Eskom Presents Case at NERSA Hearings

Event Africa Contributor 23/04/2018 Industry News

Power utility Eskom has presented its case to the National Energy Regulator of South Africa’s public hearings, which kicked off in Cape Town last week.

At the first of the countrywide public hearings to be heard at the Cape Town ICC, Eskom presented its case to recover costs already spent in the provision of electricity totalling R66.6 billion, while allaying fears that this application would lead to a 30% tariff increase.

“Our sustainability as Eskom depends on a sound regulatory environment that is aligned with existing Nersa rules and other legislative requirements. We, therefore, rely on Nersa to review our application in line with the multi-year price determination (MYPD3) methodology, which is a globally-accepted regulatory principle that reconciles variances between the projected and actual revenue, and costs that Eskom incurred for certain elements,” said the utility’s interim Group Chief Executive, Phakamani Hadebe.

The regulator began its hearings into Eskom’s Regulatory Clearing Account (RCA) applications for financial years 2014/15 to 2016/17 from 16 April to 11 May 2018. Eskom’s applications total R66.6 billion.

The RCA is a monitoring and tracking mechanism that compares certain uncontrollable costs and revenues assumed in the MYPD decision (made by Nersa) to actual costs and revenues incurred by Eskom.

Hadebe said the application is based on the decision already taken by Nersa on the utility’s first RCA application for 2013/14.

“We have spent the money in the implementation of our mandate of providing electricity to South Africans by raising debt, as it was not included in the revenue decision and need to repay those loans accordingly in order to ensure credibility with our lenders,” he said.

Hadebe further emphasised that Eskom’s application only covers costs that were incurred efficiently and prudently as allowed by the RCA mechanism.

“We are aware and mindful of people’s concerns. It is therefore important to note that Eskom is on a path of recovery on governance issues that have marred our organisation in the recent past. The new board appointed in January 2018 has been embraced by the public and investor, and is focusing on operational and financial stability and clearing governance issues by bringing all those engaged in fraud and corruption to account.”

Combating Corruption 

Hadebe said internal processes have resulted in disciplinary hearings, suspensions and resignations of implicated executives.

“Continued focus and effort will be placed on combating corruption and pursuing justice within the legal framework.

“We also welcome various investigative interventions that are underway to get to the bottom of recent acts of fraud and corruption, and we are in a process of claiming back monies owing to Eskom, including money that was fraudulently paid to McKinsey and Trillian,” said Hadebe.

Phased-in Approach 

Meanwhile, the utility’s acting Chief Financial Officer, Calib Cassim, said Eskom is not expecting a once-off adjustment but rather a phasing-in of the liquidation over a few years to make it fair and manageable for electricity consumers.

“We need to emphasise that this is a retrospective process where we apply to recover costs that have already been incurred by Eskom, but cover what the Regulator deems efficient and prudent and also cover sales volume variances.”

Eskom has made the application in terms of the RCA balance for the second, third and fourth year (2014/15; 2015/16 and 2016/17 period) of the third multi-year price determination (MYPD3).

The second leg of Nersa’s public hearings will move to the Eastern Cape Training Centre (ETC) in Port Elizabeth on Wednesday.

The public hearings are expected to conclude at Gauteng’s Walter Sisulu Square in Soweto on 11 May.