Eskom price win doesn't help SA

This week Eskom won its third court case on electricity prices against the National Energy Regulator (NERSA). This is not a win for South African consumers, who can only watch as prices go ever higher.

The Organisation Undoing Tax Abuse (OUTA) believes that these judgments emphasise the need to overhaul the electricity pricing system.

These judgments are rewriting years of pricing decisions and loading the extra costs onto future electricity prices. The judgments have damaged the regulator’s credibility and leave consumers feeling aggrieved at increases to already unaffordable prices. Ultimately, Eskom and municipal electricity sales will suffer, which again impacts on Eskom’s sustainability.

This is an unwinnable situation.

The latest judgment overturns NERSA’s decision to deduct the R23 billion-a-year bailouts off the electricity price – which had effectively subsidised the electricity price – with the court saying these amounts are equity not revenue and ordering the full R69bn added back to the price over the next three years.

Once again, the court was critical of NERSA and its decision-making ability, repeatedly referring to the “misappropriation” of the bailout funds, criticising NERSA’s “egregious” delays in its decisions, and calling its decision to treat the bailouts as revenue “horribly wrong”. The court said NERSA had “taken irregular decisions in three consecutive applications made by NERSA”, pointing to “a modicum of incompetence” by the regulator.

South Africa needs an energy regulator which is competent, efficient and able to act in the public interest. These court decisions show that NERSA doesn’t make the grade.

The pricing methodology needs overhauling, as Eskom’s extra costs from previous years are repeatedly added onto future electricity sales. And while Eskom may be relieved to be getting a higher electricity price, this doesn’t address the fact that this entity’s business model is out of date, it is inefficient, bloated, still battling endemic corruption and just plain unaffordable. Customers who can afford and find alternatives will continue to do this, while even more customers can’t or won’t pay, shutting down more businesses and increasing the problems of electricity theft and debtors.

The problem of unaffordability is rapidly worsening with the effect of Covid-19 with another 3 million unemployed and the collapse of businesses.  Energy is meant to be an enabler of development but at this time, the price of electricity has disabled or undermined any gains that people might be making economically.

The Department of Mineral Resources and Energy does not help by failing to oversee the sector effectively. The department has delayed opening up the field to renewables and to municipalities to source their own energy. It ignores its own policy, the Integrated Resource Plan 2019. It has put a review of the electricity pricing on its agenda for 2020 but we see no sign of the draft policy being published for comment.

For consumers, this is the result of recent decisions: 

• On 28 July, the court overturned NERSA’s decision on prices for 2019/20, 2020/21 and 2021/22 (the MYPD4 decision). The R23bn bailout which government gave Eskom for each of those three years – which was lost to Eskom for the first two of those years – must now be added back into the prices over three years, starting from 2021/22. The court ordered that this increases the price for 2021/22 from an average of 116.72c/kWh to 128.24c/kWh (a 10% increase, on top of the 5% already granted).

• This court decision did not overturn the MYPD4 decision in full. NERSA had granted Eskom R101bn less than it had asked for in total, including the R69bn bailout deduction. 

• In June, the court set aside NERSA’s decisions on the Regulatory Clearing Account (RCA) applications for 2014/15, 2015/16 and 2016/17 (the claw-back applications). The court didn’t set the price, but NERSA must now reconsider Eskom’s application for the additional R33.91bn in total for those years which NERSA had refused. The initial decision on those RCAs gave Eskom R31.105bn, which is already being added to the price over the four years 2019/20 to 2022/23 (4c/kWh or 4.41%) and was supposed to result in a 4.41% drop in price in 2023/24. The only way a new decision is going is with a higher price, and any additional award will be added to the prices.

• In May, NERSA made a decision on Eskom’s RCA 2018/19 application, granting R13.271bn. Eskom had asked for R27.323bn. NERSA has yet to decide how and when this will be added to the price, or to release reasons for the decision.

• In March, the court reviewed and set aside NERSA’s decision on the original price for 2018/19. This doesn’t affect the price already paid, but allows Eskom to apply for an additional amount, which it may do based on this judgment and NERSA’s May decision on the 2018/19 RCA.