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Eskom’s RCA applications are not a revenue application based on future estimates
Monday, 23 April 2018: Eskom today addressed North West stakeholders in Klerksdorp on its three regulatory clearing account (RCA) applications to the National Energy Regulator of South Africa (NERSA). Doing Eskom’s presentation during NERSA’s public hearings, Ms Hasha Tlhotlhalemaje, the company’s General Manager for Regulation explained from the outset that the RCA is a balancing mechanism between what was awarded by NERSA on the basis of a forecast (multi-year price determination or MYPD), and what actually materialised (Eskom’s audited financial statements) - a backward-looking reconciliation.
Tlhotlhalemaje explained that Eskom has submitted 3 RCAs for years 2 to 4 of the third multi-year price determination (MYPD3) to be adjudicated. “It should be noted that the RCA application is not a revenue application based on future estimates, and is also not a response to the price increase of 5.23% that NERSA granted to Eskom for the 2018/19 financial year. Since the applications are for three years Eskom is not expecting a once-off price adjustment for the RCA Balance of R66bn, and would be agreeable that this be phased in,” she said, adding that the phasing of the liquidation of the RCAs needs to take Eskom’s financial sustainability and the impact on customers into consideration.
Eskom then responded to the recent World Bank report that estimated that Eskom's Transmission and Distribution staff should optimally number around 9 596, and the Generation staff should amount to 4 648, for a total of 14 244. The World Bank report is based on a methodology wherein the total numbers of employees reported in the utilities’ annual reports are compared with the staff complement in utilities in three clusters. For Eskom their Transmission and Distribution estimate was apparently based on a network size of 79 811km and customer base of 5.5m. For Generation they used a capacity of 47 027MW.
Explaining Eskom’s stance, Deon Joubert, the company’s Corporate Specialist for Finance and Economic Regulation said that: “The World Bank seemed to have omitted to factor in the network <22kV.. By not using the actual network size of 368 331km but instead using 79 811km, it positioned Eskom’s network size below that of Ethiopia, similar to Zimbabwe, and <60% of the size of Nigeria’s network – whereas in reality Eskom’s network is 5x the size of Zimbabwe’s, nearly 4x the size of Ethiopia’s and nearly 3x the size of Nigeria’s.”
Joubert went on to point out that while Eskom is not discrediting the World Bank report, we believe that there may be errors relating to the size of the network. “If the World Bank used the correct figures relating to the size of the network, which is five times more than what they reported, the result would show a total number of 41 900 employees would correspond. For interest sake, as at 31 March 2015 (the source of the World Bank report), Eskom had 41 787 employees. Eskom is in discussion with the World Bank to see how this issue can be addressed,” he added.
Tlhotlhalemaje concluded by confirming that Eskom was in agreement with NERSA’s international approach in terms of sound regulatory practice that the standard for prudence and efficiency is reasonableness, not perfection. She said that Eskom’s RCA applications followed these principles with regard to matters such as Eskom’s operating and primary energy costs, technical performance, system management, capacity expansion programme, and accuracy of forecasting. She confirmed that these RCA applications are premised on MYPD methodology principles per the NERSA decision for the MYPD 3 year 1 RCA. She said that the steps Eskom took to ‘keep the lights on’, as was expected of it during the period of inadequate capacity, were prudent, efficient and reasonable from a national perspective as well as from Eskom’s perspective.