Eskom lowers tariff application

Power giant Eskom has lowered its tariff application for 2018/19 from an average 19.9% for its direct customers to 18.9% and 27.5% to 26.9% for municipalities.

The utility announced adjustments at the closing of energy regulator Nersa’s public hearings about the application.

Nersa is expected to announce its decision on December 7. The new tariffs will take effect on April 1 for Eskom’s direct customers and July 1 for municipalities and their customers.

Eskom interim CFO Calib Cassim said Eskom’s revenue requirement has dropped by R6.6 billion to R212.8 billion after it excluded costs to be paid to some Independent Power Producers (IPPs) for renewable energy. The original application included some projects that would not be ready to sell electricity to Eskom during 2018/19 and these are the ones that have now been removed.

This led to a reduction of R7 billion in the revenue requirement.

Eskom then added R450 million to its primary energy cost to replace the volume of energy those renewables would have supplied with coal generation.

The net effect is a revenue reduction of R6.6 billion.

Eskom’s sales forecast has also been revised downward based on more recent sales figures. It has revised its expected sales volumes to standard customers downward from 192 953GWh to 188 082GWh.

The net effect is that, according to Eskom’s calculations, standard customers should pay 18.9% more and not 19.9%.

In response to arguments from various stakeholders, including the Energy Intensive User Group of Southern Africa (EIUG), Eskom has proposed how Nersa should deal with the outstanding three Regulatory Clearing Account (RCA) applications.

The RCA is a mechanism that allows Eskom to claw back higher than expected costs or lower than expected revenue under certain conditions.

Eskom has lodged such applications for year 2, 3 and 4 of the previous five-year tariff period (MYPD3), which ends in February next year. They total R66 billion with R45 billion of that relating to lower than expected revenue.

Eskom indicated that the RCA of MYPD year 5 is also expected to be around R20 billion.

Nersa is yet to assess these applications, but Business Unity SA (Busa) and the EIUG have urged Eskom to waive them.

Eskom rejected this call, saying that it would be a contravention of the Electricity Regulation Act and tariff methodology that determine Eskom must be allowed to recover efficient cost and earn a fair return.

Eskom nevertheless acknowledged that the RCAs will have a severe impact on the affordability of electricity tariffs.

It therefore suggests that the RCA applications be processed together with the MYPD4 application. That is the application for the period starting on April 1 2019 and is expected to cover three financial years.

Eskom proposes that the RCAs be liquidated in a phased manner from April 1 2019. It gives the following example:

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Eskom’s proposal entails small percentage increases in every year of MYPD4, over and above the MYPD4 award itself, to recover the RCA award. At the end of MYPD4 there would not be any further increases based on these RCA applications, but the higher base remains until the full RCA award has been recovered.

Cassim told Nersa that this would address the affordability concern while enabling Eskom to utilise the award in its financing activities even before receiving the cash from consumers. It would also assist auditors when they assess Eskom’s revenue generation in the context of its going concern status, Cassim said.

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