The National Energy Regulator of South Africa (Nersa) on Monday hosted the last of its public hearings on Eskom’s regulatory clearing account (RCA) application for the 2018/19 financial year, in Midrand, with various organisations having expressed their opposition to the granting of further tariff increases for the utility.

Eskom is seeking to claw back R27.3-billion through the RCA application, which will result in an electricity tariff hike of between 12% and 17%.

The application for R27.3-billion comprises R5.5-billion in revenue shortfalls, R14-billion related to coal and coal-related costs, R3.3-billion in operating costs and R3.4-billion related to the running of the utility’s 3 400 MW of open-cycle gas turbines.

Nersa will announce its decision on the application on or about March 24, so that Eskom is able to adjust its tariffs on April 1.

Eskom said it would respond in writing to questions by various stakeholders in part by February 28, with the balance of queries to be attended to by March 4.

ALL OPPOSED
Minerals Council South Africa chief economist Henk Langenhoven during public hearings in Pretoria on Friday said the latest RCA application would effectively increase already high electricity tariffs by 15%.

The council further argued that the granting of additional revenue to Eskom would result in more than 8 200 job losses at marginal mining operations, as well as lower electricity demand that would result in a further decrease in Eskom's future income.

“Tariff increases of more than 523% since 2008 had been largely responsible for the decline that Eskom had experienced in electricity sales volumes – from 224 366 GWh in 2008 to 185 930 GWh in 2019,” Langenhoven explained.

AfriForum local government affairs head Morne Mostert during the RCA hearing on Monday noted that Eskom had not improved its situation, with a continued poor performance over the last several years.

He highlighted that Eskom’s incomplete reporting of irregular expenditure and non-adherence to tender processes, for example, had bearing on the utility's RCA application and was testament to the management style being implemented by the entity.

Mostert said Eskom had produced less power in the last four months than at any time in the last 17 years, which he asked Nersa to also take into consideration when it makes its decision.

AfriForum’s stance remained that, instead of providing more money to Eskom or using taxpayer money to aid the insolvent entity, the utility should rather improve its management principles to ensure more prudent spending.

RATIONALE FOR RCA
The RCA is a risk management mechanism of the Multi-Year Price Determination (MYPD) to deal with variances between what was determined by Nersa for purposes of its revenue determination, and what actually materialised – according to Eskom’s audited financial statements.

Nersa approved that a single-year application could be made for the 2018/19 financial year. In the single-year determination, Nersa granted Eskom a 5.23% tariff increase and not the 9.9% increase the utility had asked for.

Eskom said the determination had left it with a funding shortfall, since sales volumes determined by Nersa had not materialises.

With regard to the coal and coal-related costs, specifically, Eskom pointed on Monday out that Nersa had disallowed almost 20% of the coal burn cost for which the utility had applied. Nersa’s allowed coal cost on a rand per tonne basis for 2018/19 had been lower than that projected for 2017/18 and on par with the projection for 2016/17.

Langenhoven commented that the excessive coal costs in 2018/19 had been a function of Eskom opting over the years to sign expensive short- and medium-term coal contracts and to reducing investment in more cost effective mines and fixed-price long-term contracts.

Further, Engineering News previously reported that the struggling utility had already been granted an increase of 8.1% for 2020/21 following Nersa’s adjudication of Eskom’s MYPD 4 submission in early 2019.

Nersa sanctioned a 9.41% hike for 2019/20, but Eskom’s tariff rose by 13.82% on April 1, 2019, owing to the inclusion of a 4.41% RCA adjustment granted following Nersa’s adjudication of RCA applications for the final three years of the MYPD3 period.

Eskom applied to claw back R67-billion through the three RCA applications, but received only R33-billion.

Separately, Eskom had approached the courts for a judicial review of the regulator’s price determination for 2018/19, the MYPD 4 period, as well as the RCA determinations for the 2014/15, 2015/16 and 2016/17 financial years.

On October 11, the utility also applied for urgent interim relief against Nersa for its treatment, in the MYPD 4 adjudication, of yearly fiscal transfers of R23-billion announced as announced by Finance Minister Tito Mboweni in his February Budget last year.

Eskom claimed the regulator’s decision to offset the equity investment not only fell foul of the MYPD methodology, but also “defeated the whole purpose of the government support”.

The High Court judgment on the matter was yet to be announced.