By Lehlohonolo Lehana.
The National Energy Regulator of South Africa (Nersa) has published its consultation paper for the proposed overhaul of electricity price hikes in the country.
According to Nersa, the key change being proposed is doing away with the Multi-Year Price Determination (MYPD) methodology currently being used to determine annual electricity price hikes and replacing it with a new methodology.
Under the MYPD, the regulator allows Eskom to apply for tariff hikes based on the costs of its operations as well as projected revenues from sales.
Energy regulator previously published the electricity price determination methodology (EPDM) for stakeholder consultation in June 2022, after which it held workshops and a webinar to get input from the electricity supply industry (ESI) about its proposals.
The EPDM is set to supersede the current multi-year price determination (MYPD) methodology used since 2006.
The new pricing principles aim to switch electricity tariff determinations from a revenue-based approach strictly focused on Eskom to a cost-to-serve approach that applies to a diversified network of electricity suppliers coming online in the next few years.
The unbundling of the ESI, change in legislation, and the introduction of independent power market participants, have imposed a need to review and change the existing pricing methodology,” Nersa explained in a consultation paper on the new rules.
“The reviewers remain cognisant that a new price approach must seek to enable greater transparency, efficiency and cost reflectivity, and recognise that services might be provided by different service providers who must have clear unbundled and cost-reflective tariffs to compensate them for their costs.”
A major part of the overhaul in the latest draft EPDM rules is doing away with the clawback of revenue permitted under the regulatory clearance account (RCA).
This mechanism lets Eskom get additional price increases for future years to make up for the difference in projected revenue and actual revenue collected in historical years.
For example, Nersa has granted the utility an additional R31.1 billion in revenue as part of the RCA in the 2021/2022 financial year, and a further R13.9 billion in 2022/2023.
Eskom and Nersa have been at odds over the methodology for years, which has led to several high-profile court battles – which the regulator lost – and ultimately forced the whole affair back to the drawing board for review.
On 20 October 2022, the High Court of South Africa declared the Guideline and Benchmarking Method used by Nersa when approving municipal electricity tariffs unlawful, invalid and of no force and effect.
The High Court prohibited Nersa from applying the Guideline and Benchmarking Method when considering and approving municipal electricity tariffs with effect from the 2024/25 municipal financial year.
Electricity consumers have been hammered with electricity tariff hikes way above inflation since the MYPD came into effect.
Between 2006 and 2023, Eskom’s average electricity tariff surged from 17.79 cents per kWh to over R1.51, a 749% increase. Over the same period, inflation has risen by just about 158%.
Nersa has given stakeholders until 16:00 on 14 September 2023 to submit comments on the consultation paper.
Public hearings on the EPMD rules are scheduled for Friday, 15 September 2023, and Monday, 18 September 2023.