Eskom tariff increase, municipal tariff increase and electricity usage

A disgruntled reader has spelled it out as he sees it, and it does not make a pretty picture.

The 2015 Eskom price increase round refers.

Government is doing everything to keep the milking of electricity consumers going and it is actually accelerating at a rapid pace. Note that electricity, together with VAT and fuel, is government’s biggest cash cow. The situation which has developed in 2015 is alarming and will further destroy private industry at an alarming pace. The downward spiral is in full swing!

The 2015 increase from Eskom has not been finalized yet as Eskom has requested further price increases after being awarded an initial 12.6% price increase effective April 2015. Eskom has requested to increase its prices by a total of 25.3 % (this includes the already awarded 12.6%), and also a treasury hike in the “environmental levy” of 2.51%.


1. From the initially awarded increase in April, the trend has been set: The local authorities (municipalities) have to pay Eskom the biggest increase at 14.2%. While in various documents published over the last years, Nersa and Eskom accept the fact that the local authorities have been overcharged in relation to the other customer categories. So it looks like national government realises the municipalities will not be able to overcharge their customers as they did in the past through hidden surcharges. This comes after court cases which have been challenging the municipal surcharge. Government has now found a different way to collect the money as they will simply charge it into the Eskom tariff. So nothing has changed… the municipal “surcharge” is just moving and the customers keep paying.

2. Another two cents per KWh is to be added on the so called “environmental levy”. This is a semi-hidden tax which was introduced a few years ago. It started at 1.5 cents per KWh and was raised to 3.5 cents per KWh. At 3.5 cents per KWh, it constitutes an income to Treasury of about R8 billion. The extra two cents, then yields another R4.6 billion. If it is there to assist with “Demand Management” as explained by Eskom, it will for sure do the job: South Africans will use less and less electricity and particularly industry will do so at the fastest pace… What is so sad to see is that, next to the Eskom debacle which the electricity user has to fund, we get another significant amount of taxation slapped on top of the tariff.

3. So, add points one and two above and this will lead to a factual municipal increase of about 16 to 17% for 2015 and not the 12% that they would like us to believe. This knowing that Eskom has asked for another 10% for July, an additional increase which might lead to an overall increase of the municipal tariff of close to 30%…

4. During the latest Multi Year Price Determination (MYPD), which was concluded in 2013, Eskom was awarded above inflation increases at 8% per year for the next three years by the Energy Regulator. Also for 2015, an 8% increase was what Eskom should have been awarded. However, two important factors have contributed to Eskom needing far more than what was forecast in 2013: The most important factor is overspending and waste. Everybody knows Eskom pays unacceptable amounts to its energy suppliers and that inefficiencies and corruption are the order of the day. Eskom is unable to manage any of their big projects such as Kusile and Medupi, and overspending and under delivery have become the norm. Eskom has added 15,000 employees to their payroll since 2007, while it is selling less and less electricity. As a side note, the 2014 Eskom annual report tells us the average Eskom employee enjoyed a cost to company of R667 164.00 per year!!!

The other phenomenon that creates a shortfall is that the amount of electricity Eskom is selling is well short of the amounts set in the 2013 MYPD3. And why? Of course, electricity has become unaffordable for all consumers and South Africa is now consuming far less electricity than in 2010 or 2011. Particularly, industrial usage has dropped by at least 10%. So in essence, we have hit a vicious cycle where Eskom needs more and more money to do less and less…

5. Treasury has already announced that a carbon tax will need to be levied in 2017, as it is another source of income that will fund the coffers – this to be funded by industry and electricity tariffs.

6. All in all, as energy intensive users, we need to run as fast as we can. We are treated by government without any form of consideration… Grow your chickens in Brazil and make your castings in Thailand or China…

Nersa’s latest update on the electricity usage of South Africa up to March 2015 is another drama on its own.

You can see from the report that:

̶ The peak for Q1 2015 (highest 30 minutes of usage) was at 31 657 MW. This is 18% below the peaks Eskom flawlessly supplied in 2010 and 2011. So Eskom had to load shed while usage was 20% below the 2010/11 levels!
̶ Eskom and other installed capacity at the end of 2014 is 3 000MW more than in 2010/11 and almost 6 000 MW more than in 2008 (when the country was using more electricity than in 2015).
̶ The reserve margin on generation capacity was 31% at the end of 2014, where it was 10.6% in 2008.

So you do not need to be a rocket scientist to see that the current situation is a serious systems failure.

You can pick which one is worse.

Anybody who can see an end to this should stay. Unfortunately, South Africa has no plan to stop this catastrophe.

Ed’s comment
At the time of going to press, Fin24 reported that Public Enterprises Minister Lynne Brown, in her budget vote speech in the national assembly on 14 May 2015, stated that she had given the leadership of Eskom a tick-box list of targets to achieve, including that its performance is in line with what shareholders of a multi-billion rand privately owned company would expect.

She called for the elimination of the need for load shedding “by all other means as well”, developing a sustainable funding model, reducing the costs of primary energy [currently at close to 60% of revenue], fill critical vacancies, and bring a greater reliability to the load shedding schedule to allow consumers to plan effectively.

Brown appealed to the Eskom management to “do everything possible to win back the confidence of citizens, business, financial markets, international and domestic investors and staff”.

She, however, warned that electricity supply would remain a challenge for the next two to three years.