levels.

“Due to the limited ability of municipalities to absorb costs and cushion consumers against electricity tariff increases, the costs will be passed on to the consumer. It is simply unacceptable for tariffs hikes to be imposed on consumers without any public hearings. A cloak-and-dagger operation, carried out without the input of those who would be most affected, is simply not right,” he said.

“Consumers should not be punished for Nersa’s inability to get its house in order on the electricity price methodology. The DA will fight against any attempt to impose an above-inflationary electricity increase on consumers without public participation.”

Union federation Cosatu warned that businesses and households are facing a crisis over rising electricity prices, and face further pain from coming fuel price hikes.

The union said that the 15% increase in electricity from Eskom would push people to “alternatives”, some of which could be dangerous. Meanwhile, businesses – already struggling with rising costs across the board – would struggle to survive the hikes.

“Any tariff increase will squeeze the small economy, businesses will go out of business, workers will be retrenched. People will revert to some unhealthy resources using woods, paraffin,” it said. “We may see an increase of fires in the squatter camps, so it’s a very sad story indeed.”

 

Nersa grants Eskom 9.61% increase

By Crispin Adriaanse for IOL

Despite the National Energy Regulator of SA (Nersa) awarding Eskom less than half of the increase in electricity tariffs it originally applied for, Cape Town Mayor Geordin Hill-Lewis believes it is still too high for Capetonians to afford.

On Thursday, Eskom said it noted the revenue determination on the increase of electricity prices at 9.61% handed down by Nersa.

“The financial implications on this decision on Eskom’s long-term sustainability will need to be further understood. It is understood Nersa considered the impact on consumers and the financial sustainability of Eskom as it made its decision,” Calib Cassim, Eskom’s chief financial officer, said in a statement.

The new increase to electricity prices is effective from April 1.

The state-owned public utility originally proposed a 20.5% increase in December last year for the 2023 financial year, Cassim confirmed at the time.

Eskom proposed a 20.5% increase in order to address financial sustainability and liquidity challenges.

If the 20.5% increase was realised, R100 of electricity would have translated to only 30 units.

However, Mayor Hill-Lewis vehemently stated on multiple occasions that the proposed increase was far too much for Capetonians to afford.

The City of Cape Town set up a petition following his remarks to challenge the proposed hike – which is closed at this time.

Hill-Lewis proposed at the time the justifiable increase in electricity tariffs would be in line with inflation.

On Thursday, despite the 9.61% increase instead of the 20.5% increase, Hill-Lewis believes it is still too high.

“This increase is less than half of what Eskom asked for, and is a clear rebuke to Eskom’s totally unrealistic request,” he said.

“While I am happy that Nersa took the voice of thousands of Capetonians into consideration, it must be noted that the increase of 9.61% is still 4.1 percentage points higher than inflation.”

“The latest announcement by Nersa will not be welcomed by Eskom. However, passing the bill on to struggling consumers should not be the default solution, and Nersa should be lauded for taking a strong stance in this regard,” he added.

A 544% increase to the average price of electricity was felt by South Africans pockets between 2007 and 2021, yet an increase in load shedding was still experienced – the worst load shedding occurred at the height of the Covid-19 pandemic in 2020 and 2021.

“Electricity tariff increases for City customers will be determined through the Budget process and increases will come into effect from 1 July 2022,” the mayor said.

 

Eskom slams plan to punish solar power users

By Hanno Labuschagne for MyBroadband

Eskom has slammed the National Energy Regulator of South Africa (Nersa) principles document on electricity supply prices that could see solar panel users pay up to 10 times more for electricity than the country’s biggest power consumers.

The principle document is supposed to form the basis of a radical new electricity pricing methodology that the regulator wants to implement for Eskom’s tariff applications from the next financial year (2023/2024).

One of its significant proposals is that users be divided into three different types of load profiles, namely:

  • Baseload profiles with constant power demand likely being 100% grid-based. These are primarily industrial customers like mines.
  • Day or mid-merit demand profiles, supplied by own or embedded generation through solar and wind. Will be on- or off-grid.
  • Variable load profiles, which will include peak demand and grid-based backup.

Nersa wants the variable load profile to be distinguished from the other two as it “requires expensive sources of power generation”.

This load profile would apply to households with solar power during the day but who need to tap into Eskom’s grid during peak hours.

Nersa holds that this load profile should not be “socialised” as it would “cynically” transfer price pressures to poor households who can’t afford self-generation.

In addition, it contends the costs of supply to these load profiles are further offloaded to big industries that have baseload profiles, with consistent demand that did “not actually contribute to costs”.

“The tariff for variable load is likely to be in the order of 5-10 times the baseload tariff, depending on the economies of scale achieved, which will largely be a function of the load profile and technology used to the supply load,” Nersa said.

The regulator also contends that separating baseload and mid-merit supply from variable load would support the government in providing affordable and free basic electricity to indigent households.

Electricity connections in a township
But Eskom has said the proposed principles could not, on their own, be used to determine revenue or tariffs.

“It deviates from a well-established process of first determining revenue, based on a clear methodology, then doing a cost allocation of this approved revenue to customer classes and then designing tariffs,” the utility told MyBroadband.

Furthermore, the principles did not comply with the government’s Electricity Pricing Policy nor Nersa’s own tariff codes, which deal with cost allocation and tariff design.

It warned the changes would increase the tariffs for most customers, including municipalities who resell to households, because it assumes variability will be paid by all non-baseload customers.

Core to Eskom concerns was the splitting of load profiles, which it maintained was impossible and impractical.

It suggested that Nersa does not appear to understand the fundamental workings of electricity.

The utility said Nersa implied that certain linkages between consumers and sources of electricity were possible, which was not the case.

“An example inferred in the principles is that it is possible to follow an electron — from a power station to a particular customer: This is not at all feasible,” Eskom said.

“At its most fundamental, the entire power system is oscilliating in synchronism,” the utility explained further in its submission on the principles. “All power plants supply all [of the] consuming customers at a particular point in time.”

“As demand for electricity increases, more expensive generation must be dispatched to meet this demand.”

“The last generator dispatched does not exclusively supply the last consumer requiring power, but both now participate, simultaneously, with all other generators and consumers at that moment in time.”

Therefore, a power provider cannot assume that ‘baseload’ generation can be allocated only to apparent baseload customers.

Like Nersa, Eskom supports that tariffs should be unbundled and cost-reflective, but its approach is simpler — add a capacity charge for almost all users.

This was its argument in a tariff plan submission to Nersa made in August 2020, to which the regulator is yet to respond.

“Rebalancing of tariffs by recovering capacity based costs through capacity charges and usage-based costs through usage linked charges will ensure a fair and transparent recovery of costs and reduce unintended cross-subsidies,” Eskom explained.

The capacity charge would be levied on most customers, except Homelight users.

For smaller customers, it will be a fixed R/day charge and for larger customers a R/kVA charge.

Eskom’s tariff proposals also include a time of use tariff for residential users, which could be used to address peak demand issues, as well as a net-metering rate to compensate customers for energy exported onto the grid.

Furthermore, Eskom proposed the eradication of the Incline Block Tariff (IBT).

Because this was based on the existing revenue at the average consumption to determine a single energy rate, the average customer would pay exactly the same as on IBT, Eskom stated.

 

By Carol Paton for Fin24

Eskom defended its proposed 20.5% tariff increase for 2022/23 on Monday, arguing that most of the cost increase was driven by two factors outside of its control: the requirement to increase purchases of energy from independent power producers and the increase in carbon taxes.

Together, these two factors accounted for 13.8% of the proposed price increase, while increases in operating expenditure accounted for only 7.5% and cost escalations in primary energy for 6.5%. SA introduced a carbon tax in 2019, which is to be increased gradually. IPP costs for Eskom are set to rise as more producers come on stream.

Due to large increases in these and other areas, in its application Eskom requested a negative return on assets of 6.38%, to prevent the overall increase rising too high.

CFO Calib Cassim presented Eskom’s revenue application to the National Energy Regulator of SA (Nersa) on which the utility’s annual tariff increase is based. Nersa decides the tariff on a legislated methodology, which determines how much Eskom can justifiably earn from consumers, assuming Eskom operates efficiently.

The regulator has seldom granted Eskom its full request, as its scrutiny of Eskom costs has almost always found that a large a portion of costs be ruled out due to inefficiency. Eskom, has in turn, regularly succeeded in clawing back some of the costs retrospectively through a mechanism called the regulatory clearing account. Retrospectively allowed costs are then added to future tariffs, making for a complicated and constantly changing price determination mechanism.

While the determination of Eskom tariffs is extraordinarily complicated at the best of times, this year’s application – which will put in place new tariffs on 1 April for non-municipal customers and 1 July for municipal customers – is even more complicated. This is because the application was drawn up a year ago but had not been deliberated on by Nersa.

In September, well after the application had been completed, Nersa informed Eskom that it intended to change the methodology for determining allowable revenue, requiring a new application. In December, Eskom approached a court and secured an order that Nersa consider the 2022/23 application immediately to put new tariffs in place by 1 April.

On Monday, Cassim presented Eskom’s tariff application which was compiled a year ago. However, much has changed in both Eskom and wider energy supply industry over the past year and Cassim will be given another opportunity on Tuesday to revisit the assumptions in the application.

While the balance between the various factors contributing to the price application will change, the global amount of 20.5% is expected to remain the same.

‘Not affordable’

But while Eskom tried to justify its application, stakeholders and interested parties at the Nersa public hearings appealed to Nersa to ignore its methodology and refuse to award the increase on the basis that consumers could not afford them.

Among them was mayor of the City of Cape Town Geordin Hill-Lewis who said the proposal was “unaffordable, unfair and unjust”.

“The point of departure should not be what Eskom’s maximum return on assets should be, but what people can afford. It would in line with inflation at around 5.5%,” he said.

The Nersa methodology should be set aside on the grounds that it is not rational to award high tariff increases in the prevailing economic environment, he said.

Other groups, including community, faith-based organisations and business organisations made similar appeals arguing that it was immoral to force consumers to pay for Eskom’s and government’s mistakes and excesses of the past.

Members of the Nersa electricity panel told presenters that while they sympathised with their plight, their hands were tied by legislation methodology.

 

Electricity price hike looms

Source: Supermarket & Retailer

The National Energy Regulator of South Africa (Nersa) has invited stakeholders to comment until Friday (14 January) on Eskom’s proposed tariff increases for the country.

Eskom chief financial officer Calib Cassim has confirmed that the state-owned power utility has applied for an electricity price increase of 20.5% for its 2023 financial year, set to take effect from 1 April 2022.

However, analysts have raised concerns as to what increases will actually be pushed through, with Nersa’s tables showing hikes of as much as 40% depending on how outstanding debts are clawed back.

On 5 March 2021, Nersa approved a hike of 15.06% for Eskom’s direct customers, which was subsequently implemented on 1 April 2021. A hike of 17.80% for municipalities was implemented on 1 July 2021.

Presenting Eskom’s interim results on 15 December, chief executive Andre de Ruyter warned that the seasonality of Eskom’s performance means that there is considerable cost pressure in the second half of the financial year, driven largely by summer maintenance requirements and costs associated with ensuring the security of supply.

He said that while the phased easing of Covid-19 lockdown restrictions has led to an improvement in financial performance during the first six months of the year, ongoing risks for Eskom’s sales and revenue include supply constraints, load shedding and load curtailment, as well as a constrained economy.

The chief executive said that to achieve independent financial sustainability, remain a going concern and meet debt service requirements on a standalone basis, the price of electricity in South Africa must migrate towards a cost-reflective tariff.

“We have to emphasise that the power system is unreliable and unpredictable due to insufficient maintenance of generation plant over many years. Maintenance outages take around 24 months to plan, and take from three to six months to execute.

“The response to the pandemic prevented us from doing as much maintenance as we would have liked, while prevailing liquidity challenges continue to constrain funds available for maintenance,” he said.

“To date, we have released funding of R8.3 billion for outages during the 2022 financial year, and R8.2 billion for those in 2023, against a requirement of R10.7 billion next year.”

NERSA approves licences for Karpowership

Source: eNCA

The National Energy Regulator has approved three-generation licenses for Karpowership South Africa.

The floating power ship provider has been granted generation licenses for Saldanha Bay, Coega, and Richards Bay.

WATCH | Discussion: Karpowership application denied

But it’s not all systems go for Karpowership SA.

It will need to secure further authorisations before its ships at the three ports can be fully operational and connect to the grid.

Nersa’s decision comes after Karpowership’s applications for environmental approval were refused by the Department of Environment in June.

 

Consumers lose again in Eskom-NERSA clash

Source: OUTA 

Eskom’s urgent application filed recently to recover one of the R23bn bailouts in 2021 is understandable but it is harsh news for struggling consumers and businesses.

There is no way to win in this situation.

It’s the latest move in the legal battles between the inept regulator, NERSA, and the utility struggling with unsustainable debt.

In July 2020, the high court ruled that NERSA was wrong to consider the R69bn government bailout to Eskom (R23bn a year for Eskom’s 2019/20, 2020/21 and 2021/22 financial years) as revenue instead of as an equity injection, and that this resulted in a significantly lower Eskom electricity price increase allowed for these years. The court ordered this to be added back to the electricity price.

We note that NERSA conceded and acknowledged that it erred in this regard in the court proceedings leading up to the judgment against it. We further note that the judge ordered the error be rectified through appropriate tariff increases during the 2021/22, 2022/23 and 2023/24 financial years.

NERSA was subsequently granted leave to appeal, not in respect of its self-acknowledged error, but to challenge the judge’s authority to prescribe the manner and timing of electricity price increases to rectify NERSA’s mistake. NERSA believes it should have the right to decide how much the prices should increase and over what period in refunding Eskom, taking into account the effect on customers and the economy. NERSA’s appeal – which is still pending – effectively suspended the court order.

Eskom’s interdict this week calls for R23bn – one year’s bailout – to be loaded onto the 2021 price (the allowable revenue), so that it does not lose another year of this. It will add about 10% to the price increase from April 2021, in addition to the 5.22% already granted. In terms of the court order, it will increase the price from the already approved 116.72c/kWh to 128.24c/kWh.

OUTA believes that NERSA has demonstrated a serious lack of competence and judgment in its misappropriation of R69bn as revenue instead of equity in making the Multi-Year Price Determination (MYPD) for the 2019/20, 2020/21 and 2021/22 financial years. While this has a negative impact of Eskom’s cash flow and sustainability, we also believe that the application of Eskom’s tariff increases following the court’s ruling in their favour will be a blow to an already over-burdened South African consumer and the economy as a whole.

The past decade of NERSA’s lack of leadership and political meddling has failed to hold Eskom’s past leadership to account for the utility’s soaring costs, borrowings and false asset revaluations. This is now playing out in very technical and costly court challenges that are having negative consequences on both Eskom and the public at large.

OUTA believes that NERSA may be wasting more time by opposing Eskom’s interdict to have one of the three R23bn bailouts loaded onto the 2021 price, as this may lead to more bailout requests from Eskom to prevent it defaulting on its loans.

Eskom effectively lost the R23bn a year for 2019/20 and 2020/21, due to NERSA’s ruling. OUTA believes this ship has sailed and that this situation provides NERSA and Eskom with an opportunity to reach a compromise on writing off at least part of the outstanding R46bn, in a way that takes into account the interests of Eskom, customers, taxpayers and the economy.

Eskom goes to court to force tariff hike

Sources: EWN; IOL

The power utility has approached the courts to review the National Energy Regulator of South Africa’s decision to deduct a R69-billion bailout from Eskom’s approved revenue for the current tariff period.

Eskom on Tuesday said it must hike consumer tariffs to avert a complete financial meltdown.

The parastatal said this meant it would need steeper tariff hikes from the approved 8.1% this financial year to 16%.

The energy regulator’s decision to classify government’s R69 billion bailout to Eskom as revenue means Eskom will get less from consumers.

For this reason, the parastatal wants higher consumer tariffs over the next two years.

Eskom’s Hasha Tlhotlhalemaje said that besides increased tariffs this year, it would also need more than the 5.2% hike approved for next year.

“And this 5.23% increase, which 2.2% is accounted for by independent power producers, leaves Eskom with a 3% nominal increase. Now any household, let alone Eskom, cannot function that way.”

She said Eskom remained well aware of the financial situation of consumers but stressed the company needed to be sustainable.

Consumers fight back
By midnight on Monday, when the deadline expired for the public to comment on Eskom’s proposed tariff increases to the National Energy Regulator of SA (Nersa), energy activist group DearSA, sent Nersa over 171 896 comments it had received on its website from consumers.

Energy expert Ted Bloem said: “If we allow Eskom to succeed, we will see a substantial jump in the current tariffs.

As the increase is over and above Eskom’s annual tariff hikes, in reality your electricity costs will double within two years,” he pointed out.

Bloem will be representing the public and opposing the tariff hike application at each official Nersa hearing, to be held in all the provinces.

Are Eskom’s prices too low?

Source: Fin24

Eskom’s balance sheet has been providing a subsidy to consumers over many years, but this is not sustainable anymore and has reached a breaking point, the state-owned power utility said on Monday evening.

Eskom continues to share the rationale for its average annual electricity increase application of 15% for the fourth Multi-Year Price Determination (MYPD4) and Regulatory Clearing Account (RCA) balance application for 2018 made to the National Energy Regulator of South Africa (Nersa).

Nersa’s public hearings on the application continue and the latest one took place in Rustenburg for stakeholders in the North West.

“The main cause of the required price increase is the phasing-out of the current price subsidy, which does not preclude the subsidisation of specific targeted customer categories in future,” said Deon Joubert, Eskom’s corporate specialist for finance.

“Eskom is cognisant of the potential impact of the increase in various sectors, but it finds itself in a very difficult financial position… however, an objective analysis indicates that its debt situation is mainly or more than 80% a function of having had to take responsibility for the build programme, without the electricity price responding as was required.”

Eskom argued that, while higher tariffs are bound to dampen demand, a reluctance to raise prices towards cost-reflectiveness will deny Eskom the ability to fund investments and maintenance required to sustain an adequate security of supply.

“An inadequate security of supply has more negative repercussions to economic growth and social welfare than a tariff increase,” said Eskom.

Looking closely at unit costs, a World Bank analysis concluded that Eskom’s unit costs are very low relative to other sub-Saharan Africa utilities, Eskom said in a statement.

It found that Eskom’s unit cost was the 3rd lowest.

“Similarly, Eskom’s average price is very low relative to other sub-Saharan Africa utilities – but they are all pricing their electricity at unsustainably low levels and are thus in – or heading to – significant financial difficulties,” said Eskom.

The report calculated that 81% of the gap between Eskom’s current price and its costs is due to under-pricing, Eskom said.

In its presentation, Eskom looked at how its actual and projected electricity price from 2010 to 2024 compared to external references.

“On analysis, it became evident that similar to Nersa’s future price path, the various MYPD price paths Eskom requested would plateau once prices reached levels reflective of prudent and efficient costs – which Eskom calculated to be midway between Nersa’s previous upper- and lower price boundaries,” said Eskom.

By Jason Felix for IOL

In a first gut punch for consumers for 2019, Eskom is asking the National Energy Regulator (Nersa) for a 45% electricity increase spread over three years.

Public hearings on Eskom’s demand for a 15% electricity tariff increase over the next three years will start in Cape Town next week and advocacy groups are seeing red, saying government’s timing was a clear sign that it wanted increases pushed through.

This increase is on top of the 4.41% hike that was already granted to Eskom by Nersa. Eskom has argued that this 15% increase was needed to ensure that it maintained its stability and growth trajectory.

But Energy Expert Coalition’s Ted Blom said Eskom’s application should be scrapped as the still-captured and corrupt utility should not be granted any increases until a full forensic audit was completed.

“As we now enter 2019, Eskom is rudderless. The Eskom board has proved to be dysfunctional and required ministerial intervention on several occasions. Although appointed 12 months ago, they were unable to carve out a credible turnaround plan despite the use of expensive outside consultants,” he said.

Last year, President Cyril Ramaphosa intervened in the crisis at Eskom by appointing a team of eight to steer the board in the right direction by January 31 this year.

“The many futile interventions point to an unsalvageable and bankrupt Eskom. In fact, the pillaging is still continuing, this time by another ‘third force’ which has replaced the Zupta gang. Questions remain as to why no one has been prosecuted and no monetary recovery has occurred,” Blom said.

Nersa said it had received Eskom’s third Multi-Year Price Determination Regulatory Clearing Account (RCA) Year 5 (2017/18) application totalling R21 million and fourth Multi-Year Price Determination application totalling R219 billion, R252bn and R291bn for the 2019/20, 2020/21 and 2021/22 financial years respectively.

The energy regulator said that it would assess Eskom’s applications following due regulatory processes.

Eskom said that it continued to implement a short-to medium-term 9-point recovery programme that would see steady and sustained improvement in plant performance and coal stock levels.

It added that steady progress was made with regard to fixing coal stockpiles as 35 new coal contracts were concluded in the last year.

It also said the probability of load shedding remained low until January 13.

Stop CoCT founder Sandra Dickson said the timing of the public hearings showed that the increases should be rubber stamped.

“It is the worst decision to hold public hearings so early in the January. We also need to state that consumers cannot pay these exorbitant increases. It just does not work.

“The average family earns about R15 000 and more. For all that money to go to the City and to Eskom is absolutely criminal. People cannot survive,” she said.

Dickson said although Eskom had problems, its cash flows remained important. “They should get an increase but nothing above the current inflation rate… We need Eskom to run properly but cannot expect people to pay such high rates,” she said.

Public hearings on the increases will be held on January 14 at the Southern Sun Cape Sun Hotel in the city between 9am and 5pm.

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