Nersa to Examine Effects of Changes in Electricity Tariffs

The National Energy Regulator of South Africa (Nersa) has declared its intention to conduct a market inquiry into the ramifications of dividing Eskom’s generation fee into a generation capacity charge, a legacy charge, and a variable energy charge. The inquiry will also evaluate the implications of municipal fixed charges on consumers.

This decision arises amid growing public discontent regarding high electricity prices, which has sparked protests in various regions.

Dr. Kgosientsho Ramokgopa, the Minister of Energy and Electricity, has consistently acknowledged that tariffs are unaffordable for all sectors, including the poor and even middle-class and wealthy households.

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The Minister’s office has commenced a review of the electricity pricing policy, promising public consultation in the first quarter of next year.

Nersa has faced criticism following its recent admission of a R54 billion miscalculation in Eskom’s tariff assessment for the current financial year and the next two, which will result in further tariff hikes for electricity users starting next year, pending a court ruling.

This situation has prompted the Electricity Intensive User Group (EIUG), which represents Eskom’s largest industrial clients, to demand a reopening of the tariff determination process.

Read: Nersa’s apology for a R54bn blunder

Nersa has outlined several objectives for the inquiry:

• Ensuring compliance: Confirm whether licensees comply with approved tariffs and regulatory standards.
• Protecting consumers: Safeguard consumers from unjust, excessive, or unauthorized charges.
• Promoting transparency: Improve clarity in pricing mechanisms and communication with consumers.
• Assessing cost-reflectivity: Ensure charges accurately reflect actual costs and are justifiable.
• Identifying market failures: Detect and mitigate practices that distort competition or undermine consumer welfare.
• Improving regulatory oversight: Enhance mechanisms for monitoring and enforcing compliance effectively.
• Balancing stakeholder interests: Achieve a fair equilibrium between the needs of consumers, licensees, and the general public.
• Supporting policy goals: Align pricing frameworks with broader economic, environmental, and social objectives, including affordability and sustainability.

The structural modifications in Eskom’s generation charges, which the inquiry will examine, originate from the utility’s Retail Tariff Plan, which Nersa approved earlier this year. This plan informed the tariffs Eskom implemented starting 1 April and was expected to lead to above-average increases for smaller users. However, larger power consumers and high-volume residential users received some relief due to the reduction in previous cross-subsidization.

The structural modifications were intended to be revenue-neutral, with any over- or under-recoveries adjusted during the Regulatory Clearing Account process once actual figures were available at the end of each financial year.

Read: Nersa approves the restructuring of Eskom tariffs

According to the terms of reference for the inquiry published on Nersa’s website alongside the announcement, the regulator stated:

“When Nersa evaluated Eskom’s proposal in the Retail Tariff Plan, the impact on low-volume residential users was perceived as too extreme, prompting Nersa to reduce it to 20% of their proposal.

“This reduction was a significant decision, thus altering the MegaFlex tariff components applicable to large users like mines and smelters.

“In hindsight, it seems the effect on MegaFlex customers has differed from that on residential clients. Therefore, it’s crucial for Nersa to assess how these components have influenced Eskom customers’ costs, affordability, and competitiveness.”

Read:
Major power users urge Nersa to revisit Eskom tariff determination
Eskom’s pricing underscores the urgent need for competitive markets

The regulator is also addressing complaints filed by consumers and other stakeholders concerning the structure, fairness, and justification of electricity charges. Recurring themes in these complaints have made the inquiry necessary.

“This intervention aims to protect the integrity of the regulatory framework while tackling significant consumer dissatisfaction, potential market distortions, and abuse of market power within the electricity supply chain.”

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Regarding municipalities, Nersa noted that a court ruling last year required it to approve municipal tariffs on a cost-reflective basis, thereby increasing the pressure on municipalities to delineate fixed costs.

“Nersa has acknowledged concerns about the application of municipal tariffs and aims to evaluate the effect of these changes on customers.”

The market inquiry coincides with a rising number of municipalities that unlawfully deviate from tariffs approved by Nersa. Municipalities are mandated to obtain approval from both their councils and Nersa before implementing new electricity tariffs each July.

Read: How Ekurhuleni undercharged Tembisa for electricity

The City of Cape Town has contested Nersa’s tariff approvals for FY 2023 and 2024 through judicial review. For FY 2024, it proceeded to enforce the tariffs it approved at the council level, even though they were not sanctioned by Nersa. The outcome is still pending.

Moneyweb recently reported that the City of Ekurhuleni implemented a set of tariffs approved by its council, which conflicted with Nersa’s approvals.

The Democratic Alliance has raised concerns about electricity tariffs enacted in the Naledi and Mogale City municipalities, which complied with Nersa’s requirements but lacked council endorsement.

The indicative timeline for the inquiry is detailed as follows:

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