Outa calls for overhaul of electricity prices

Outa has once again called for the scrapping of the Regulatory Clearing Account (RCA) pricing process, which allows Eskom to get the National Energy Regulator (Nersa) to approve price increases to cover historical losses.

Outa made the submission to Nersa as part of the public participation process on Eskom’s RCA application for 2020/21, which the regulator is currently considering.

Eskom has asked Nersa for R10.72 billion in additional revenue for 2020/21, which would be added to future electricity prices.

“The current overall methodology allows Eskom to regain revenue lost due to lower demand for electricity and lower economic growth,” said Outa in a statement. 

“These trends are likely to continue, leading to a cycle of decreasing electricity sales and increasing electricity tariffs.”

Outa is firm on the need to review the methodology because in the current state, there is no incentive for Eskom to apply its mind to solving the problem.

“It can always rely on the RCA to bail it out,” said Outa Parliamentary and Energy Advisor Liz McDaid.

This system adds to the economic uncertainty in South Africa.

Eskom too reliant on tariff hikes

Outa wants the regulator to stop awarding Eskom further increases in electricity tariffs, saying the entire RCA mechanism should be reviewed and potentially scrapped. 

“This would ensure increased certainty and consistency in the price path of future electricity tariffs,” said McDaid.

Outa is also concerned that Eskom’s application cites the lower electricity sales due to Covid-19, but it still had to load shed and overspent on expensive diesel generators. 

Eskom has said it would not pass through the costs of Covid-19 and load shedding to consumers, but Outa is not certain that the methodology Eskom uses to calculate these costs covers the extent of the expenditure. 

“Nersa should therefore be cautious in granting any RCA-related increases,” says McDaid.

Eskom and Nersa have clashed over previous RCA applications, with Eskom successfully challenging the regulator’s decisions for 2015, 2016 and 2017 in court.

It’s currently challenging the 2018 and 2019 decisions. The 2020 RCA application was submitted more than a year ago and a decision is still awaited.

Outa comments to the regulator include:

• The RCA process should be reviewed as it has outlived its usefulness. “This process effectively allows Eskom to overstate its sales predictions and understate its operating costs, then go back to NERSA to get the extra funds.”
• Eskom routinely overstates sales predictions. “This is because Eskom does not pay attention to realities, where higher electricity prices and the increasing use by customers of embedded generation lowers the demand.” Sales are expected to be stagnant for the years ahead.
• Eskom’s cost calculations are questionable. “The future of South Africa’s economy depends on choices which Eskom makes. Costs incurred due to incorrect calculation of energy production costs cannot be passed through.”
• Medupi and Kusile are years behind schedule, over budget and have problems, resulting in lower generation capacity than expected and higher costs.
• Staff costs still need attention.
• “Eskom assumes that whatever price it charges, customers will pay.”
• Eskom is patently clearly not an efficient operator, and customers should not have to pay for this.

Compiled by Narissa Subramoney

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