SA NERSA approves a 9.4% tarrif hike for ESKOM. This is well below the amounted by ESKOM, but still high relative to South Africa's inflation target

Today, the National Energy Regulator (NERSA) announced that they have granted ESKOM a 9.4% tariff hike for the average tariff for standard tariff customers during the 2016/17 financial year. This is well below the 16% that ESKOM had applied for. Eskom submitted its Regulatory Clearing Account (RCA) application to NERSA for consideration in November last year to recover R22.789bn, which ESKOM argues it had used to prevent load shedding. The 9.4% hike will become effective on 1 April 2016.

In disallowing ESKOM their full claim of R22.789 billion, the regulator argued that “it is a concern that more than 70% of Eskom’s R22.8 billion RCA is made up of primary energy requirements and a large chunk being the usage of Open Cycle Gas Turbines, which should be a supply of last resort. Eskom may be justified in the use of gas turbines due to the country’s capacity constraints, but the manner in which it reached that stage is concerning, because maintenance of the cheaper options of generation fleet was not well executed and properly planned. This error must now be paid for by the customer, and this is unfair”.

While the electricity tariff increase in less than many analysts expected and well below the amount requested by ESKOM, it is still relatively high compared with South Africa’s inflation target range of 3% to 6%. The 9.4% will clearly contribute to the current build-up of inflationary pressure in South Africa, which currently includes higher food prices as well as water, education, and insurance inflation. These pressure are, obviously, being compounded by the sharply weaker Rand. NERSA’s challenge remains regulating the energy industry in a manner that balances the interests of energy producers against the customer’s need to keep energy price increases contained.

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