Eskom Finance Tariffs

Eskom says it needs R23bn more from tariffs in 2021 to remain a going concern

Eskom says it needs R23bn more from tariffs in 2021 to remain a going concern

Photo by Creamer Media's Donna Slater

5TH NOVEMBER 2020

BY: TERENCE CREAMER
CREAMER MEDIA EDITOR

State-owned electricity utility Eskom argued on Thursday that it required additional revenue of R23-billion for the upcoming financial year to remain a going concern and told the National Energy Regulator of South Africa (Nersa) that further tariff increases, beyond the 5.22% already approved for next year, were required to enable it to migrate to financial sustainability.  

Nersa is currently hosting public hearings as part of its deliberations on how to implement a regulatory clearing account (RCA) balance that has already been approved, as well as how it should respond to a supplementary application by Eskom arising from a recent court judgment on the 2019 financial year revenue decision and the remittal to Nersa of the three RCA decisions for the financial years 2015, 2016 and 2017.

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On November 5, the hearings focused exclusively on the implementation plan for the liquidation of the R13.27-billion RCA balance arising from a determination made earlier in the year for the 2019 financial year.

The RCA is a claw-back mechanism that is used to adjust the tariff, which is set ahead of time using cost and sales assumptions, to the actual costs and sales that materialised during the period. For the 2019 financial year, Eskom applied to recoup R27-billion and was granted R13.27-billion.

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Later in the month, the regulator will consider Eskom’s supplementary application arising from court rulings relating to the 2019 financial year revenue decision, as well as the remittal to Nersa of the RCA balances approved for financial years 2015 to 2017.

Eskom had provided details in its court papers for a further R26-billion in RCA balances for the three years, having already been granted R32.6-billion.

The four areas in contention relate to a deviation from the multiyear price determination methodology related to treatment of revenue variances for coal costs, independent power producers and capital expenditure. The judgment confirmed Eskom’s grounds for review and the utility’s supplementary application refers to R5-billion for disallowed costs in the 2019 revenue determination.

In parallel, Eskom is seeking an execution order for the automatic reintroduction of a R23-billion equity injection in line with a July 28 judgment, which found that Nersa acted illegally when it removed a R69-billion government equity injection from Eskom’s allowable revenue for the current tariff period, which ends in 2022.

The utility argues that the order should not be negated by Nersa’s appeal, as the regulator had already conceded on the merits and was only disputing whether the court erred in not remitting the decision back to it for implementation.

Presenting during virtual hearings on Thursday, Eskom GM for regulation Hasha Tlhotlhalemaje indicated that Eskom would not seek to secure all these amounts on April 1, 2021, but that an additional R23-billion was nevertheless required.

She argued that all other levers – including shareholder support, cost cutting, recovery of outstanding debt and illegal payments and a reprioritisation of capital expenditure – had been exhausted, leaving only the lever of tariff increases to facilitate its financial stabilisation.

“Thus it is a choice that Nersa has to make whether there is a migration towards ‘user pays’ or whether the continued subsidy by the taxpayer is maintained.”

The hearing was confined to the implementation of the R13.27-billion RCA balance, which Tlhotlhalemaje argued should be liquidated in full from April 1, 2021.

However, she used the platform to make the case for a larger R23-billion revenue increase, noting that, besides the R13.27-billion RCA balance, there were several other RCA amounts that had not yet been implemented and could be liquidated.

Even absent the implementation of these additional RCAs, Eskom’s request for the full R13.27-billion to be liquidated next year would translate to an additional 6.5% hike, or an overall increase of about 11.5%.

The Nersa panel overseeing the hearings, which are being chaired by fulltime regulatory member for electricity Nhlanhla Gumede, pushed back, however, with several panel members questioning whether the hike being sought would not retard South Africa’s recovery from the Covid-19 pandemic.

The panel was also not happy with Eskom conflating outstanding determinations that would flow as a result of recent court cases with the specific decision it needed to make regarding the liquidation of the R13.27-billion RCA balance.

Nersa would make its determination in this regard later in the month and would accept written comments from stakeholders up until November 13.

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