The National Energy Regulator of SA (Nersa), which sets electricity tariffs for Eskom, has rejected the company’s latest price application and told it to submit a new one, based on a new methodology that Nersa itself has not finalised.
The move is a sudden and dramatic intervention by Nersa, which Eskom says is impossible to fulfil within the short timelines Nersa wants. Due to the complexity involved, it takes Eskom at least a year to prepare a pricing application. It submitted its application for the period 2022-2025 on June 2.
On September 24, Nersa published a discussion paper on its website, proposing a new methodology. It wants Eskom to prepare a one-year interim application based on this.
However, as Eskom pointed out in a statement on Friday, the new methodology is far from complete.
“Nersa has started its process to develop this new pricing methodology that will be applicable to the industry. The first step entails a consultation to determine the new pricing methodology. This will be followed by the development of the actual methodology. As is usual all stakeholders will be given an opportunity to influence the finalisation of the new pricing methodology,” Eskom said.
“Once this is finalised, utilities will be required to submit applications to Nersa for analysis to be undertaken before price increase decisions are made,” said Eskom.
The company believes that because the present methodology still applies, its price application is valid until the new methodology replaces it.
“The required timelines for approving a new methodology, and for Eskom submitting a new application in accordance with the new methodology are exceptionally short, and creates the real risk that new tariff will not be in place by April 1 2022,” Eskom said.
Nersa’s present methodology allows Eskom to recover all the reasonable costs that it incurs to produce electricity through the tariff. But because of Eskom’s inefficiency, Nersa has not awarded Eskom the prices it has asked for for many years on the grounds that not all the costs were reasonably incurred. This has created a situation where Eskom’s tariffs are not reflective of what it costs Eskom to produce electricity, further worsening its weak financial position.
In 2021, Eskom took Nersa to court twice, and won, for incorrectly applying its pricing methodology.
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