Outside of the courts, Eskom and the National Energy Regulator of South Africa (Nersa) have resumed normal hostilities on their more customary playing field of public hearings, with initial oral representations heard on Monday into the State-owned utility’s latest Regulatory Clearing Account (RCA) application.

Eskom is seeking to recoup revenue of R27.2-billion for the 2019 financial year, during which the electricity tariff increased by 5.23%.

The application has been made under the RCA mechanism, which is embedded into South Africa’s regulatory model and is designed to address variances between the forward-looking assumptions used to determine Eskom’s allowed revenue and what materialises in reality.

The hearings are, thus, distinct from the various legal review applications being considered in the courts by Judge Jody Kollapen.

Besides Eskom’s well-publicised urgent challenge of Nersa’s treatment of the R69-billion bail-out announced by Finance Minister Tito Mboweni in his February 2019 Budget, the utility is also contesting the 2019 determination, the regulator’s RCA rulings for the 2015, 2016 and 2017 financial years, as well as the most recent revenue decisions under the fourth multiyear price determination, covering the financial years 2020, 2021 and 2022.

Should Judge Kollapen grant only the urgent relief being sought by Eskom, the wholesale tariff could rise by 16.5% on April 1, double the 8.1% already sanctioned. In addition, the tariff could rise by another 16.5% in 2021 instead of the 5.22% approved.

The impact of the RCA application, meanwhile, could add further upward pressure, with Eskom proposing that any RCA balance agreed for the 2019 financial year be “recovered as soon as possible”. That said, the regulator has discretion not only in determining the size of the adjustment, but also the timing of its distribution.

The financial year under scrutiny at the hearings, which will rotate between provinces before culminating in Gauteng on February 24, is an abnormal one, as it did not fall under the usual multiyear framework. Instead, Nersa approved a single-year adjustment, owing to uncertainty at the time that had arisen as a result of a legal challenge to the regulator’s application of the allowable-revenue methodology.

The main themes arising during these latest hearings do not deviate materially, however, from other recent RCA applications, where Eskom has likewise made the case for the recovery of billions of rands.

The utility is again arguing that neither the financial ratios, nor the free cash-flow outcomes assumed in Nersa’s original tariff ruling have materialised.

As with previous RCA applications, Eskom is also insisting that it should be allowed to recover its full costs as the actual realities have occurred differently than assumed during the revenue decision.

Another recurring theme is whether the cost and sales deviations outlined in the Eskom submission are “efficient and prudent” – a point that is being heavily contested by those opposing the application.

In sum, Eskom is arguing for upward tariff adjustments to recover additional primary-energy  (R16.7-billion) and other (R4.9-billion) costs incurred during the 2019 financial year relative to what was allowed in the tariff.

In addition, it is seeking an adjustment to recoup R5.4-billion in sales that did not materialise relative to those assumed when Nersa approved its allowable revenue for the year. Eskom insists that the figure has been adjusted downwards by over R5-billion and excludes nonelectricity revenue, demand response revenue and any variance caused by load-shedding.

As expected, the immediate response to the application has been hostile, with most presenters questioning the prudency of the additional costs incurred by the utility.

Respondents so far have, thus, called on Nersa to reject Eskom’s application, warning that yet more substantial electricity hikes would further undermine the outlook for the struggling South African economy and make electricity increasingly unaffordable for households and businesses alike.