Eskom proposes a 32.05% tariff increase, this is why

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Power utility Eskom updated key assumptions in its revenue application to the National Energy Regulator of South Africa (NERSA), proposing a 32.02% electricity price hike from 1 April 2023.

Due to the result of a court order issued in July 2022, NERSA is in the process of consulting on Eskom’s Multi-Year Price Determination (MYPD) 5 revenue application for the power utility’s financial years for 2024 and 2025.

The power utility explained that in accordance with NERSA MYPD methodology, Eskom is required to provide any updates on changes in conditions and environments that impact various cost elements of the revenue requirements.

According to the power utility, Eskom’s total revenue as applied for in June 2021 is R335 billion for the 2024 financial year and R365 billion for 2025.

“Changes are made within the cost items as required with an offset in the return on assets,” further explained the company.

The price increase applied for stands at 32.02% for the 2024 financial year, and the decision will be announced on 1 April 2023, confirmed Eskom.  

When looking at the key contributors to this decision, the following points were highlighted: 

• Depreciation of 10.67% – due mainly to an incorrect regulatory asset base valuation by NERSA in its 2023 financial year price adjustment decision, (predominantly in the generation business).
• Additionally, Eskom’s primary energy costs are predicted to increase by 7.8%, the majority of which is due to increased diesel and fuel oil prices and higher usage of these products for Eskom’s open-cycle gas turbines (OCGTs).
• The production of electricity from independent power producers (IPPs) would increase by 9.05% due to more reliance placed on private power, including for emergency generation.

Eskom said in addition, proposals are made for the recovery of part of the incorrectly deducted equity support from FY 2020 to 2022 (under MYPD4) as well as the regulatory account balance decision for the 2020 financial year. “These refer to prudent and efficient expenditure being recovered four to six years later.”

The Supreme Court of Appeal has ordered that the remaining R59 billion of the incorrectly deducted equity be added to the allowable revenue decisions for each year, starting on 1 April. R15 billion each in the 2024 financial year to the 2026 financial year and R14 billion in the 2027 financial year.

“The proposal is to allow these recovered amounts to be targeted towards the return on assets for the transmission and distribution network businesses. It also allows for the further migration towards cost reflectivity for the Eskom network businesses. Focus can then be shifted to the generation business in subsequent years.”

Moreover, The company said it had submitted proposals to NERSA to restructure tariffs during August 2022.

“The translation from the allowable revenue to tariffs that will better reflect the unbundled costs and fixed vs variable costs is included. This ensures that customers are more aligned to the actual costs they impose on the system.”

For more information on Eskom’s update of the 2024 financial year and 2025 financial year revenue application, click here.

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