The current system of pricing electricity is not working and the government needs to assist the National Energy Regulator of SA (Nersa) in crafting an acceptable price path over the medium term, says Anton Eberhard, a member of the National Planning Commission and a professor at the University of Cape Town Graduate School of Business.
Addressing the Cape Town Press Club on Wednesday, Prof Eberhard said a historical analysis showed just how arbitrary electricity price increases had been.
"If you look at the last six years, we’ve had two three-year multiyear price determinations. In each case, Eskom applied for something, the regulator decided something and when you actually look at the price, the increase is different," he said.
Prof Eberhard said in the 2007-08 financial year, Nersa had set a determination for a 5.9% rise after Eskom had asked for 18.7%. Nersa eventually approved an increase of 14.2%.
Eskom then applied for another revision of 60% and the regulator agreed to 27.5%.
"It’s kind of, pick a number, any number. I think at minimum what it says is that neither the regulator nor Eskom are able to forecast prices very accurately, and what’s behind that is insufficient, inaccurate cost management and financial management," Prof Eberhard said.
Nersa is now conducting a series of public hearings on Eskom’s application for new tariff increases. The proposed increases have been opposed by organised business and labour unions.
Eskom has applied for an annual 16% increase in its tariffs for the next five years.
Prof Eberhard said Eskom was proposing to increase its prices to 128c per kilowatt-hour by 2018.
"This over the 10 years from 2007-08 electricity prices are projected by Eskom to increase by more than 600% in nominal terms," he said.
However, Prof Eberhard said the large increases over the past five years had been necessary and Eskom needed to earn a profit. He said that at a minimum Eskom needed to earn enough profit to cover the cost of its debt, which stands at rates of around 7.8%.
In its interim report last year, Eskom said it had raised about R182bn of its total estimated R300bn worth of debt for its new build programme. In 2011, the interest payments on its debt amounted to R26.2bn.
Independent Democrats MP Lance Greyling agreed with Prof Eberhard’s assessment that a review was needed over the methodology of determining electricity tariffs. "Right now, a certain dance takes place where Eskom throws in a highball figure that is opposed by labour and business and then government puts pressure on Nersa and then a number comes out."
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