Inflated electricity prices cannot counteract Eskom’s financial risk, warns AfriForum

AfriForum has submitted written comments to the National Energy Regulator of South Africa (Nersa) warning that Eskom’s current tariff and regulatory assumptions risk unfairly transferring the cost of Eskom’s historical mismanagement and governance failures onto electricity consumers. These submissions form part of Nersa’s new public consultation process following the Pretoria High Court’s decision to set aside key elements of Eskom’s Multi-Year Price Determination.

AfriForum’s comments focus in particular on the use of the Weighted Average Cost of Capital (WACC), the valuation of Eskom’s Regulatory Asset Base, and the treatment of ageing and misaligned generation assets. AfriForum argues that these elements, when combined, have a disproportionate and compounding impact on electricity prices, with long-term consequences for households, businesses and the broader economy.

At the heart of AfriForum’s submission is the principle that risk in a regulated monopoly must be allocated fairly. Consumers have no control over Eskom’s investment decisions, operational performance or governance failures, and no ability to choose an alternative supplier. Allowing Eskom’s elevated risk profile to be fully priced into tariffs through a higher WACC effectively requires consumers to underwrite Eskom’s malperformance.

AfriForum further raises concerns that Eskom’s regulatory assumptions are increasingly disconnected from South Africa’s Integrated Resource Plan. While national energy policy envisages declining reliance on Eskom’s coal-based generation fleet, increased competition, and a transition to renewable energy, Eskom’s asset valuations and depreciation assumptions continue to treat existing generation capacity as if it will be fully utilised, life-extended and replaced on a like-for-like basis. AfriForum warns that this approach risks locking consumers into paying for assets that are no longer aligned with the country’s future energy system.

Serious questions are also raised regarding the treatment of major capital projects such as Medupi and Kusile. AfriForum submits that only prudently approved costs should be recognised for regulatory purposes, and that consumers should not be required to pay for cost overruns, delays and the knock-on consequences of project failure through higher tariffs and guaranteed returns.

“Increasing electricity prices cannot be the default solution for Eskom’s financial and operational problems. If Eskom is unable to show accounting profits and at the same time argue that it is at such a high risk that it deserves higher guaranteed returns, something is fundamentally wrong. Consumers should not be punished for failures they did not cause,” says Morné Mostert, Manager for Local Government Affairs at AfriForum.

AfriForum also criticises the lack of clarity around asset valuation and calculations. This is specifically with regards to the assets that are transferred from work under construction to commercial operations. The continued inclusion of assets without proper valuation is also an ongoing concern. Further no mention is made of the failure to adequately address outstanding municipal debt in a way that protects paying consumers. According to AfriForum, these issues further inflate Eskom’s asset base and amplify the impact of an already elevated WACC.

“Electricity is an essential service, and Eskom has a regulated monopoly over this service. That places a higher duty on Nersa to protect the public interest. Risk created by poor governance, planning failures and misaligned investments cannot simply be shifted onto consumers through complex regulatory formulas,” Mostert adds.

AfriForum calls on Nersa to adopt a more conservative, forward-looking and policy-aligned approach when reconsidering Eskom’s revenue requirements. Regulatory decisions must reflect declining demand, increasing competition in generation, and the realities of the energy transition, rather than assuming that the future will simply replicate the past.

AfriForum has emphasised that meaningful public participation is essential to restoring trust in electricity regulation and ensuring that South Africans are not forced to pay ever-higher prices to compensate for regulatory and institutional failures. AfriForum will continue to monitor the process closely and will not hesitate to take further action to protect the interests of electricity consumers.