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Eskom engages Gauteng stakeholders in Soweto on its revenue application
Friday, 01 February 2019: Eskom has today laid out its rationale for its average annual electricity increase application of 15% for three years under the fourth Multi-Year Price Determination (MYPD4) and Regulatory Clearing Account (RCA) balance application of R21 billion for 2018 made to the National Energy Regulator of South Africa (NERSA). This was at the first day of the Gauteng public hearings.
 
While dealing with the applications, Eskom’s Chief Financial Officer Mr Calib Cassim also responded to a request by the NERSA panel on the impact of Eskom’s performance on the application.  “I must emphasise that the two applications are developed in accordance with the regulator’s prudency guidelines and are based on the MYPD methodology decisions and reasons for decision on previous applications. Firstly, we maintain our RCA application as our assumptions remain unchanged. We have made proposals on liquidation of the RCA balance to be undertaken in same period as NERSA liquidation for RCA for years 2015 to 2017. In addition, we undertake to address, in subsequent RCAs, any outcome from various regulatory processes to address fraud and corruption.”
 
Mr Cassim added that: “On the MYPD 4 application we have found that the sales forecast, Regulatory Asset Base (RAB) and production planning assumptions including primary energy and capital expenditure have changed but the operational expenditure has not changed. NERSA in previous public hearings had requested Eskom to provide changes that reflect the latest environment and condition. Export customers supply has, for instance, been revised down due to discontinuance of supply to customers who fail to service their debt and a new contract not materialising. Generating units that are inoperable and those expected to shut down during the MYPD 4 period have been removed from the RAB. The energy availability factor of Eskom’s generation has been negatively impacted.” 
 
Mr Brad Ross-Jones Middle Manager in the Generation Group laid out the generation performance and changes in assumptions since the compilation of the application. “The root cause of challenges in generation is more than 10 years of running the generation system in the “red zone” due to a late decision to allow Eskom to build new plant. Our generation plant, most of which are past midlife, were performing better than international benchmarks until 2010 but are now showing signs of being run hard and aging. The improved performance we saw until the decline in 2018 was due to an increased focus on maintenance from 2011 to 2017 but this had declined from 2018 due to funding constraints. We are hard at work implementing the 9-point recovery programme to address technical, people and process issues to improve performance,” he said.
 
General Manager for Group Technology Dr Titus Mathe explained in detail causes for supply challenges at new coal-fired plants Medupi and Kusile. “Medupi’s units 6, 5 and 4 and Kusile unit 1, which are in commercial operation and feeding power into the grid are experiencing a number of failures with a total of 66 unit trips and 18 respectively year to date. This is not unusual for such projects. The majority of these defects emanate in the boiler system and the control and instrumentation (C&I) system and are of design/technical nature and also failure of people and processes. We are encouraged by the fact that we know exactly where challenges are and detailed plans are now in place to reduce these trips. We are working jointly with our contractors to ensure that we come up with solutions and monitor progress closely. We are also looking into utilising levers that are in our contracts to ensure that contractors fix emerging defects and that we recover costs and this includes withholding a percentage of payment certificates.”
 
Making conclusory remarks, Cassim said: “We have compiled changes as have been requested by the Regulatory panel.  These changes were made for consideration of the Regulator. The approach is in line with Eskom requesting prudent and efficient costs with a return that substantially covers the debt commitments.” 
 
ENDS