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Eskom’s move to claw back R22.8bn could result in 16.6% 2016 tariff rise

Eskom’s move to claw back R22.8bn could result in 16.6% 2016 tariff rise

Photo by Duane Daws

12th November 2015

By: Terence Creamer

Creamer Media Editor

  

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State-owned electricity utility Eskom reported on Thursday that it had submitted a R22.8-billion regulatory clearing account (RCA) application to the National Energy Regulator of South Africa (Nersa) for the first financial year, or 2013/14, of the third multiyear price determination (MYPD3) control period, which runs from April 1, 2013, to March 31, 2018.

The application was submitted on Tuesday, November 10.

Nersa’s Charles Hlebela confirmed receipt of the application, which the regulator had calculated could, should it be approved, result in a tariff increase of 16.61% from April 1, 2016, inclusive of the 8% already sanctioned for the year.

In February 2013, Nersa approved yearly increases of 8% for the five-year MYPD3 period, having received an application from Eskom for yearly increases of 16%.

Hlebela said Nersa would probably hold public hearings into the latest RCA application, but indicated that the timeline for its processing would be communicated in due course. The application would be available on the Nersa website on Friday, November 13.

Following a RCA application for the MYPD2 control period, Nersa granted Eskom a 4.69% upward adjustment to the tariff from April 1, 2015, which resulted in a hike of 12.69% in 2015.

RCA applications were allowed for under the MYPD methodology, which enabled the utility, once its financial statements had been audited, to claw back “prudently incurred” revenue not recovered during a specific period.

The regulator described the RCA as a “depository for qualifying variances between the revenue and expenditure approved for Eskom in the MYPD3 determination and its actual revenue and expenditure” and it was considered necessary as the revenue and expenditure approved were based on forecasts.

“The MYPD rules require that from time to time a reconciliation of these variances be done in order to quantify over- or under-collection of revenue and over- or under-expenditure on Eskom’s part. The Energy Regulator allows only expenditure that has passed the efficiency test.”

Nersa would, however, need to undertake a prudency review of the costs, before determining the size of the increase and over what period it should be implemented through the tariff.

It is understood that the RCA application had been ready for some time, but it was unclear whether Eskom would make a submission for a single year or for multiple years, owing to the fact that it was already operating in the third year of the MYPD3.

The RCA application had also likely been delayed as a result of Eskom’s April 30, 2015, approach to Nersa with a ‘selective reopener’, when it sought an additional 9.58% to cover surging diesel-related costs and to pay for the extension of short-term power purchase contracts with private generators.

Nersa rejected the application on June 29.

BNP Paribas securities South Africa economist Jeffrey Schultz noted that the latest RCA application was nearly three times larger than what Nersa granted following the MYPD2 RCA application and came on the back of the utility’s deteriorating financial and operating position.

“Of course there is no guarantee that Nersa will actually grant the utility the full R22.8-billion, as previous decisions from the regulator have shown. However with National Treasury’s getting ever closer to its ‘fiscal cliff’ and the government’s promise to rating agencies of ‘deficit neutral’ financing for State-owned entities, our view is that there is little option but to grant the utility something close to what it has asked for – presuming of course that Eskom has gone about its application in the correct manner this time around,” Schultz said.

“This means more pressure on consumers, higher inflation in the second half of 2016 and a Reserve Bank which will remain in a tough bind as it continues to try to balance tepid growth prospects with an ever more challenging inflation outlook.”

Edited by Creamer Media Reporter

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