Eskom targets 32% increase for next year

Carol Paton - Eskom plans to apply for a 32% tariff increase from 1 April 2023/24. The large increase is another attempt by Eskom to persuade the National Energy Regulator of SA (Nersa) to grant it tariffs that are reflective of its costs. But for many years, Nersa has disagreed with Eskom on how much revenue it is allowed to raise from consumers and granted it significantly lower tariffs.For instance, while it asked for a 20.5% increase for 2022/23 it was granted 9.61% by the regulator.The tariff application is under consideration by Nersa, which must make a final decision by Christmas eve at the latest. It is to hold public hearings this week.Eskom's announcement on Thursday was to inform the public that it had updated its tariff application for the financial years 2024 and 2025. It had previously requested increases of 15% and 10%, respectively. That will now change to 32% and 9.5%.The increased tariff for the next two years is based on new assumptions by Eskom. COSTSThe first and most significant is the cost of primary energy, particularly diesel.Due to global factors, Eskom now has much higher diesel costs, and due to the poor performance of its plants, will also need to spend more on diesel than anticipated. It projects that primary energy costs will be 7.85% higher with the most of the increase (6.09%) a result of diesel.In an addendum document published on its website, Eskom indicated that while it previously budgeted R5 billion for diesel in 2023/4 the cost was more likely to be R16 billion. Related to increased diesel usage is a dramatically revised view on Eskom's electricity availability factor (EAF). This is the percentage of plant in good working order that can dispatch energy at any time. When Eskom first made this tariff application in June 2021, it estimated the EAF would be 72%. In January 2022, it revised this to 62% and now believes that 59% is a more realistic estimate. The second increased cost area is energy purchased from independent power producers (IPPs). This will make up 9% of the overall increase, a result of Eskom buying more electricity from IPPs as more come on-stream. ASSETSThe third area in which costs will be higher is Eskom's depreciation of assets.Nersa uses a formula to determine Eskom's return on assets, which in turn determines what it can claim for depreciation through the tariff. Eskom believes that Nersa made a mistake in evaluating its return on assets in its 2022/3 tariff application and has taken the regulator to court for a review. Nersa has, however, not opposed the application and it is likely the two will reach a settlement.But for now, adjustment of the value of the regulatory asset base will add a whopping 10.67% to the tariff for 2023/24, should it be approved by Nersa. On top of these revised assumptions about higher costs, Eskom is also entitled to recover money from consumers retrospectively through a mechanism called the Regulatory Clearing Account. This mechanism allows Eskom to apply to Nersa for money already spent, provided Nersa decides it was pragmatic and justifiable expenditure.RETROSPECTIVE BILLINGFor 2023/24 Eskom is entitled to bill consumers retrospectively to recover R1.7 billion from the 2019/20 financial year and an additional R15 billion, which formed part of a National Treasury bailout also dating from 2019/20. Translated into percentages, these amount to 1.01% and make up the final bit of the 32% increase.There are also aspects of the tariff revised downwards that will decrease the overall burden on consumers. One of these factors is the delay in implementing the carbon tax announced in the February budget. The second is that Eskom will no longer force paying customers to subsidise non-paying customers by including arrear debt in its application. This was prohibited by Nersa last year.In updating its tariff application, Eskom has also taken the opportunity to increase the financial sustainability of its transmission and distribution businesses. It has asked the regulator to ring-fence most of its allowance for return on assets to these. Eskom is in the process of splitting into three stand-alone companies for generation, transmission, and distribution. This is part of a much more extensive reform of the electricity supply industry, which will see Eskom's transmission company buying power from multiple generators in a "liberalised market". The move would enable Eskom to demonstrate to investors that at least parts of its business are moving towards sustainability, even if the generation business still lags far behind. – Fin24

Eskom targets 32% increase for next year

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Eskom targets 32% increase for next year

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