Eskom has warned it will need a R300 billion bailout and municipalities will require a once-off R100 billion injection because of energy regulator Nersa’s decision to reject the utility’s latest tariff application.
This was revealed in a letter sent to Nersa by Eskom board chair Malegapuru Makgoba, which was seen by Sunday newspaper Rapport.
“The impact on the country’s economy, specifically on the National Treasury, will be catastrophic,” Makgoba warned.
“It is inconceivable that the national energy regulator recommends that the only legally correct and viable option for the continued operation of Eskom from 1 April 2022 be rejected.”
The letter was delivered to Nersa on Wednesday, a day before the regulator announced it would review the current pricing methodology and had therefore rejected Eskom’s fifth Multi-Year Price Determination (MYPD5) revenue application.
Malegupuru Makgoba, Eskom board chair
The MYPD was first implemented in 2006 and is used to determine Eskom’s allowable revenue based on the costs it incurs in generating and supplying electricity.
Eskom’s latest application was submitted to Nersa and sought approval for electricity price increases over the next three financial years.
However, Nersa said the application was based on the MYPD4 methodology, whose applicable control period was ending on 31 March 2022.
“After due consideration of the rationality and legality of applying an expired MYPD4 methodology and whether this was in the public interest, the Energy Regulator rejected Eskom’s MYPD5 application,” Nersa.
Nersa plans to base its future price determinations on a new methodology that will take the “rapid transformation of the electricity sector” into consideration.
That includes energy security concerns, rising electricity prices, and increased self and private electricity generation.
But Eskom has warned there was not enough time to implement a new methodology.
“Even if the new methodology is developed in time, Eskom will not be able to make a new price application for implementation by 1 April 2022 until full statutory compliance, due process, and legislative consultation have been complied with,” Eskom said.
By law, the current tariffs will expire on 31 March 2022, and if no new tariff determination is made, Eskom will not have legal grounds to charge electricity users from 1 April 2022.
Consequently, municipalities would also be unable to charge power tariffs when their new prices are supposed to come into effect on 1 July 2022.
Presumably, to prevent this, Nersa said it would request Eskom submit a one-year interim application for the 2022/2023 financial year that is “preferably based on the principles of the new approach that is under consideration”.
Eskom Power Lines
But the utility explained this would be a dangerous move until the exact pricing methodology was developed.
“A non-compliant application and subsequent determination will leave the resulting tariff decision open to legal challenge, thereby creating substantial risk not only for Eskom but also for municipalities and other buyers of electricity,” the utility cautioned.
“Nersa’s rejection of Eskom’s MYPD5 application has created a regulatory vacuum for the electricity supply industry in South Africa,” Eskom said.
Rapport has learnt that Eskom has already started discussions with the Treasury and prepared an urgent application to have the court set aside Nersa’s decision.
Nersa has previously squandered multiple decisions on Eskom’s tariff applications that the courts overturned. In those instances, it failed to apply the current pricing methodology for the MYPD correctly.
Eskom CEO André de Ruyter previously stated Eskom could not continue relying on bailouts, and it was not entitled to a single cent of taxpayers money.
However, De Ruyter said this would require Nersa to allow the power utility to increase prices to match the cost of producing power.