The Energy Regulator, the National Energy Regulator of South Africa’s (Nersa’s) highest decision-making body, has granted Eskom a 12.74% tariff increase for implementation on April 1.

The announcement coincided with the release of interim results by Eskom for the period to September 30, 2024. These showed that the utility made a profit of R16-billion in the first six months, a period that coincides with the high-demand and high-tariff winter months.

The result represented a sharp turnaround from the R2-billion profit made during the same period in 2023, as well as a dramatic improvement compared with the R55-billion full-year loss.

Nersa chairperson Thembani Bukula announced that the Energy Regulator also approved increases of 5.36% and 6.19% for Eskom’s 2026/27 and 2027/28 financial years.

This, against requests for 11.8% and 9.1% respectively, made in Eskom’s sixth multiyear price determination (MYPD6) application.

As a result, the standard tariff would rise from 195.95 c/kWh to 220.92 c/kWh on April 1 for direct customers, instead of the 266.77 c/kWh sought by Eskom; municipal tariffs would rise on July 1. In the two outer years the tariff would increase to 232.75 c/kWh and 247c/kWh respectively.

The hike for 2025/26 is well below the 36.15% requested by the State-owned enterprise, but still above requests made by many stakeholders during public hearings in November and December for the increases to be pegged to inflation.

Consumer inflation stood at 3% in December, while the average inflation rate for the year was 4.4%, down from the average of 6% in 2023.

In addition, there was some political pressure on Nersa to contain the increases, after Electricity and Energy Minister Dr Kgosientsho Ramokgopa described Eskom’s 36.15% request as unaffordable and untenable.

In a statement, Ramokgopa, who is also Eskom’s shareholder Minister, welcomed the decision, while acknowledging that it would place pressure on the utility. The Ministry, he said, remained committed to working with Eskom to drive greater efficiency gains.

However, Ramokgopa argued that the approved tariff adjustments showed consideration of the need to mitigate inflationary pressures on communities and businesses. He also indicated that other measures would be introduced by government to support poor consumers and small firms, but did not offer specifics.

BELOW ESKOM'S ASK

The 2025/26 increase is based on approved allowable revenue of R384-billion, which is materially lower than the R446-billion sought by Eskom.

It also assumes sales of 192 562 GWh, which are significantly higher than the 185 652 GWh forecast by Eskom in its submission.

The allowable revenue approved for the two outer years, was R410-billion (R495-billion) and R437-billion (R536-billion), while sales volumes were forecast at 192 710 GWh and 193 940 GWh respectively, a significant deviation from Eskom’s declining sales trajectory.

The R61-billion shortfall between the allowable revenue approved by Nersa for 2025/26 and Eskom’s application arose as a result of major adjustments to Eskom’s regulatory asset base (RAB) and the utility’s cost assumptions for the period.

Nersa approved an RAB that was R71-billion lower than the R1.1-trillion RAB included in the MYPD6 submission, but approved Eskom’s weighted average cost of capital of 4%. The approved returns were reduced by R2.8-billion to R39.8-billion.

Nersa also cut Eskom’s primary energy costs by R5.5-billion to R122.4-billion, slashed its operating costs by R16.4-billion to R76.9-billion and cut its depreciation by R21.8-billion to R45-billion.

Interestingly, no allocations were made for the carbon tax or for a partial recovery of municipal arear debt, for which Eskom had sought R5.5-billion and R8.9-billion respectively.

Similar cuts were made for the two outer years.

RINGFENCED REVENUE

For the first time, Nersa disaggregated the allowable revenue across Eskom Generation (R249.6-billion), Eskom Distribution (R39.3-billion) and the newly separated National Transmission Company South Africa, or NTCSA (R95.6-billion).

Full-time regulator member Nomfundo Maseti, who is chairing the Electricity Subcommittee that prepared the recommendation for the Energy Regulator, said the revenue had been ringfenced for each entity, including revenue approved for capital expenditure.

Nersa would require each entity to provide a quarterly breakdown of its expenditure to enable the regulator to monitor whether the approved revenue was indeed being deployed for its approved purposes.

Maseti said this reporting instrument had been introduced in light of information before Nersa showing that the transmission business, which had been separated into the NTCSA, had underspent on the expansion of the grid for the past 15 years relative to what had been approved for that purpose.

Should the quarterly reports point to major discrepencies, Nersa would consider various actions within its powers, including a reopener of the MYPD6.

BROKEN SYSTEM

Professor Emeritus UCT Power Futures Lab Anton Eberhard raised concern over the large disparity between the utility’s application and the regulator’s decision, which he said was absurd given that there was an agreed regulation methodology.

“Each year Eskom games the system and each year Nersa massages the numbers to achieve a politically acceptable tariff increase.

“This year they achieved that by again reducing the regulatory asset base and accepting a WACC way below Eskom’s cost of capital.

“And, for the first time, a disallowance of nearly half of Eskom’s generation depreciation costs,” he noted.

He also highlighted the disallowance of revenue for carbon tax, and municipal arrear debt, and questioned the big cuts to opex, including a worrying more than 40% in transmission.

Nevertheless, Eberhard expressed doubt that Eskom would legally challenge the outcome, owing to the political pressure surrounding the affordability of electricity.

“We need to move to a different regulatory regime for the separate businesses,” he argued, describing the current systems as broken.

“Generation prices will increasingly be set in the market, although Eskom generators will initially have regulated vesting contracts [and] that will need careful public scrutiny.

“Regulation of the wires is less controversial and should result in more predictable outcomes, although the regulator will need to improve its capacity to ensure more efficient outcomes,” Eberhard said.