Eskom Wants a Clawback of R27 Billion from Consumers

Last week, Nersa published an application for public comment from Eskom in terms of the Regulatory Clearing Account (RCA) methodology. Originally, Nersa allowed Eskom to recover costs from electricity tariffs to the tune of R86 billion, but Eskom maintains that is allowed to recover R99.6 billion. 

Stakeholders will have until January 20thto submit a written response to the applications according to the published timelines. In February, Nersa will also be holding public hearings on the matter in all 9 provinces and the decision is set to be announced by March 24thnext year. 

The current application is not expected to impact the electricity tariffs for next year as the announcement from Nersa will come too late to be incorporated in the upcoming tariff increase, which occurs on April 1stfor Eskom direct clients and July 1stfor municipalities. 

However, Eskom is proposing that the amount Nersa awards should be added to electricity tariffs in 2020/21 and 2021/22. This means that if Nersa does award Eskom the full R27.2 billion and divides it over the two years in 2021/22 and 2022/23 that the expected increase in April 2021 will go from 5.01% to 11.38%.

In court, Eskom is challenging 5 different tariff determinations by Nersa, which includes the original decision for 2018/19 that resulted in the uncertainty over the future price path of electricity. Eskom is also arguing that they were short-changed by Nersa by at least R100 billion and is asking the court to order a clawback of at least R69 billion. 

If the first application does succeed, then it could mean that next year tariffs could increase by 16.6% instead of the 8.1% as it stands. 

If the other applications from Eskom succeed, then the court might choose to refer the matters back to Nersa for redetermination. If this happens then it will further delay any price certainty. 

The current application that’s arguing for clawback from Eskom relies mainly on lower than expected sales volumes and higher than expected coal costs.

Eskom is claiming an additional R5.4 billion due to reduced sales after lost income is taken away because of lower sales due to load shedding. This is blamed mainly on the struggling economy. Eskom says in its application that the most affected customer groups are mines, households and municipalities.

At municipality level, the largest loss was in KwaZulu-Natal where 574 GWh in sales were lost due to Richard Bay alloys closing two furnaces and Karbochem having to downscale. In the mining industry, sales were reduced by 1125 GWh mainly in the gold sector, which meant the coal mine, the Gupta-linked Optimum mine was sent into business rescue. 

On top of this Eskom is also claiming R16.7 billion in additional revenue for primary energy mostly related to coal. 

Eskom also applied for R48.6 billion in coal burn costs, but Nersa only approved R39.1 billion, which has been highly criticised by the power utility as the actual cost was R51.5 billion.

Eskom says that Nersa did not take into account the current coal purchase agreement that Eskom is bound to and based its determination on a theoretical index that also fails to take coal industry dynamics into account. 

Eskom is additionally claiming R4.8 billion for variance in other costs that largely consist of depreciation and employee costs. Nersa allowed for R24.3 billion for employee costs, but this only served 32 954 staff members. This would then mean that Eskom would have to cut 6323 staff numbers in just one month of the announcement. 

Eskom argues that they are bound by collective bargaining agreements and a reduction would mean time-consuming and extensive negotiations with unions and extra costs in the form of severance packages. 

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