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NERSA decides on Eskom tariff increase

18 June 2008 – The National Energy Regulator of South Africa (NERSA) has decided to allow Eskom to recover US$363 million in primary energy costs through a tariff increase of 13.3%.  This increase is in addition to the 14.2% increased approved in December 2007 and amounts to an average 27.5% increase for 2008.

Eskom originally requested a 53% increase in addition to the 14.2% already granted, citing increasing primary energy costs and an accelerated demand side management programme.
Following extensive consultation with government, business and other stakeholders and numerous public meetings, the regulator’s decision was as follows:
  • The regulator disallowed US$1.62 billion of the requested US$2 billion as follows:
    • US$200 000 million not approved by the regulator in December 2008
    • Primary energy under-recoveries for 2006/7 (US$250 million) and 2007/8 (US$700 million)
    • S$118 million as alignment to budget
    • US$ 318 million for the accelerated demand side management (DSM) costs.
  • The regulator allowed the recovery of primary energy costs to the value of US$364 million.
  • The adjustments will result in a standard tariff revenue of US$5.34 billion and total revenue of US$6.6 billion.
    “Based on electricity sales of 190 884 GWh (with PCP factored in), the average tariff would be US$0.033/kWh (if recovered over 12 months) which is a total of 27.5 % increase on the expected average tariff of US$0.025/kWh for 2008/9, made up of the14.2% already granted on 20 December 2008 and the 13.3% allowed in the current decision” the regulator said in a statement.
  • The additional revenue will be recovered from 1 July 2008 to 31 March 2009 and will be implemented as follows:  “An average of 20% additional increase for Eskom’s non-municipal customers (totalling 34.2%) effective from 1 July 2008. For these customers, the 14.2 % increase had already been implemented; and an average of 35.9 % for Eskom’s municipal customers (i.e. licensed distributors at municipal level). This amount is recoverable over 9 months effective from 1 July 2008.”
  • No further increase will be applied to Eskom’s poor customers or municipal poor customers, and any increase to them is limited to the 14.2% already granted.
  • Where municipalities are unable to subsidise the poor, a mechanism from Eskom to limit the increase has been formulated.
  • A mechanism has been put in place to take into account unforeseen changes in the primary energy costs, which will take into account the efficiency of costs, “the prudency with which the costs are incurred, Eskom’s measures to control these costs and its ability to predict such costs at the time of the application.”
  • If Eskom’[s capital expenditure programme remains as currently stated, tariff increases of between 20 – 25% per annum are expected over the next three years.
  • Eskom’s licence conditions will be amended to ensure that Eskom manages risk efficiently and optimally, particularly where primary energy is concerned.