[Tariffs]Eskom RCA takes into account its regulatory asset base of R1.3 trillion

*The National Energy Regulator of South Africa’s (NERSA) nation-wide public hearings continued with the Mpumalanga session held in Nelspruit on Friday. <…>*
With regards to the Regulatory Clearing Account (RCA) application, Eskom’s Chief Financial Officer Calib Cassim raised concerns on NERSA assuming that all transmission and distribution capital expenditure, even what was in NERSA’s MYPD 3 decision was considered to be inefficient. However, the networks were developed.
NERSA has not undertaken any efficiency analysis of these network costs. The regulator has now proposed a delay of the process.
Sharing a presentation which focused on costs related to Eskom’s regulatory asset base (RAB), capital expenditure and network related expenses, Cassim indicated that Eskom’s application took into account its RAB which is R1.268 trillion, and which is projected to increase to R1.3 trillion in April this year.
Explaining how Eskom has arrived at this figure, Cassim said: “Eskom has undertaken an independent valuation exercise for existing RAB as at 31 March 2016, resulting in asset valuation of R853 billion. The value of the RAB has been rolled forward with assumptions on consumer price index (CPI) for the value during application period, amounting to an overall average RAB value of R1.3 trillion in 2020 financial year.”
In response to Eskom’s request to relook the exclusion of generating units from the regulatory asset base, that will not be operable – thus have been put into reserve storage. Eskom has made a proposal to NERSA to remove these units from the regulatory asset base – this results in a decrease in depreciation costs and change in return on assets.
It was clarified that these units will continue to be available over the longer term – and are thus not being decommissioned. On completion, Eskom’s generation new build programme will increase Eskom’s generating capacity by 17,132MW, transmission lines by 9,312 km and substation capacity by 42,850MVA.
To date, over 60% of this capacity has already been achieved, with 10,750MW being connected to the grid. Read more: Eskom reveals factors contributing to generation plant performance <>
“It is also worth mentioning that while the Sere Wind Farm and the Ingula pumped storage scheme are already completed, the construction was 95% and 85% complete at Medupi and Kusile respectively,” said General Manager for Eskom’s Group Capital Division, Peter Sebola.
It was clarified that Eskom’s generation new build programmes are within the acceptable benchmarked range. It is recognised that Eskom can always improve on its timing and costs. However, the contracting strategy was only finalised when Eskom was put under pressure to provide further generating capacity.
Eskom Environmental Manager Deidre Herbst explained that for the application period, the organisation’s environmental projects will amount to R49,752.3 billion – excluding the costs for the installation of flue gas desulphurisation (FGD) at seven power stations, which is currently subject to a proposed postponement application by Eskom and which would cost between R20 billion to R30 billion per plant.
The efficiency of both the network businesses of Eskom was well demonstrated by the below-inflation increases in Transmission and Distribution costs.
Furthermore, based on the MYPD Methodology, Eskom’s planned capital expenditure for transmission projects as per its Transmission Development Plan (TDP) is R29.4 billion while the total allowable revenue for the Distribution Division is R97.7 billion.

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