Eskom proposes phased-in approach to tariff decision

Tuesday, May 15, 2018

Power utility Eskom has proposed the phasing in of its tariff review.

At Monday’s final public hearings into its Regulatory Clearing Account (RCA) application, Eskom proposed the phasing-in of the variance in revenue between what the National Energy Regulator of South Africa (Nersa) allowed under the multi-year price determination (MYPD 3) and what was actually spent in the three years (2014 – 2017).

This amounts to R62 billion, said the utility at the last of the countrywide public hearings that got underway at the Cape Town ICC on 16 April.

Eskom has been presenting its case and responding to questions raised by stakeholders at the public hearings that ended at Gallagher Estate in Midrand.

At the start of the countrywide hearings by Nersa, Eskom presented its case to recover costs already spent in the provision of electricity totalling R66.6 billion, while allaying fears that this application would lead to a 30% tariff increase. 

Eskom’s Acting Chief Financial Officer (CFO) Calib Cassim, reiterated the basic principle and the legislative nature of the application that Eskom has made to the regulator.

“The consistency and predictability of the methodology is important. We have taken the lesson from the Nersa decision of 2013/14 of our RCA application and made this application accordingly, based on the MYPD 3 regulatory methodology. One of the Nersa regulatory principles is predictability and consistency that being that decisions must be consistent and should have a reasonable degree of predictability based on previous rulings in similar case.

“It is therefore our hope that the same principles will be applied when the decision on this current application is made in June. We have also noted that rating agencies show a keen interest on the tariff decisions made by the regulator, which makes it critically important for Eskom’s sustainability,” said Cassim.

Impact on the consumer

Cassim said the utility is also mindful of the application’s impact on consumers and the economy.

“We are also mindful of the impact on the consumer and the economy of the liquidation of our application. It is unfortunate that RCAs for three years have had to be considered at once but it must be noted that Eskom had to wait for the Constitutional Court ruling on the RCA decision of 2013/14, which was given only in August 2017 before processing these applications.

Phased-in approach
“Consequently, we are proposing that Nersa considers an additional increase of 3% for each of the MYPD 4 years (2020 – 2022) and then recover the rest of the RCA balance over a period of five years. This calculation is linked to Eskom’s financial situation. It must be noted that we have been carrying the amount under review for some time and had to go out to the markets and borrow in order to implement our mandate of supplying electricity. These loans must still be repaid,” said Cassim. 

Eskom has absorbed R57 billion of costs over the period of the RCA applications, and proposes a further R4.6 billion reduction.

The application has now deducted certain amounts relating to start-up gas and oil, coal handling linked to operational performance, reducing the total amount applied for to R62 037.

Fighting corruption

Cassim reiterated Eskom’s message on corruption and irregularities, which have been raised as a concern by stakeholders throughout the public hearings.

“We reaffirm that Eskom – through its Board and Executives – takes governance seriously. We are conducting our own investigations and also participating in other investigations by the National Treasury, the Special Investigations Unit (SIU) as well as the Judicial Commission led by Justice Zondo. We note that the conclusion of investigations into fraud, fruitless and wasteful expenditure and the timing of the decision on this RCA application are not aligned.

“We propose that at the conclusion of investigations, Eskom presents to NERSA to determine if the outcome impacts the RCA decision and for those items that are impacted to be dealt with according to the rules and addressed in future RCA applications,” said acting CFO. –