Tariff hikes on cards as Nersa gives Eskom 4 years to recover R32.69bn

The National Energy Regulator has approved the liquidation of Eskom's Third Multi-Year Price Determination (MYPD3) Regulatory Clearing Account Balances for the 2014/15, 2015/16 and 2017/18 financial years over a four-year period. Effectively, this means the power utility has four years to recover R32.69bn.

Nersa spokesperson Charles Hlebela told Fin24 on Tuesday that Eskom had originally applied to the energy regulator to be allowed to recover the variance in revenue of R66bn between what it was allowed under the MYPD3 process, and what was actually spent in the three years from 2014 to 2017. 

Eskom argued that the variance was mainly due to increases in costs due to a changing environment and assumptions made for purposes of the MYPD3 revenue decision, which did not materialise.

In June 2018, however, Nersa ruled that only a total Regulatory Clearing Account (RCA) balance of R32.69bn would be recoverable. These funds may be recovered through tariff hikes.

Nersa approved that the RCA balance of R31.105bn would be recovered from standard tariff customers, and R1.585bn would be recovered from a Negotiated Pricing Agreement (NPA) and international customers.

Eskom will recover R8.173bn from standard customers for the 2019/20, 2020/21, 2021/22 and 2022/23 financial years.

The amount to be recovered from NPAs and exports adds up to R396m in the 2019/20, 2020/21, 2021/22 and 2022/23 financial years.

Objections to tariff hikes

During public hearings conducted nationwide by Nersa in April, it was argued by the City of Cape Town, for instance, that if the full amount of R66.6bn in cost recoveries sought by Eskom was granted, it would result in a 35% increase in power prices, and such an increase would not be affordable to the SA economy.

At the time Cosatu, the Organisation Undoing Tax Abuse (OUTA) as well as people involved in the mining, energy and agriculture sectors, objected to Eskom's application.

During the hearings, Eskom group CEO Phakamani Hadebe said the RCA applications by Eskom represented an efficient and prudently incurred expenditure in relation to specifically identified cost and revenue items, when compared to assumptions made when the MYPD3 application was considered.

He said the RCA should be seen as similar to a monthly fuel price adjustment, the difference being that the RCA is done annually.

"A favourable outcome of the RCA balance and ultimate liquidation thereof will go a long way towards ensuring Eskom’s financial sustainability,” he said at the time.

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