How electricity tariff hikes could impact you

There are reports circulating that Eskom is seeking a 19.9% tariff increase for 2018. This is based on a draft application sent to National Treasury and SALGA (South African Local Government Association) for commentary, which was then leaked to the public. This will see consumers forking out more for electricity, many of whom are already struggling to make ends meet as the cost of living continues to rise.

The final application for the 2018/2019 tariff price increases is set to be submitted to the National Energy Regulator of South Africa (NERSA) by the end of this month. The decision of whether or not this tariff hike is granted lies with NERSA, and it is not yet clear what the decision will be. But how would such a tariff hike impact you?

Justmoney spoke to energy expert Chris Yelland about this latest application made by Eskom. Yelland highlighted that the draft application is required to be viewed by Treasury and SALGA prior to submission to NERSA, following which changes may be made. After feedback from Treasury and SALGA has been received, the application can be sent to NERSA.

However, Yelland noted that it is unlikely that there will be significant changes between the draft application and the final application.

The draft application is seeking a general tariff increase of 19.9%, with a municipal increase of 27.3% being sought, according to Yelland.

The NERSA application

When the official application is submitted to NERSA, this will be made available for public comment. There will also be dates set for public hearings where cases can be presented for and against the application.

While it is not yet clear when these hearings and the final decision regarding the application will be made, Yelland pointed out that electricity tariff hikes are implemented on 1 April of each year. As such NERSA will need to make its decision regarding the application by February 2018 for Eskom to make the necessary adjustments to its pricing, regardless of the tariff increase that is approved.

Eskom has to take the average increase approved by NERSA, which is usually presented as a percentage, and convert it into tariffs for the various customer categories, which takes time. This includes the various classifications of domestic customers, as well as commercial customers, agricultural customers and transportation customers. Once the tariffs have been calculated into Rand values, these need to be published for the consumers and ready for implementation on the billing system for 1 April.

Among the reasons listed in the leaked draft application for the tariff increase is the need to cover costs, as well as make a return. NERSA regulates Eskom’s return on assets (profit). As such, Yelland highlighted that the value of Eskom’s assets need to be calculated, as well as things such as the cost of the coal used, salaries and the cost of power purchased from independent power producers (IPPs).

“Generally Eskom tend to overestimate their costs, and NERSA tend to knock them down to be more realistic,” said Yelland.

Higher costs, lower use

Furthermore, sales volume forms part of the need for a tariff increase. Yelland explained that Eskom has to estimate how many kilowatt hours it will sell in the coming year. However, a problem is that the sales volume is declining and has been very low, meaning that the price per kilowatt hour has to be high because people are using less electricity. There are a number of reasons for the reduced electricity usage, including the lack of growth in the economy, as well as people using alternatives to Eskom to power their homes, such as solar powered geysers. Yelland noted that as the price of electricity increases, people are becoming more efficient in using electricity and finding ways to save on electricity usage.

“Because the price is so high, people are looking for every reason not to use electricity. It’s the way of the world. And not only that, Eskom have been encouraging us to use electricity more efficiently and not waste electricity, and people are responding,” said Yelland.

However, this has created a catch 22, as the sales volume has decreased, but the cost to Eskom to produce the electricity has increased. As a result, Yelland pointed out that the percentage price increase must be high in order for Eskom to recover its costs.

How will the increase affect you?

Many people are already struggling to make ends meet, with a high electricity tariff increase posing a threat to many people who are already facing difficulties in covering the cost of living.

“The impact on the consumer is likely to be very serious. It’s putting pressure on disposable income, and that affects spending in the economy and that brings the GDP down. People are not spending, they are not buying things, they are trying to save, [and] they are under pressure. The other thing it does to consumers is that it encourages electricity theft, and non-payment is likely to increase because of affordability,” highlighted Yelland.

While not condoning electricity theft, Yelland stressed that when times are tough and consumers are struggling, they will find a way to meet their needs, even if that means not paying for their electricity usage or having illegal connections.

To help combat the electricity price increases that consumers will continue to face, Yelland emphasised that efficiency will play a key role. In essence you will need to find a different way to do daily tasks using less electricity. This can include having a solar powered geyser, running your pool pump for a shorter time each day, using energy efficient light bulbs, and using blankets and other means of keeping warm that use less electricity in winter.

Installing a pre-paid electricity meter in your home may be a way to help you better monitor your electricity spend and usage. While this won’t cost you less in terms of cost per kilowatt hour, you will be more conscious of your electricity usage, as well as how much it is costing you per day. You can use this to help motivate you to lower your electricity usage and better budget your monthly electricity spend.

“If you can see what you’re using and you know what the cost is, you can use it more effectively,” concluded Yelland.