Electricity hikes will hurt, but there is a ‘bright’ side: expert

A high court judgment this week setting aside the National Energy Regulator of SA's (Nersa) decision on Eskom’s tariff increases for the next three years means a huge hike for consumers in April.

Even further increases are possible as another determination made by Nersa was set aside by the court earlier in 2020, the outcome of that still pending, energy expert Chris Yelland said on Wednesday.

But as electricity prices go up there might be a compelling business case for adopting alternative energy, Yelland said.

He was commenting on a judgment by Pretoria High Court judge Fayeeza Kathree-Setiloane on Tuesday in which she reviewed and set aside the decision taken by Nersa on March 7 2019 in respect of allowable revenue and tariffs for the years 2019/20 to 2021/22.

Kathree-Setiloane also ordered that R23bn must be added to the revenue already determined by Nersa for the 2021/22 financial year.

She ordered that tariffs approved by Nersa for the 2021/22 financial year be increased from 116.72c/kWh to 128.24c/kWh.

In addition, Kathree-Setiloane ruled that after Nersa has determined the allowable revenue for Eskom in respect of 2022/23 and 2023/24 financial years, Nersa is directed to add R23bn to the allowable revenue in respect of each of those years.

At the heart of the dispute was Nersa’s deduction of a R69bn cash injection by the government to Eskom to assist the power utility to stem the liquidity crisis in which it found itself.

In its case, Eskom contended that Nersa’s decision negated the government’s intervention and left the liquidity crisis unaffected, but left the fiscus R69bn lighter.

In her judgment, Kathree-Setiloane ruled in favour of Eskom and had harsh words for Nersa.

She said Nersa’s tariff decision for 2018/19 was set aside by the high court in Pretoria earlier in 2020.

She said the same court also set aside Nersa’s June 2018 decision on the Regulatory Clearing Account (RCA) application for the 2014-17 financial years. The RCA is designed for Eskom to recover the money it spent above the multi-year determination estimates made by Nersa.

“Needless to say, Nersa has taken irregular decisions in three consecutive applications made by Eskom,” Kathree-Setiloane said.

“This, to my mind, points to a modicum of incompetence on the part of Nersa in relation to Eskom’s tariff applications.”

She said Nersa was not allowed to treat government’s equity injection as a subsidy. The equity injection was made to obviate Eskom’s debt burden.

Yelland said that for the consumer Tuesday’s decision meant the increase in the electricity price for the next three years, starting on April 1 2021, will have an additional 10% over and above whatever other price increase was decided by Nersa.

For example, the 5.3% increase on April 1 would, as a result of this judgment, rise to at least 15.3%.

“This extra 10% applies for the next two years to whatever else had been decided. That is the minimum,” Yelland said.

He said there were further court judgments that had not yet translated into price increases by Nersa and were still to be decided.

Yelland said the increases came when consumers were least able to afford them because the economy was set to contract by 7%-8% in 2020 as a result of a sluggish economy and the Covid-19 pandemic.

“Consumers of electricity are going to come under increased pressure. Many will be left jobless. Levels of non-payment and theft will increase as a result of the lack of affordability.”

The higher prices would hurt business and mining, which would affect the ability of business to recover.

“The only bright side I can see is that the ever-increasing prices of Eskom electricity are making the alternative, which is renewable energy, more attractive. The business case for alternatives to electricity is becoming better as Eskom prices rise.”

On the scathing finding against Nersa, Yelland said the regulator needed to do some serious introspection and soul-searching.

On Tuesday, Nersa hinted that it might challenge the judgment.

“The judgment, if left uncontested, will not only disrupt the industry but will further suppress economic recovery, considering the current threat the country’s economy is facing."

In reaction, Eskom said the judgment would help the utility pave the way towards financial sustainability.