Stakeholders want more time to study new electricity tariff methodology

Calls from stakeholders to allow more time for comment on a proposed new method to determine electricity tariffs for Eskom and municipalities seem to be falling on deaf ears at energy regulator Nersa.

At a public workshop on Friday (22 July) about the complex 100-page document, Nersa full-time member for electricity Nhlanhla Gumede did not answer a direct question about when Nersa wants to implement the new methodology.

To that, and to calls for an extension of the 29 July deadline for comment, he said: “Do we have the liberty of time?”

Out of time …

Gumede said Eskom is in a death spiral, with those who can afford to defecting from the grid.

Eskom loses sales as a result, which leads to further price escalations and only the poor remaining on the grid, having to pay these high tariffs.

He said South Africa is losing industries due to high electricity tariffs and without interventions the whole ferrochrome industry may be lost within two years.

Potentially mothballed plants could be revived and jobs created, he added, but instead the country is suffering loadshedding.

Nersa earlier rejected Eskom’s fifth multi-year tariff application (MYPD5), which covers 2022/23, 2023/24 and 2024/25 on the basis that the methodology it was based on has lapsed.

Eskom challenged this decision in court, stating that Nersa has failed to put any other methodology in place and the existing methodology remains valid until replaced.

Interim arrangement

Eskom obtained an urgent order for Nersa to process the 2022/23 application using the existing methodology.

This was done and Nersa has since agreed to also process the application of the second year of MYPD5 (2023/24) according to the existing methodology.

The final year will be dealt with in terms of the methodology “that exists at the time”, according to the agreement, which was made an order of the court.

No similar agreement exists with regard to municipal tariff setting.

Nersa is however under pressure for failing to apply the existing legislation and policy that municipal tariffs, as in the case of Eskom, must allow an efficient operator to recover from tariffs its cost, plus a reasonable margin.

The business chambers of Nelson Mandela Bay and Pietermaritzburg recently challenged Nersa’s practice to set a guideline for average increases annually as well as benchmark tariffs for different customer categories in court. No ruling has been made yet.

Eskom’s main source of income is from electricity tariffs and it is also one of the main income streams for municipalities. Eskom as well as most municipalities are struggling financially and correct tariff setting and the efficient implementation of such tariffs are central to their existence.

Complex new system proposed

Nersa is proposing a complex system based on the collection of information from licensees every five years. The tariff is then set and updated annually with an indexed amount.

Adjustments may however be made monthly or quarterly as fuel prices fluctuate.

It further proposes that consumers only pay for what they use. This means the current subsidy industrial users pay to moderate residential tariffs will be a thing of the past.

Nersa also wants to gather its own information from customers to determine what they can afford and, in the case of commerce and industry, how much they can pay to remain competitive. The balance to meet the cost of supply and reasonable margin must be subsidised.

Nersa stated in a presentation at the workshop that subsidies will be paid “by appropriate agencies”.

This seems to be a reference to government departments funded by the fiscus.

Profiling

Nersa further proposes that the different customer load profiles be linked with the generators used to supply them.

The regulator wants to determine cost at a power station level and customers such as industry using base load energy – consistent demand day and night – will be charged according to the cost of base load generators.

Customers with peak demand requirements, such as households, will be charged the higher cost of peaking plants and those who only use the grid for back-up will pay at the cost level of emergency generators.

Problems … and a suggestion for Nersa

Paul Vermeulen, head engineer at Joburg’s City Power, said at the workshop that electricity costs for poor households will increase sharply, since they mainly consume electricity during peak periods.

Heini Nel, deputy director for energy at the Western Cape government, suggested that Nersa wait and not proceed with its plans for a new methodology until planned amendments to the Electricity Regulation Act and Electricity Pricing Policy have been finalised. The methodology is supposed to give expression to both of these.

Fanele Mondi, CEO of the Energy Intensive User Group (EIUG), agreed, saying: “Heini is correct. The deadlines are very unrealistic, taking into account the complexity of the subject, current policy changes and uncertainty …”

He said more time is needed to fully understand the proposal, which signifies fundamental changes in methodology, and warned that rushing into a new system without careful consideration “may have consequences that are much worse than what we have currently”.

Eskom’s stance

Eskom also sees huge risk in the Nersa proposal and is expected to once again turn to court if Nersa proceeds with something that is not workable.

Hasha Tlhotlhalemaje, senior manager for regulation at Eskom, points out that the methodology does not provide for licensees to submit a tariff application. Its licence conditions however call for the utility to do exactly that.

According to Tlhotlhalemaje, the methodology does not stand alone – it fits into a framework of several other documented rules and guidelines that will all have to be rewritten to ensure a coherent regulatory framework.

Deadline for comment

Nersa’s deadline for comment is Friday (29 July).

It will hold the following public hearings: