Nersa tackles tariff gap

Electricity prices are likely to triple for all but the poorest households, while the gap between what industrial users and domestic consumers pay is set to shrink, following the tariff decision by the National Energy Regulator (Nersa) this week.

A large household currently paying R2 000 a month for electricity can expect its bill to triple to around R6 000 in three years’ time, as households that use more than 600kWh a month will see increases of 35,8%, 25,8% and 25,9%, coupled with municipality increases of 15,3%, 16% and 16%.

The increases will hurt all but the poorest households, as according to Eskom, the average domestic home uses 1 572kWh a month. Low-usage households, those that use below 50kWh a month will see a 10,5% reduction next year, followed by a 5% increase over the following two years, meaning little change over the next three years.

The steep increases will also include a restructuring of industrial tariffs. Households currently pay a whopping 146% more than industries.
Regulator Thembani Bukula said over the next five years the gap will be brought down to 80%, more in line with ­international norms.

Bukula spoke to the Mail & Guardian on Wednesday after Nersa granted Eskom an average tariff increase of 24,8%, 25,8% and 25,9% over the next three years. Eskom had asked for a three-fold increase of 35% in its application. Bukula said contracts with large industrial users going forward would be regulated to ensure that no ‘unrequired risks” would be placed on customers. An example was the halting of an electricity supply agreement with the Alcan smelter at Coega, said Bukula.

Nersa’s decision made provision for inclining block tariffs that will mean greater tariff increases for customers who use more electricity. In its media statement Nersa outlined the tariff structures across the different domestic blocks. Eskom is required to submit the proposed tariff structures for other customer classes, including large industry, by March 1 2010.

Domestic users who consume more than 600kWh a month—the highest block tariff—would see tariffs rising from 83,7c/kWh to 105,3c/kWh and 132,6c/kWh over the next three years, excluding municipal increases.

Nersa said the municipal guidelines were for municipalities that had made a 34% increase last year. Those that had not made the increase would have to submit applications to Nersa, which would consider them on a case-by-case basis.

Bukula said the increases were awarded to municipal distributors because Eskom’s price made up 67% of their input costs, which they need to recover. The block tariff is designed to cushion the poorest households. ‘But this is also based on the principle that the less you use, the less you pay; the more you use, the more you pay,” Bukula said. He noted that Nersa had included the impact of the commodity-linked contracts in its decision, which would contribute just over R4-billion a year to Eskom revenues over the next three years.

Contracts with BHP Billiton’s two aluminium smelters near Richards Bay and with Mozal in Mozambique have been in the spotlight. But these contracts were in line with government policy at the time and though they had benefited Eskom when commodity prices were high it was clear that the cycle had turned and ‘Eskom must share in the pain”, Bukula said.

The commodity-linked contracts and associated derivatives on those contracts saw Eskom make a loss of R9,5-billion last year. Eskom is reportedly in talks with BHP Billiton about the renegotiation of the contracts. When questioned on progress, however, Eskom was unable to provide an update.

The entrance of independent power producers (IPPs) into the electricity sector has been a source of contention, with critics arguing that neither Eskom nor the department of minerals and energy has done enough to create the legislative environment required to expedite the entrance of IPPs into the sector.

Nersa’s determination allowed Eskom to recover the costs of power generated by IPPs and cogeneration projects to the tune of R12,3-billion over the three-year period.

But Doug Kuni, managing director of the Independent Power Producers’ Association, said the allowances accounted only for the megawatts supplied under two procurement programmes run by Eskom, and another run by the department of minerals and energy. Neither of these is new. ‘In line with the determination Eskom is not going to do more than these projects in the next three years,” he said.

Crucial to the entrance of IPPs was the finalising of the necessary regulatory and legislative environment, including the establishment of an independent systems operator (ISO).

He pointed out that among other things an ISO would require the extraction of an entire division from Eskom to be set up under a new entity, the establishment of a legal reporting structure, provision of the capacity to contract with IPPs and a financial underwriter to allow the ISO to contract with IPPs, possibly the treasury.

Kuni said given the complexity of the task and the level of commitment and coordination needed by various departments within government, he was ‘not confident” that the ISO could be set up any time soon.

In response to Nersa’s announcement Eskom would say only that it was studying the determination in consultation with stakeholders and would respond in ‘due course”.

But the increases were heavily criticised by business, political parties and trade unions. According to the South African Chamber of Commerce and Industry (Sacci) the increase will result in an estimated 250 000 job losses.

Sacci also noted that the increase would ensure that consumer price inflation would remain outside the target band of 3% to 6%.

Stats SA announced on Wednesday that the consumer price index came in at 6,2% in January, down from 6,3% in December 2009.

Despite the effective reduction for smaller consumers and poor households, the South African communist party called the increases a ‘betrayal of the poor”.

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