Eskom describes Nersa’s treatment of coal costs in latest RCA claim as ‘significant shift’

18th May 2020 By: Terence Creamer - Creamer Media Editor

Eskom describes Nersa’s treatment of coal costs in latest RCA claim as ‘significant shift’

Photo by: Creamer Media

State-owned electricity group Eskom says the National Energy Regulator of South Africa’s (Nersa’s) latest regulatory clearing account (RCA) determination for the 2018/19 financial year contains “some encouraging decisions”, highlighting its treatment of coal costs as representing a particularly “significant shift”.

Nevertheless, the utility told Engineering News & Mining Weekly that it would only be in a position to make a call on whether it would take the decision on legal review once it received clarity through the reasons for decision.

Nersa announced on May 15 that it had approved an RCA balance of R13.3-billion in favour of Eskom, including R10.8-billion in additional coal costs incurred during 2018/19 relative to those assumed in the original allowable-revenue determination for the year.

The Energy Regulator made the decision following a regulatory process that included public hearings in eight of South Africa’s nine provinces, conducted from February 3 to 24.

In its application, Eskom requested to be allowed to recoup R27.3-billion in additional costs and reduced sales revenue for 2018/19, including an additional R12.4-billion in coal costs.

Nersa did not immediately publish its reasons for decision, however, nor did it show how the amount would be liquidated, stating only that “an implementation plan for the 2018/19 RCA balance will be developed for approval by the Energy Regulator within a reasonable period of time”.

The utility, which has initiated review applications for several other RCA and allowable-revenue determinations made by Nersa, said the reasons for decision would enable it to ascertain whether the multiyear price determination (MYPD) methodology had been followed.

“Eskom has seen some encouraging decisions as reflected in the summary table [of Nersa’s media statement]. Key among these are that Nersa has made a significant shift with regards to coal costs. This is also the first time that operating costs are included in the RCA,” Eskom told Engineering News & Mining Weekly in response to questions.

The Eskom board would be in a position to assess whether or not to review the 2018/19 RCA determination only once a more detailed understanding of the decision was gained, which would “hopefully be provided in the reasons for decision”.

Eskom said it was possible that the regulator’s latest RCA decision was influenced by a recent High Court judgment, which described the regulator’s treatment of the utility’s coal and employee cost in the 2018/19 allowable-revenue determination as “highly problematic”.

“One of the key revenue items that [Judge Jody Kollapen] referred to in his judgment was the approach to coal costs. The indications are that it is likely that a significant variance in coal costs were included in the RCA decision, due to the principles alluded to by the Judge,” Eskom told Engineering News and Mining Weekly.


On March 10, Kollapen set aside Nersa’s 2018/19 determination and gave the utility the right to make a supplementary application to Nersa to recoup “any additional amounts which it has expended in the 2018/19 tariff year and to which it would have been entitled had the original tariff determination been made lawfully.”

Nersa did not appeal the judgment and Eskom has 60 days from the publication of the 2018/19 RCA decision to make a supplementary application for relief.

The full tariff implications of the 2018/19 RCA decision as well as the various legal processes under way – there are four review applications either under way or pending – are not immediately clear.

Nevertheless, Eskom anticipated that at least part of the liquidation would be reflected in the adjustment due on April 1, 2021. As with the 2018/19 RCA, the additional amounts run to billions of rands and could have material implications for future tariffs.

In addition, the courts are still due to review the merits of Eskom’s complaint regarding Nersa’s treatment of the R69-billion in government support announced for Eskom in the 2019 Budget.

In February, Kollapen turned down Eskom’s application for urgent relief on the matter, which he said would be evaluated as part of the second phase, or Part B, of Eskom’s contestation of this aspect of the fourth multiyear price determination, which governs the utility’s tariff increases for the three-year period to March 31, 2022.

Eskom disagrees strongly with Nersa’s treatment of the R69-billion – comprising three R23-billion-a-year injections from the National Treasury ­– as revenue rather than a shareholder injection. The matter is expected to be heard on June 24.