Tag: NERSA

By Siseko Njobeni for Business Report; by Carin Smith for Fin24

The Congress of South African Trade Unions yesterday urged the National Energy Regulator of South Africa (Nersa) to reject Eskom’s application to recoup R666,6-billion, saying such a move was unaffordable, unreasonable and unjustifiable.

If the Regulatory Clearing Account (RCA) application – which covers the 2014/15, 2015/16 and 2016/17 financial years – is approved, Eskom would claw back the billions of rand through higher tariffs.

According to various organisations, the R66bn could lead to a 30% increase in tariffs.

South African consumers have reached a price ceiling in terms of electricity tariff hikes, according to the Southern African Faith Communities’ Environment Institute (Safcei). Kim Kruvshaar, an independent sustainability auditor, represented Safcei at public hearings by the National Energy Regulator of South Africa (Nersa) in Cape Town on Tuesday.
“We don’t believe Eskom is an efficient electricity provider. Its business model is out of sync with global trends,” Kruvshaar told the Nersa panel.

Public hearings

The RCA is a backward-looking mechanism that seeks to reconcile what Nersa awarded Eskom on the basis of what was forecast in the Multi-Year Price Determination (MYPD) and what materialised, as reflected in the utility’s financial statements.

In a presentation at Nersa’s public hearings on the application in Cape Town yesterday, Cosatu said higher tariffs were not the solution to Eskom’s problems. It said higher tariffs affected key sectors such as mining, inflation and economic competitiveness. It said Eskom had failed to come clean on state capture and to take serious action against maladministration and corruption.

The trade union federation said Eskom should institute comprehensive forensic and criminal investigation “with dismissals, arrests, asset seizures and prosecutions”.

Speaking at the hearing, Eskom interim chief executive Phakamani Hadebe said Eskom’s sustainability depended on a sound regulatory environment that was aligned with existing Nersa rules and other legislative requirements.

“We therefore rely on Nersa to review our application in line with the MYPD3 methodology, which is a globally accepted regulatory principle that reconciles variances between the
projected and actual revenue and costs that Eskom incurred for certain elements. “It is also worth noting that we based our application on the decision already taken by Nersa on our first RCA application for 2013/14.

“We have spent the money in the implementation of our mandate of providing electricity to South Africans by raising debt as it was not included in the revenue decision and need to repay those loans accordingly in order to ensure credibility with our lenders.”

Hadebe said Eskom’s application only covered costs that were incurred efficiently and prudently.

Recovery

He said Eskom was on a path of recovery on governance. The Eskom board – appointed in January – was preoccupied with the power utility’s operational and financial stability. “Continued focus and effort will be placed in combating corruption and pursuing justice within the legal framework. We also welcome various investigative interventions that are under way to get to the bottom of recent acts of fraud and corruption, and we are in the process of claiming back money owing to Eskom, including money that was fraudulently paid to McKinsey and Trillian,” said Hadebe.

Agri Western Cape said electricity costs had risen significantly since 2008. The federation of farming organisations said Eskom’s RCA should be vetted by auditors.

Eskom has been given the green light to pursue up to R60bn in clawback tariffs.

On Tuesday, the Constitutional Court dismissed an application to set aside the power utility’s regulatory clearing account (RCA) adjustments, clearing the way for Eskom to recover a potential R60bn through tariffs in the next year.

RCA adjustments deal with funds that Eskom needs to recover due to a shortfall in electricity losses or a escalation in operating costs, through possible tariff hikes.

The National Energy Regulator of South Africa (Nersa) will now hold hearings as Eskom argues why it should be granted the delayed tariff hikes.

However, Eskom has also Eskom is considering paying its employees a R150-million “winter challenge” bonus for avoiding power cuts, The Sunday Times reports.

The submission comes a month after the power utility reportedly paid R4.2-billion in performance bonuses to staff, and two months after public enterprises minister Lynne Brown approved bonuses totaling R13-million for its executives, including former CEO Brian Molefe, former chief financial officer Anoj Singh and suspended acting CEO Matshela Koko.

“I cannot think of any reason to pay bonuses to Eskom employees for doing their job: keeping the lights on,” said Brown.

“And particularly not in the current economic environment. It is an operational matter and therefore not the shareholders’ call, but I would like to believe Eskom’s interim leadership will take prudent financial decisions.”

Added to the no load-shedding requirement is that there can be no fatalities and no environmental contraventions.

An Eskom HR executive has indicated that the bonuses would be spread across the company and not limited to generation staff. Should the proposal be approved, Eskom would then pay an amount of R149.8 million to be shared among 47,053 employees.

Last year the Pretoria high court ruled that Eskom’s RCA adjustments were “irrational, unfair and unlawful”. This came after a four year court battle which set aside aside Nersa’s R11.2bn RCA award for Eskom’s 2013/14 financial year.

The battle started back in 2013, when companies from the Eastern Cape, led by alloy manufacturers Borbet SA, lodged an application against the RCA.

The court case prevented Eskom from processing future RCA submissions, which meant that RCAs for the 2014/15, 2015/16 and 2016/17 financial years were put on ice until the court case ended. While the companies initially triumphed in the Pretoria high court, the Supreme Court of Appeal (SCA) reversed the ruling and ultimately the Constitutional Court dismissed the application by Borbet SA and others for leave to appeal the SCA decision.

The ruling on Tuesday means that the 2013/2014 RCA tariff adjustment remains applicable and that Nersa will now have to process the three period applications of Eskom’s RCA adjustments. The SCA judgment will stand as the final word on the matter.

Eskom has applied to Nersa for a R19bn clawback for 2014/15, and a R22bn for the 2015/2016. The 2016/2017 application is not yet public, but is reported to be R20bn. This all adds up to R61bn that Eskom will try to recover, possibly over one year, energy analyst Chris Yelland said.

He said Eskom sales only amounted to R180bn and the R60bn will try to cover the shortfall.

“In order to recover this money, it would need to increase tariffs by 33%,” Yelland explained. “That is what Eskom will ask for at Nersa, this is not to say that they will get it.”

In addition, Eskom’s leaked, latest Nersa application asks for a 20% hike, which is apart from the possible 33% they are likely to ask for in the RCA adjustment, which could potentially bring the overall tariff hike up to 53%, Yelland explained.

“Even if they get half of that, it will put immense pressure on consumers,” he said. “The ruling certainly has heralded interesting times.”

Eskom’s plummeting electricity sales and increasing tariffs mean that the power utility will be selling even less power in future, Yelland said. “Eskom is in a utility death spiral.”

Eskom said the court’s ruling affirmed Nersa’s decision to allow Eskom’s application for a tariff adjustment .

This means that Eskom is not barred from making future RCA applications for electricity price adjustments to Nersa, the state utility said.

“The ruling also clears the path for Nersa to process Eskom’s RCA submissions for the 2014/15, 2015/16 and 2016/17 financial years.”

After losing the first round, Nersa and and Eskom approached the SCA to set aside the High Court ruling, and won the case. In July the companies then took their case to the Constitutional Court, which on Tuesday dismissed the case.

The Constitutional Court dismissed Borbet’s application on the basis that the application “bears no prospects of success”.

By Yolandi Groenewald for Fin24; BusinessTech

The average four-person South African household should pay R290 a month for electricity, yet Eskom is charging them roughly R1,200, says a lobby group.

Now Eskom is seeking a 20% tariff increase from the National Energy Regulator of South Africa (Nersa).

Energy analysts have described Nersa, which starts its public hearings into the proposed tariff increase in Pretoria today, as the only thing preventing disaster.

Presentations by the Organisation Undoing Tax Abuse to parliament’s public enterprises portfolio committee this week reveal the power utility should be relying on its capital expenditure budget and the government and not on ordinary South Africans to float it.

Finance Minister Malusi Gigaba this month said the government was considering granting Eskom a favourable loan or possible bailout.

StatsSA yesterday released its findings of Capital Expenditure by the Public Sector 2016 report, which showed that capital expenditure by public sector institutions rose to R284-billion from R265-billion.

The report shows that capital expenditure by state institutions has increased by R1.2-trillion over the past five years. Eskom accounted for R73-billion, with the new Medupi, Kusile and Ingula power stations accounting for R70-billion.

Outa’s energy specialist Ted Blom said they revealed to parliament Eskom had a qualified audit of R3-billion in irregular expenditure without supporting documents.

“Explanations are needed as to how the R3-billion was processed without the documentation. Either there is a magic password which allowed this or there is an old chequebook lying around. Either way Eskom’s chief financial officer, Anoj Singh, must explain.”

Blom described the electricity tariffs the average four-person household was paying as “daylight robbery. There are three cost drivers to the power utility. They include the financing costs of money borrowed, their power plants and the operations.”

Only Eskom’s operations were subject to inflation, so increases should be a third of inflation, as two-thirds of costs were fixed.

He said on the assumption Eskom was efficient in 2005, and the cost of electricity for a four-person home was R160, the cost now for electricity, based on an annual escalation of a third of CPI, would be R290.

Blom said compounding Eskom’s financial problems was the building of Medupi and Kusile power stations.

Blom said Eskom recently announced that they need to borrow R325-billion over the next five years to finish off the two stations, 10 times higher than initial estimates.

He said Nersa should, and could, dramatically reduce the electricity tariff.

Nersa spokesman Charles Hlebela would only say that Eskom’s application would be considered in terms of the law.

Eskom spokesman Khulu Phasiwe said they would respond to allegations in parliament and not through the media.

By Graeme Hosken for TimesLive

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