NERSA adopts new Electricity Pricing Rule

  • The energy regulator in South Africa, NERSA, has approved the Electricity Pricing Rule. 

The Electricity Pricing Rule is based on the globally accepted five-step rate-setting process. Its major departure from the existing Eskom Multi-Year Price Determination (MYPD) – Cost of Supply (COS) – Eskom Retail Tariff and Structural Adjustment (ERTSA) process is that it determines electricity industry tariffs and prices. The changing electricity industry, with more independent power generators and downstream participants, as well as the unbundling of Eskom, has necessitated a change in the electricity pricing approach.

The objective of establishing links between the tariffs charged and costs to the costs associated with the provision of service. The advantage of the Electricity Pricing Rule is that it allows for standardisation of the price-setting mechanism amongst all industry participants, which in turn allows for the regulation of the industry rather than regulating individual players – it promotes fairness, enforcement and transparency in electricity pricing.

The Electricity Pricing Rule further provides a transparent, robust and enforceable approach to allow the Energy Regulator to determine what constitutes an efficient generation facility operator, an efficient transmission facility operator, an efficient distribution facility operator and an efficient trader. This approach also enables, where possible, benchmarking players against each other. However, while this approach may be possible for parts of the value chain with multiple players, it is not possible for parts of the value chain with one market participant – such as transmission.

The Electricity Pricing Rule envisages that individual customers, or groups of customers, upon application and after providing credible evidence, may request prices that best represent the costs that their consumption imposes on the licensee’s business, as prescribed by section 15(1)(c) of the ERA and emphasised in the EPP objectives that there is a ‘link between the price a user must pay to the cost of serving that user’.

Author: Bryan Groenendaal

Source: NERSA

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