State-owned electricity utility Eskom has proposed a five-year phasing-in period to recoup R66-billion-plus in cost and revenue variances contained in three separate Regulatory Clearing Account (RCA) applications.
The applications are being adjudicated simultaneously by the National Energy Regulator of South Africa (Nersa), which wrapped up nationwide public hearings in Midrand on Monday.
The applications cover the financial years 2014/15, 2015/16 and 2016/17, which all fell within the third multiyear price determination (MYPD3) window, which operated for five years between April 1, 2013 and March 31, 2018.
The RCAs are being adjudicated simultaneously following a protracted period during which Nersa refrained from assessing new RCAs, owing to a 2016 High Court ruling, deeming as illegal the RCA adjudication process carried out for the 2013/14 financial year.
However, subsequent rulings by the Supreme Court of Appeal and, again in August last year, by the Constitutional Court, opened the way for Nersa to begin processing RCA applications once more.
On the final day of the public hearings in Gauteng, the utility argued that the amount could be recouped through three separate yearly increases of 3% over-and-above any tariff hikes approved as part of the fourth multiyear price determination (MYPD4), which Nersa would deliberate upon later this year.
Eskom confirmed with Engineering News that the MYPD4 application will be for three years covering 2019/20, 2020/21 and 2021/22.
However, acting CFO Calib Cassim said that the RCA-related increases would have to be sustained in the base tariff for a period of five years in order for Eskom to recover the full R66.6-billion sought for the three years, as well as any further recoveries made in favour of Eskom for the 2017/18 RCA application.
The 2017/18 RCA application, which also fell within the MYPD3 period, would be submitted by August and would seek to recover a further R20-billion in cost and revenue variances.
Assuming allowable revenue of R200-billion, the proposed three hikes of 3%, which would be on top of any MYPD4-related adjustment, would translate to recoveries of R6-billion in 2019/20, R12-billion in 2020/21, and R18-billion a year from 2021/22 through to 2023/24. Therefore, the RCA recovery would continue into beyond the MYPD4 period.
However, Eskom stressed that the figures were theoretical, with the actual RCA rand value still to be determined by Nersa.
Nevertheless, Cassim argued that the proposed phased liquidation of the RCAs offered a “reasonable balance” between the needs of the consumer and Eskom, whose financial sustainability was under pressure.
However, the majority of presenters at the hearings continued to question whether the additional costs had been prudently incurred, particularly in light of serious allegations of fraud and corruption at the utility, as well as indications of ongoing operational inefficiency during the period.
In its presentation to Nersa, Business Unity South Africa noted that "prudently incurred expenditure" should mean expenditure that was efficiently incurred and was useful, necessary and reasonable in allowing Eskom to provide an adequate level of service to its customers.
Nersa will make a determination on the three RCA applications before the end of June.