State-owned electricity utility Eskom has again argued that South African consumers are not yet paying “cost-reflective tariffs” and has indicated that it will continue to pursue revenue “claw backs” through the National Energy Regulator of South Africa’s (Nersa’s) regulatory clearing account (RCA). Eskom was strongly rebuffed by the regulator earlier this year when it approached Nersa for a selective reopening of the third multiyear price determination and sought an increase over-and-above the 12.69% granted from April 1. The application, which was found to be incompetent, was specifically confined to the recovery of surging diesel-related costs and to pay for the extension of Short-Term Power Purchase Programme (STPPP) contracts with private generators. But acting CEO Brian Molefe again argued at the group’s year-end results presentation on Tuesday that Eskom’s tariffs remained below cost-reflective prices and that the utility intended to close the “gap”. 

 

Using both a rate-of-return-on-assets methodology used by Nersa, as well as the “more conservative” historic valuation method, Molefe asserted that the gap between cost-reflective and actual prices was as large as 30c/kWh. Eskom sold electricity at 67c/kWh in 2014/15, which was 13% higher than the 59.67c/kWh of the previous year. The increase drove the 7% rise in revenues to R147.7-billion, with sales declining to 216 274 GWh, from 217 903 GWh in 2013/14. The group recorded a profit of R3.6-billion for the year, which was better than the R500-million forecast at the interim stage. A total of 548 GWh in sales was foregone purely as a result of load-shedding, which was deployed with greater frequency during the year and especially after the collapse of the central coal silo at the Majuba power station. 

 

Molefe attributed the difference between actual and cost-reflective tariffs to the failure of Nersa to grant increases in line with its own methodology. “This gap would not be there if tariffs had been awarded strictly according to the book – which is cost reflectivity,” Molefe argued, adding that the gap needed to be closed to enable the utility to “execute its mandate”. He said that while Nersa had refused to allow Eskom money for diesel and the STPPP contracts “in advance”, it had not refused to allow Eskom to “claw back” the money. “The principle of the pass through is not in dispute . . . what was in dispute was the timing. So we will reclaim it and we will have to go back to Nersa with a claw back of the expenses, which we hope to be able to show were prudently incurred.” The RCA applications would probably be dealt with “some time next year”. 

 

In the meantime, Eskom would proceed to raise R55.3-billion from the domestic and international capital markets, as well as from commercial banks, export credit agencies and development finance institutions. This money, Molefe stressed, would be used to fund the group’s capital expenditure programme, with its operating expenses covered using internally generated funds. Its approach to lenders would be supported by the injection of R23-billion from the government, as well as the conversion of a R60-billion loan from debt to equity. These initiatives would reduce its gearing from 70% to 67%.