The National Energy Regulator of South Africa (Nersa) appointed a forensic investigation firm to get to the bottom of one of the most costly administrative errors in the country’s energy history, a R54 billion miscalculation embedded in Eskom’s multi-year price determination 6 (MYPD6) tariff application.
The blunder came to light following a miscalculation in the revenue calculation for 2025/26, specifically involving the second and third-year generation revenues, which resulted in billions in additional funds being allocated to Eskom.
The Portfolio Committee on Electricity and Energy had already called Nersa in late 2024 to account for the discrepancy, and the regulator returned this week with answers – though not all of them satisfied lawmakers.
Nersa Board Chairperson Thembani Bukula was candid about the regulator’s failings. “It is a mistake that we never want to be associated with, but it’s a mistake we learn from,” he told the committee.
The forensic investigation’s findings were damning. Investigators reviewed board minutes, key decisions and interviewed role players across the electricity determination process.
What they found pointed to a systemic breakdown: a failure to review and verify information, poor communication among key players, a pressurised working environment and, critically, potential negligence by individual officials.
How the R54 billion figure was reached
The calculation that led to this point is complex. After receiving Eskom’s application, Nersa applied its MYPD methodology and found that revenue based on the corrected Regulatory Asset Base (RAB), specifically the generation RAB, should have been an additional R76 billion.
That figure was then adjusted down to R54 billion to prevent Eskom from receiving excessive revenues and returns.
Bukula explained that Eskom’s own review of the application had identified a discrepancy of approximately R107 billion.
“When assessing the determination, Eskom believed that if they applied their methodology based on the assumption that the first year of the RAB was calculated correctly, their application would amount to R107 billion,” he said.
Recognising that this would hand the utility excessive returns, Nersa settled on R54 billion as the portion to be returned to Eskom.
The R54 billion will not be recovered all at once. It will be liquidated in phases: R12 billion in 2026/27, R23 billion in 2027/28, and R19.7 billion in subsequent years.
The knock-on effect for consumers is a 3.4% tariff increase in 2026/27 and an additional 2.64% in 2027/28, stacked on top of already-approved increases of 5.36% and 6.19%, respectively, pushing the combined tariff hikes to 8.76% and 8.83% for those two years.
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Public consultation and a court-ordered review
The matter did not stay out of the courts. A legal challenge to the R54 billion settlement between Eskom and Nersa led to a court order directing Nersa to conduct public consultations on the redetermination of the generation RAB.
During that process, 99% of the submissions received mirrored sentiments already expressed during the regional determination in January 2025.
The sole dissenting voice came from lobby group AfriForum, which raised the importance of factoring in the weighted average cost of capital (WACC) when determining the RAB.
However, Nersa noted that the court order and consultation terms were clear: only the RAB itself was to be considered, leaving no room for incorporating other elements, such as the WACC.
8 officials face charges
Inside Nersa, the fallout is intensifying. Eight officials have been identified in the forensic report, with charges tied directly to errors made during the determination process.
The committee heard that formal disciplinary proceedings are underway, and given the scale of the error, Nersa has brought in a law firm to assist with the internal processes.
Chairperson of the committee, Nonkosi Mvana, stated that the board adopted and approved the forensic report and handed it to management for implementation.
Bukula confirmed that the report is likely to reflect serious conduct issues. “Elements of negligence and insubordination would likely be present in this report,” he indicated.
Committee members pushed hard on whether accountability extended beyond junior staff.
“Nersa assured the committee that consequence management would be applied equally, following the forensic report’s recommendations,” said Mvana.
On the question of naming individuals, the regulator held back, citing the need for procedural and substantive fairness in the disciplinary process.
The forensic report itself was expected to be forwarded to the committee by the end of February.
Capacity gaps exposed at Nersa
Beyond the individuals implicated, the broader picture that emerged points to a regulator stretched dangerously thin.
According to Mvana, committee members learnt that for some time, Nersa has had neither a full-time regulator member nor an executive manager for its electricity regulation division, a gap that raises serious questions about oversight at the very point where billion-rand decisions are made.
Nersa acknowledged the problem and said it has initiated processes to strengthen internal capacity to fulfil its regulatory mandate.
Whether those steps will be enough to reassure a sceptical committee, and a public already battered by years of steep tariff increases, remains to be seen.
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Tariffs up 937% since 2008
For committee members, the R54 billion error did not exist in isolation. It was the latest chapter in a long and painful story of electricity tariff escalation that has far outpaced inflation.
Between 2008 and 2024, tariffs increased by approximately 937%, a figure lawmakers placed squarely on the record during Wednesday’s session.
Members questioned why Nersa is only now moving toward inflation-linked increases for Eskom. Bukula pointed to Eskom’s long-standing argument that between 1994 and 2006, its tariff increases were kept below inflation, effectively subsidising consumers for over a decade.
He acknowledged, however, that the clearest explanation for current tariff applications would need to come from Eskom directly, adding that “pricing and policy allow for some of these dynamics”.
The committee was unsparing in its assessment. Lawmakers noted that by Nersa’s own admission, the R54 billion mishandling, along with other tariff-related missteps, has ultimately landed on the shoulders of taxpayers and electricity consumers.
Energy pricing policy review underway
On that front, there is movement. Acting Director General Subesh Pillay confirmed to the committee that the energy pricing policy is currently under review, with a draft set to be published for public comment by the end of March.
“He noted the complexity of the task, particularly the need to examine asset evaluation methodologies given the nature of Eskom’s generation asset portfolio,” Mvana stated.
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