Eskom in a cul-de-sac

IT MUST TAKE MATTER ON REVIEW OR ACCEPT DECISION

Eskom’s presentation to the parliamentary portfolio committee on energy on Monday contained one very important sentence: “[The] Eskom board has decided to utilise the processes of the National Energy Regulator Act for a review of the Nersa 2018/19 revenue decision.”

The presentation dealt with Eskom’s response to energy regulator Nersa’s decision (in December) to grant it a 5.23% tariff increase for 2018/19, versus the 19.9% it applied for.

Of this, three percentage points will pass through Eskom’s books to independent power producers, from which it’s obliged to buy renewable energy. Only 2.23 percentage points of the increase would therefor be for Eskom’s own benefit.

On the face of it, this sentence means Eskom’s board has decided to challenge Nersa’s decision in court.

This would make sense in light of the numerous mistakes and inconsistencies in the Nersa decision that Eskom pointed out to the portfolio committee.

Eskom criticised Nersa for assuming it could close two power stations overnight and save the associated coal and staff costs.

Not so easy, says Eskom. There are legislative processes to follow before this can be done. Moneyweb has learnt it could take up to a year to finalise.

Contrary to its own methodology, Nersa used different reference points for different cost items, Eskom says. Some of these reference points date as far back as 2008.

Overall, it says Nersa had to consider Eskom’s sustainability, but failed to do so. It left it with R22 billion less than it applied for.

Eskom states: “The price increases granted over the last two years exert enormous pressure on Eskom’s sustainability, liquidity and ability to continue providing electricity.”

In light of this argument it seems fair that Eskom would challenge Nersa’s decision in court.

In hindsight, Eskom probably should’ve done so when Nersa awarded it an 8% average annual increase for 2013/14 to 2017/18, instead of the 16% it applied for.

Even the Energy Intensive User Group of South Africa said it wouldn’t be enough for Eskom to remain sustainable.

Eskom spokesperson Khulu Phasiwe said Eskom did not want to risk a hostile relationship with Nersa by going to court.

Instead, the Departments of Public Enterprises, Energy and National Treasury together with Eskom would attempt to address the matter.

Nersa is an independent regulator. It can’t be managed politically. It must decide on technical matters by applying prescribed methodology and formulae.

The only other way to address Eskom’s shortfall would be for the shareholder (government) to bail Eskom out – and it won’t.

Nersa did not consider the sustainability of Eskom