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Eskom asks Nersa for R22.8bn at tariff hike hearings

Jan 18 2016 13:36
Carin Smith

Cape Town – Eskom on Monday submitted an RCA application of R22.8bn to the National Energy Regulator of SA (Nersa).

The so-called Regulatory Clearing Account application relates only to the 2013/2014 financial year and Eskom indicated that an application regarding the 2014/2015 financial year will come at a later stage.

The RCA application is for cost recovery and revenue adjustments based on actual past variances and not a revenue application based on future estimates, Anoj Singh, Eskom’s chief financial officer, told the Nersa panel.

Singh's submission marked the start of Nersa's public hearings into why Eskom’s application to recover an additional R22.8bn through an electricity tariff increase should be granted.

The Nersa public hearings kicked off in Cape Town on Monday and will end in Midrand on February 5.

Nersa approves electricity tariff increases for Eskom based on a number of assumptions about factors such as electricity demand and cost of primary energy. Depending on how those assumptions pan out, Eskom is either owed money or owes the public.

The R22.8bn Eskom is applying for consists, among others, of R11.7bn for revenue variance, R8bn for open cycle gas turbine (OCGT) costs, R2.4bn for other primary energy costs, R2bn for coal burn and R1.7bn for independent power producer (IPP) extra purchases.

Singh said the revenue shortfall was primarily due to lower than anticipated demand and increased OCGT costs.

The revenue under-recovery was driven mainly by a lower sales volume from standard tariff customers (R7.3bn). This was due to the economic downturn, demand response initiatives and price elasticity impacts.

At the same time there was a higher use of OCGTs to avoid or minimise the impact of load shedding during that period.

The use of other primary energy components during that financial year also resulted in R1.5bn more of start-up gas used due to outages and trips, a variance of R884m due to nuclear fuel spent decommissioning provision (the storage of spent nuclear fuel) and an additional R377m incurred from coal handling.

Singh said Eskom is sensitive to the socio-economic situation in SA, but must also look at the power utility's financial viability.

“Eskom is sensitive to the impact it has on the economy and the importance of providing electricity when needed,” he said.

He added that Eskom continues to support the IPP programme as well as the focus on its new build capacity – Medupi, Kusile and Ingula – as a priority.

According to Singh, the impact of capital projects overspend on its application is minor.

“The full R22.8bn will improve Eskom’s ability to meet its financial commitments and improve its financial sustainability,” said Singh. “Notwithstanding this, Eskom’s credit rating remains unfavourable.”

He emphasised that investors are seeking certainty and stability from the regulatory process. Improved investor confidence would, therefore, impact Eskom’s credit rating and funding security.

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