The National Energy Regulator of South Africa (NERSA) has approved a 2.2% Electricity tariff increase for the 2017/18 period which is in line with the MYPD3 agreement with ESKOM
What is the MYPD3?
The term MYPD3 stands for Multi Year Price Determination, an application made by ESKOM to NERSA seeking approval for the then proposed electricity price structure. Electricity tariffs are decided and regulated by NERSA, an independent body to ensure Eskom and the industry remain financially viable and sustainable whilst maintaining the affordability of Electricity as a commodity to all consumers. The application spans a five year time period from the 1st of April 2013 to 31st of March 2018. The approval allowed an average tariff increase of 8% per annum in the 5 year period of which from the 1st of April 2017 we enter the final year period of the agreement.
Why only 2.2% instead of the 8% agreed on MYPD3
In the first year of the MYPD3 “2013/14”, Eskom increased the tariff by 8% as approved which they also applied in the following period of 2014/15. Early 2015 NERSA allowed Eskom a tariff adjustment of 12.69% instead of the agreed 8% in response to the body’s application to allow a claw back of R18.3 billion variances in revenue and expenses relating to the previous MYPD2. As a result, the increase for 2016/17 period should have been only 3.5%. However Eskom submitted another application to claw back R22.7 billion of revenue and cost variance incurred in 2014/15 but NERSA only approved R11.2 billion hence the 9.4% increase for the 2016/17 period. This year the body has authorized Eskom to raise the tariff by 2.2% which will be implemented as from the 1st of April 2017 for Eskom direct customers and on 1 July for municipalities. NERSA sights a lower increase this year due to the base adjustments made in the early years as a result of the approved Regulatory Clearing Account (RCA) balances for Eskom.
The future tariff plans
NERSA had invited Eskom to submit a new multi-year price determination application bearing in mind the impact the meagre 2.2% increase would have on the company’s revenue but Eskom had not done so. One of the reasons why Eskom had not made a new application is the court judgment in August last year regarding the mechanism through which Eskom recovers retrospective revenue RCA mechanism. We await to see the decision taken by the involved players regarding regulation of tariffs beyond MYPD3 but if ever there will be a MYPD4 or not, we expect a sharp increase to compensate for the variances inflicted by the current low increase.