Eskom submits supplementary tariff application to Nersa

Eskom has submitted a R5.4 billion supplementary tariff application to energy regulator Nersa, and for the first time it has also included interest – to the tune of R1.3 billion – in the application.

This follows a high court order made by Judge Jody Kollapen in March, that found Nersa’s determination of Eskom’s tariffs for 2018/19 was irrational and unlawful. Kollapen set the determination aside.

At that stage Eskom’s R27 billion Regulatory Clearing Account (RCA) application was already before the regulator.

The RCA is a risk-mitigating mechanism that provides for retrospective adjustments – in favour of either Eskom or consumers – for revenue variations if assumptions underlying the revenue determination play out differently in reality.

Kollapen ordered that Eskom would, after the finalisation of the RCA, be allowed to bring a supplementary tariff application, should it still be short of the revenue it was entitled to if Nersa had made the initial decision lawfully. He laid down certain principles to be followed in deciding this application.

Nersa slashed Eskom’s RCA application to R13 billion.

The new application

In its new application Eskom says certain amounts it was entitled to, such as the R511 million it wanted for demand side management, it did not actually spend and is therefore no longer included in the outstanding amounts.

Other amounts were disallowed, and Eskom had no option but to borrow.

While the RCA makes no provision for the recovery of interest, Eskom argues that once the supplementary revenue has been determined, it should be compensated for the carrying cost incurred due to Nersa’s unlawful decision. “Only the interest cost, at a rate of 10% per annum compounded annually, is considered. The effect of inflation is not included”, it states.

Also included in the application is R2.4 billion for employee cost. This comes after Nersa based its calculation of prudent employee cost on Eskom’s generation function only, without proper consideration of the business model that includes transmission and distribution as well.

Summary of Eskom’s supplementary revenue application:

In its application Eskom proposes that the R5.4 billion be added to the R13 billion RCA balance and the total R18.4 billion liquidated through increased tariffs next year.

This, Moneyweb understands, will go a long way to ensuring that Eskom gets R23 billion additional revenue next year, which translates to a 15% average tariff increase.

Nersa earlier approved a 5.22% average increase for next year.

Simple corrections

Nersa further must still reconsider three RCA decisions for 2014/15, 2015/16 and 2016/17, and Eskom hopes that the balance to make up the R23 billion it wants can be found by simply correcting some obvious mistakes Nersa made when it first took these decisions.

During a meeting of Nersa’s electricity sub-committee last week, it was however clear that regulator members were concerned about the impact of a 15% tariff increase on consumers still trying to recover financially from the Covid-19 lockdown.

The meeting was concerned about the affordability for consumers and discussed tempering the tariff increase by spreading the amounts over three years.

The committee nonetheless made it clear that these decisions have to be finalised before March 15 next year, when Eskom must table the bulk tariffs it will charge municipalities in the new financial year in Parliament.

Correcting the past mistake

In the meantime Judge Fayeeza Kathree-Setiloane will on Friday hear an application from Nersa for leave to appeal her earlier ruling that it must add R23 billion to Eskom’s allowable revenue next year. That would be the first step in correcting its unlawful deduction of R69 billion from Eskom’s revenue for the three years 2019/20, 2020/21 and 2021/22 after the regulator learnt that government planned to assist Eskom with equity injections of R23 billion per year over the same period.

Nersa argues that the court should have referred the matter back to the regulator for reconsideration, as it did with several other unlawful tariff decisions.

If the appeal process is finalised in Eskom’s favour in time for next year’s tariff decision, Eskom will limit its expectation to the 15% increase this will translate to and will be prepared to defer the 2018/19 RCA and supplementary revenue amounts, Moneyweb understands.

That will however add up to steep increases in years to come.

Listen to Nompu Siziba’s interview with energy expert Chris Yelland (or read the transcript here):