NATIONAL NEWS - Struggling power utility Eskom is expected to submit an application to energy regulator Nersa for an average tariff increase of 15% per year for the next three years.

The application has already been sent to the National Treasury and the South African Local Government Association (Salga) for comment, as the law prescribes.

Moneyweb has seen the application.

The increase would be over and above the increases required to liquidate the R32.7 billion Nersa earlier awarded to Eskom to compensate it for lower than expected sales and higher than expected costs in previous years. This was done in terms of the regulatory clearing account (RCA) methodology.

If the RCA award is recovered over the same three years that the tariff application covers, and if Eskom’s application is successful, consumers could pay about 20% more for electricity in 2019/20, and not much less in the two subsequent years, says economist Mike Schüssler.

He adds that this would add almost one percentage point to inflation and further decrease the spending power of struggling South African consumers. The Reserve Bank would not lower interest rates due to the inflationary effect, and any economic recovery would be unlikely.

Nersa has in the past consistently awarded Eskom substantially less than it has applied for. The tariff application is essential for the recovery of its prudently incurred cost plus a reasonable return from tariffs, and the basic decision is for allowable revenue.

In a second phase, Nersa approves the specific tariffs that will apply to every customer group through which Eskom would recover the revenue.

For 2018/19, Nersa reduced Eskom’s allowable revenue to R190 billion from the previous year’s R205 billion. Eskom is taking this decision on review in the High Court. No court date has been set.

The utility is now applying for R219 billion in 2019/20, R252 billion in 2020/21 and R291 billion in 2021/22.

Eskom says its application provides for the phasing in of return on assets “to ensure that a significant portion of the interest cost and repayment costs are covered over the three-year period.”

Read more on the Caxton publication, The Citizen.