State energy group Eskom says a “favourable”outcome from public hearings into the parastatal’s application to have its regulatory clearing account (RCA) balance approved could provide much-needed tariff certainty for investors and mitigate possible further ratings downgrades.

The National Energy Regulator of South Africa (Nersa) would, from Monday, hold public hearings into Eskom’s application for the evaluation and approval of the RCA balance for the 2013/14 period of the third multiyear price determination (MYPD3).

Eskom said its 2013/14 RCA submission of R22.8-billion was driven substantially by revenue underrecoveries and higher expenditure on coal burn, independent power producers, open-cycle gas turbines and other primary energy sources.

The RCA is a submission reconciling past variances and was not an application based on future forecasts, the group noted in a statement.

In terms of the MYPD methodology, Nersa awarded Eskom an “allowed revenue” that was intended to allow Eskom to cover operating costs and earn a reasonable return. This allowed revenue was, however, calculated on the basis of a forecast.

Eskom said the RCA acted as a balancing mechanism between the allowed revenue awarded by Nersa on the basis of a forecast – the MYPD – and what actually materialised – a backward-looking mechanism.

The RCA balance could either be in favour of Eskom or the consumer, which would impact on electricity tariffs.

“Eskom has recently been downgraded by rating agencies and they note inadequate tariff increases as part of the reason for the downgrade.
 
“A favourable RCA process will improve investor confidence, which impacts our credit rating and funding security. Funding security ensures that the build programme remains on course for completion.

“Sufficient revenue allows Eskom to continue with the generation performance improvement programme to the benefit of all customers,” the utility held.
 
Nersa would hold national public hearings until February 5, where the process would come to a close in Midrand, Gauteng.