Eskom is hiding inefficiencies, maladministration from court – Nersa

In a strongly-worded affidavit, electricity regulator Nersa’s acting full-time member for electricity Nomfundo Maseti has accused Eskom of abusing court process in its urgent application to be heard next week Wednesday.

According to Maseti, Eskom is hiding the true extent of its own inefficiencies and maladministration – which is the real reason for its financial destruction. This includes providing R1.8 billion for performance bonuses over three years, overspending on maintenance with no clear benefit, and borrowing to fund its spending rather than cutting costs.

Eskom accuses Nersa of causing its financial distress by consistently granting inadequate tariff increases. Instead, Eskom should take accountability for its own failings, Maseti argues.

This comes as Eskom has failed to regain control of its failing coal fleet, after unplanned breakages led to unprecedented Stage 6 load shedding on December 9.

Over the festive period unplanned outages remained consistently above 12 000 megawatts (MW) – much higher than the 9 500-MW limit set by Eskom to keep the lights on. Over the past weekend it once again rose almost 16 000 MW, resulting in Stage 2 load shedding despite low demand.

This has led to fears of much more regular and intensive load shedding once the economy gets going by January 13.

Eskom is asking the High Court in Pretoria to review and set aside part of Nersa’s decision to limit its revenue from electricity tariffs for the period 2019/20 to 2021/22, the fourth multi-year price determination (MYPD4), and allow it to recover R69 billion additional revenue over the next two years.

The urgent part of the challenge is limited to the R69 billion that Nersa deducted from Eskom’s allowable revenue, in light of the equity injection of R23 billion that government promised the utility in each of the three years of the MYPD4 tariff period.

Eskom CFO Calib Cassim told the court in his founding affidavit that this move is irrational and should be reversed or it will cause Eskom and the whole economy irreparable harm.

Eskom has indicated that it will at a later stage also challenge the rest of the Nersa decision, but has not yet submitted court papers in this regard.

It is however also challenging four more Nersa tariff decisions in two other applications that are set to be heard at the end of this month and the end of February respectively.

If Eskom’s application succeeds next week, electricity prices will rise by about 16% this year and again next year, instead of the 8.1% and 5.22% as Nersa determined.

In her affidavit Maseti takes issue with Eskom’s approach. She says the tariff determination is much more complex than Eskom makes it out to be. It is wrong to focus on one aspect only and should be viewed holistically, she argues.

That is why she has raised the matter of Eskom’s planned bonuses, over-expenditure and failures in procurement.

R1.8 billion for bonuses

“It came to Nersa’s attention,” Maseti says, “that Eskom indicated that it required incentive bonuses for the MYPD4 period amounting to R580 million, R598 million and R622 million for the 2019 to 2022 period.”

Maseti says this is within the control of management and can only be allowed when Eskom has achieved efficient operations and a healthy financial position.

Nersa has disallowed the provision for incentive bonuses, but that is part of the decision that Eskom is challenging.

Eskom’s staff bonus expenditure has become a sore point after doubling in 2017, when the group spent R4.2 billion on bonuses despite making a loss at company level and receiving a qualified audit report. This averaged at R88 000 per staff member.

Since then staff have not received new bonus awards, although the more than 30 000 members of the bargaining unit each received an after-tax amount of R10 000 in 2018, for agreeing to a three-year wage deal that included an annual increase of 7.5%.

Eskom’s provision for incentive bonuses for the MYPD4 period was not disclosed in the tariff application published for public comment.

Government bailout not disclosed to Nersa

Maseti says Nersa had to learn about government’s equity injection when it was announced in Parliament. This was despite an obligation on Eskom to disclose all relevant information when Nersa considers a tariff application.

The regulator took note of the announcement and determined that it would result in excess returns for Eskom. That would result in high tariffs that consumers would be unable to afford, she states.

In line with its legal obligation to balance the needs of Eskom, the South African economy and the consumer, and taking into account the struggling economy, Nersa used its discretion and deducted the R69 million from Eskom’s allowable revenue to ensure a fair distribution of risk between Eskom and the consumer.

Maseti cautions that Nersa with its specialised knowledge and experience of the electricity market is best placed to take decisions about Eskom’s tariffs and that the court should not interfere.

Listen to Nompu Siziba’s October interview with energy expert Chris Yelland:

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