Embattled utility Eskom has received another slap on the wrist – this time from the National Energy Regulator of SA (Nersa). The regulator has delivered a strong message to Eskom that steep tariff increases are unlikely in future. Nersa awarded the utility a 5.2% tariff increase for 2018-19. Eskom had asked for 19.9%.

Future steep tariff increases for Eskom unlikelyListing the reasons for this decision on its website, Nersa said it had calculated that the 19.9% tariff increase would have added 1.5 percentage points to consumer price inflation and would have reduced the economic growth rate by 0.35 percentage points. Warning of a “utility death spiral”, the regulator says that Eskom’s continued increases in tariffs have caused lower electricity consumption, leading to a vicious cycle in which the utility has been trying to recover the same costs from a shrinking customer base, prompting further demands for tariff increases. “In order to break the vicious cycle, Eskom needs to reduce its costs (including its fixed-cost base) … while growing its sales.”

According to Nersa, there has been a consistent trend of Eskom overestimating its sales volumes. With a conservative estimate of 4 000MW of surplus generating capacity in 2018, Nersa says Eskom must look at shutting down its most expensive coal-fired station, Arnot.

In its tariff determination, the regulator removed R20 billion from the amount that Eskom had requested for primary energy costs, including R10 billion off coal costs. Benchmarks for coal pricing indicated that the increase in Eskom’s coal costs had been too high, Nersa found, adding that Eskom had also included the costs of renewable energy producers with whom it has not yet signed power purchasing agreements in its application.

Nersa also cut R11 billion from the revenue that Eskom had applied for to cover its operating costs, reducing the sums allowed for staff and maintenance costs as well as for corporate overheads. Nersa said its own bench-marking study had found that Eskom had more than 6 000 excess employees, at an extra cost of R3.8 billion. “Eskom has overspent an average 44% on incentive bonuses over the MYPD3 period, relative to what Nersa had allowed, despite declining sales and low profits. In reaching its decision, Nersa considered Eskom’s unwillingness to implement stringent measures to contain its costs,” the regulator states.

Image credit: Copyright: nonwarit / 123RF Stock Photo


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