Tag: NERSA

Consumers lose again in Eskom-NERSA clash

Source: OUTA 

Eskom’s urgent application filed recently to recover one of the R23bn bailouts in 2021 is understandable but it is harsh news for struggling consumers and businesses.

There is no way to win in this situation.

It’s the latest move in the legal battles between the inept regulator, NERSA, and the utility struggling with unsustainable debt.

In July 2020, the high court ruled that NERSA was wrong to consider the R69bn government bailout to Eskom (R23bn a year for Eskom’s 2019/20, 2020/21 and 2021/22 financial years) as revenue instead of as an equity injection, and that this resulted in a significantly lower Eskom electricity price increase allowed for these years. The court ordered this to be added back to the electricity price.

We note that NERSA conceded and acknowledged that it erred in this regard in the court proceedings leading up to the judgment against it. We further note that the judge ordered the error be rectified through appropriate tariff increases during the 2021/22, 2022/23 and 2023/24 financial years.

NERSA was subsequently granted leave to appeal, not in respect of its self-acknowledged error, but to challenge the judge’s authority to prescribe the manner and timing of electricity price increases to rectify NERSA’s mistake. NERSA believes it should have the right to decide how much the prices should increase and over what period in refunding Eskom, taking into account the effect on customers and the economy. NERSA’s appeal – which is still pending – effectively suspended the court order.

Eskom’s interdict this week calls for R23bn – one year’s bailout – to be loaded onto the 2021 price (the allowable revenue), so that it does not lose another year of this. It will add about 10% to the price increase from April 2021, in addition to the 5.22% already granted. In terms of the court order, it will increase the price from the already approved 116.72c/kWh to 128.24c/kWh.

OUTA believes that NERSA has demonstrated a serious lack of competence and judgment in its misappropriation of R69bn as revenue instead of equity in making the Multi-Year Price Determination (MYPD) for the 2019/20, 2020/21 and 2021/22 financial years. While this has a negative impact of Eskom’s cash flow and sustainability, we also believe that the application of Eskom’s tariff increases following the court’s ruling in their favour will be a blow to an already over-burdened South African consumer and the economy as a whole.

The past decade of NERSA’s lack of leadership and political meddling has failed to hold Eskom’s past leadership to account for the utility’s soaring costs, borrowings and false asset revaluations. This is now playing out in very technical and costly court challenges that are having negative consequences on both Eskom and the public at large.

OUTA believes that NERSA may be wasting more time by opposing Eskom’s interdict to have one of the three R23bn bailouts loaded onto the 2021 price, as this may lead to more bailout requests from Eskom to prevent it defaulting on its loans.

Eskom effectively lost the R23bn a year for 2019/20 and 2020/21, due to NERSA’s ruling. OUTA believes this ship has sailed and that this situation provides NERSA and Eskom with an opportunity to reach a compromise on writing off at least part of the outstanding R46bn, in a way that takes into account the interests of Eskom, customers, taxpayers and the economy.

Eskom goes to court to force tariff hike

Sources: EWN; IOL

The power utility has approached the courts to review the National Energy Regulator of South Africa’s decision to deduct a R69-billion bailout from Eskom’s approved revenue for the current tariff period.

Eskom on Tuesday said it must hike consumer tariffs to avert a complete financial meltdown.

The parastatal said this meant it would need steeper tariff hikes from the approved 8.1% this financial year to 16%.

The energy regulator’s decision to classify government’s R69 billion bailout to Eskom as revenue means Eskom will get less from consumers.

For this reason, the parastatal wants higher consumer tariffs over the next two years.

Eskom’s Hasha Tlhotlhalemaje said that besides increased tariffs this year, it would also need more than the 5.2% hike approved for next year.

“And this 5.23% increase, which 2.2% is accounted for by independent power producers, leaves Eskom with a 3% nominal increase. Now any household, let alone Eskom, cannot function that way.”

She said Eskom remained well aware of the financial situation of consumers but stressed the company needed to be sustainable.

Consumers fight back
By midnight on Monday, when the deadline expired for the public to comment on Eskom’s proposed tariff increases to the National Energy Regulator of SA (Nersa), energy activist group DearSA, sent Nersa over 171 896 comments it had received on its website from consumers.

Energy expert Ted Bloem said: “If we allow Eskom to succeed, we will see a substantial jump in the current tariffs.

As the increase is over and above Eskom’s annual tariff hikes, in reality your electricity costs will double within two years,” he pointed out.

Bloem will be representing the public and opposing the tariff hike application at each official Nersa hearing, to be held in all the provinces.

Are Eskom’s prices too low?

Source: Fin24

Eskom’s balance sheet has been providing a subsidy to consumers over many years, but this is not sustainable anymore and has reached a breaking point, the state-owned power utility said on Monday evening.

Eskom continues to share the rationale for its average annual electricity increase application of 15% for the fourth Multi-Year Price Determination (MYPD4) and Regulatory Clearing Account (RCA) balance application for 2018 made to the National Energy Regulator of South Africa (Nersa).

Nersa’s public hearings on the application continue and the latest one took place in Rustenburg for stakeholders in the North West.

“The main cause of the required price increase is the phasing-out of the current price subsidy, which does not preclude the subsidisation of specific targeted customer categories in future,” said Deon Joubert, Eskom’s corporate specialist for finance.

“Eskom is cognisant of the potential impact of the increase in various sectors, but it finds itself in a very difficult financial position… however, an objective analysis indicates that its debt situation is mainly or more than 80% a function of having had to take responsibility for the build programme, without the electricity price responding as was required.”

Eskom argued that, while higher tariffs are bound to dampen demand, a reluctance to raise prices towards cost-reflectiveness will deny Eskom the ability to fund investments and maintenance required to sustain an adequate security of supply.

“An inadequate security of supply has more negative repercussions to economic growth and social welfare than a tariff increase,” said Eskom.

Looking closely at unit costs, a World Bank analysis concluded that Eskom’s unit costs are very low relative to other sub-Saharan Africa utilities, Eskom said in a statement.

It found that Eskom’s unit cost was the 3rd lowest.

“Similarly, Eskom’s average price is very low relative to other sub-Saharan Africa utilities – but they are all pricing their electricity at unsustainably low levels and are thus in – or heading to – significant financial difficulties,” said Eskom.

The report calculated that 81% of the gap between Eskom’s current price and its costs is due to under-pricing, Eskom said.

In its presentation, Eskom looked at how its actual and projected electricity price from 2010 to 2024 compared to external references.

“On analysis, it became evident that similar to Nersa’s future price path, the various MYPD price paths Eskom requested would plateau once prices reached levels reflective of prudent and efficient costs – which Eskom calculated to be midway between Nersa’s previous upper- and lower price boundaries,” said Eskom.

By Jason Felix for IOL

In a first gut punch for consumers for 2019, Eskom is asking the National Energy Regulator (Nersa) for a 45% electricity increase spread over three years.

Public hearings on Eskom’s demand for a 15% electricity tariff increase over the next three years will start in Cape Town next week and advocacy groups are seeing red, saying government’s timing was a clear sign that it wanted increases pushed through.

This increase is on top of the 4.41% hike that was already granted to Eskom by Nersa. Eskom has argued that this 15% increase was needed to ensure that it maintained its stability and growth trajectory.

But Energy Expert Coalition’s Ted Blom said Eskom’s application should be scrapped as the still-captured and corrupt utility should not be granted any increases until a full forensic audit was completed.

“As we now enter 2019, Eskom is rudderless. The Eskom board has proved to be dysfunctional and required ministerial intervention on several occasions. Although appointed 12 months ago, they were unable to carve out a credible turnaround plan despite the use of expensive outside consultants,” he said.

Last year, President Cyril Ramaphosa intervened in the crisis at Eskom by appointing a team of eight to steer the board in the right direction by January 31 this year.

“The many futile interventions point to an unsalvageable and bankrupt Eskom. In fact, the pillaging is still continuing, this time by another ‘third force’ which has replaced the Zupta gang. Questions remain as to why no one has been prosecuted and no monetary recovery has occurred,” Blom said.

Nersa said it had received Eskom’s third Multi-Year Price Determination Regulatory Clearing Account (RCA) Year 5 (2017/18) application totalling R21 million and fourth Multi-Year Price Determination application totalling R219 billion, R252bn and R291bn for the 2019/20, 2020/21 and 2021/22 financial years respectively.

The energy regulator said that it would assess Eskom’s applications following due regulatory processes.

Eskom said that it continued to implement a short-to medium-term 9-point recovery programme that would see steady and sustained improvement in plant performance and coal stock levels.

It added that steady progress was made with regard to fixing coal stockpiles as 35 new coal contracts were concluded in the last year.

It also said the probability of load shedding remained low until January 13.

Stop CoCT founder Sandra Dickson said the timing of the public hearings showed that the increases should be rubber stamped.

“It is the worst decision to hold public hearings so early in the January. We also need to state that consumers cannot pay these exorbitant increases. It just does not work.

“The average family earns about R15 000 and more. For all that money to go to the City and to Eskom is absolutely criminal. People cannot survive,” she said.

Dickson said although Eskom had problems, its cash flows remained important. “They should get an increase but nothing above the current inflation rate… We need Eskom to run properly but cannot expect people to pay such high rates,” she said.

Public hearings on the increases will be held on January 14 at the Southern Sun Cape Sun Hotel in the city between 9am and 5pm.

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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