Energy regulator Nersa last week published Eskom’s application in terms of the Regulatory Clearing Account (RCA) methodology for public comment. Nersa initially allowed Eskom to recover R86 billion in costs from electricity tariffs, but Eskom maintains it was entitled to recover R99.6 billion, which it says was prudently incurred.
According to the published timelines, stakeholders have until January 20 to submit written responses to the applications. Nersa will also hold public hearings on the matter in all nine provinces during February and plans to announce its decision on March 24 next year.
The RCA methodology is a mechanism to mitigate the risk of assumptions underlying the original tariff determination for the period being at odds with how circumstances play out in reality. It allows the regulator to retrospectively adjust Eskom’s revenue by adjusting tariffs in subsequent years in favour of either Eskom or the consumer, to compensate for variances in, for example, sales volumes.
This application is however not expected to impact electricity tariffs next year, since Nersa’s announcement will come too late to be incorporated in the upcoming tariff increase, which takes effect on April 1 for Eskom’s direct clients and July 1 for municipalities.
This is despite Eskom proposing that the amount Nersa awards be added to electricity tariffs in 2020/21 and 2021/22.
If Nersa awards Eskom the full R27.2 billion and splits it over two years, in 2021/22 and 2022/23, it will push the expected increase in April 2021 from 5.01% to 11.38%.
Eskom is however challenging five different tariff determinations by Nersa in court, including the original 2018/19 decision, which has resulted in overall uncertainty about the future price path of electricity.
The first applications are expected to be heard early next year. Eskom is arguing that Nersa shortchanged it by at least R100 billion and is asking the court to order the clawback of at least R69 billion.
If the first, urgent, application succeeds, it could result in tariffs increasing by 16.6% next year, instead of the 8.1% as things currently stand.
If Eskom’s other applications succeed, the court might refer the matters back to Nersa for redetermination, which would once again delay any price certainty.
In the current application Eskom relies largely on lower-than-expected sales volumes and higher-than-expected coal costs in arguing for the clawback.
After stripping out income lost due to lower sales that resulted from load shedding, Eskom is claiming an additional R5.4 billion due to reduced sales.
It blames this largely on the struggling economy. In its application, Eskom says the customer groups most affected are municipalities, mines and households.
The biggest impact at municipal level was in KwaZulu-Natal, where the closure of two furnaces by Richards Bay Alloys and downscaling by Karbochem cost Eskom 574 gigawatt hours (GWh) in sales.
In the mining industry sales reduced by 1 125 GWh, mostly in the gold sector and as a result of the Gupta-linked Optimum coal mine going into business rescue.
Eskom is claiming R16.7 billion additional revenue for primary energy, mostly related to coal.
‘Unreasonable’, says Eskom
The power utility is highly critical of Nersa’s decision to approve R39.1 billion coal burn cost, compared with the R48.6 billion it applied for and the ultimate actual cost of R51.5 billion.
According to Eskom, Nersa did not take into account the current coal purchase agreements Eskom is bound to and based its determination on a theoretical index that also fails to take the dynamics in the coal industry into account.
Eskom is further claiming R4.8 billion for variance in “other” costs, consisting largely of depreciation and employee costs.
It states that the R24.3 billion Nersa allowed for employee costs provided for only 32 954 staff members.
This meant Eskom would have had to reduce staff numbers by 6 323 within one month of the announcement of the decision.
Eskom is however bound by collective bargaining agreements and such a reduction would have required extensive and time-consuming negotiations with unions, as well as additional cost for severance packages, it argues.
The power utility criticises Nersa’s calculations with regard to employee costs and describes the amount determined as “unreasonable”.
According to Eskom, the reasons Nersa provided for its tariff determination in some instances lack the necessary information to base its RCA application on. It hopes to get further guidance from the court.