Eskom quietly bidding to recoup R67bn
Eskom’s application to its regulator to claw back almost R67bn it had overspent on what the regulator had allowed it during the middle three years of its most recent tariff period has attracted relatively little attention.
That is in contrast to the 20% interim application it put in to the National Energy Regulator of SA (Nersa) earlier in 2018 that attracted huge controversy and elicited a 5.2% award from the regulator. Yet if the regulator were to agree to the current application as is, that would mean a total tariff increase of as much as 35%.
True, Eskom has proposed a five-year phase-in period from 2019-20 to recover the money, in the unlikely event the regulator agrees to it. Nersa’s stern response earlier in 2018 to Eskom’s interim tariff application suggests the regulator has become increasingly intolerant of the power utility’s constant pleas for more money to cover cost overruns.
But whatever money it agrees to would still be on top of whatever regular tariff increases the regulator agrees to for the same period — Eskom’s application for the next multiyear tariff determination, MYPD4, is due in August.
The current application, on which Nersa completed public hearings this week, relates to the regulatory clearing account (RCA) for the three years from April 2014 to March 2017, during MYPD3, which Eskom had applied for in 2012. This was some time before the load shedding of 2014-15 or the emergence of a stream of corruption and governance scandals.
The RCA caters for situations in which the sales and input cost forecasts Eskom uses when it puts in a multiyear tariff application turn out to be too high or too low, through no fault of its own, and it incurs costs it wouldn’t have otherwise — costs it may claim back from customers through higher electricity tariffs in future years.
Any money the regulator allows Eskom in terms of the application is on top of the regular tariffs it is allowed to charge. For example, if Nersa were to allow Eskom tariff increases of 10% a year through MYPD4 and agree to the full RCA phased in as Eskom suggests, the 10% would become 13% in the first three years of MYPD4.
While regular MYPD tariff applications are forward looking, RCAs are backward looking. In other words, Eskom has already spent the R67bn. The big question is who will pay for it.
Discussion at the public hearings touched on some fundamental issues about the ownership, governance, funding and mandate of state-owned enterprises such as Eskom, as well as whether the money Eskom spent during those three years of the RCA was indeed prudently and efficiently spent.
At least some of that excess spending was, in effect, the cost of state capture — coal contracts that cost a lot more than they should have because of corrupt activity, for example. How much of it was Gupta related is unclear, but the regulator must allow only spending that was prudently and efficiently incurred, and there were many challenges to Eskom on that basis — as well as on the basis that if it couldn’t supply the power to customers during the load-shedding period, how could it demand money to cover the costs it incurred to not supply them?
Two-thirds of the R67bn was the result of lower-thanforecast electricity sales during a period in which Eskom forced its large customers to cut demand to help it keep the lights on and later load shed.
The Chamber of Mines and others argued that this was Eskom’s fault, for not completing its new power stations on time and not adequately maintaining existing ones, so in terms of the RCA rules it cannot claim them. The chamber also queried why it paid more for coal but used less, also for reasons that were presumably within its control (and, though the chamber didn’t spell it out, almost certainly related to dodgy dealings).
In its submissions, Eskom had blamed some of its maintenance woes on the fact that its shareholder, the government, required it to keep the lights on in the period until March 2013. But the chairwoman of the Nersa panel, Nomfundo Maseti, asked whether the shareholder mandate could be allowed to override the regulatory requirements governing Eskom.
It’s an important policy question. And so too is the question Nersa will have to answer as it deliberates on the application: who should pay for the RCA and with what implications? There really are only two paymasters, as Business Unity SA’s submission pointed out: consumers and taxpayers. The money can only be recouped through tariffs or through taxes.
If Nersa concludes that it was indeed spent inefficiently or imprudently or even corruptly, and that Eskom is not entitled to claim it through higher tariffs, then the government, ultimately, will have to pay up, which it doesn’t have the money to do.
Eskom cannot carry on like this. Its debt is unsustainable and its costs are so high it is already in a death spiral, in which ever-higher tariffs are leading to ever-lower demand from customers, prompting it to ask repeatedly for more money to cover its bloated cost base.
Eskom’s board and management have promised a restructuring plan by September. It cannot come too soon.
THE CHAMBER ALSO QUERIED WHY IT PAID MORE FOR COAL BUT USED LESS, ALSO FOR REASONS THAT WERE PRESUMABLY WITHIN ITS CONTROL
Joffe is editor at large.