The utilityadded that backward-looking mechanisms such as RCA are internationally-acceptedin regulated environments to allow the utility to retrospectively adjust forany over or under-recovery due to actual events differing from the initialassumptions, estimates and forecasts upon which the revenue determinations werebased. Read moreEskom’s new CEO takes to the streets ahead of meeting the board “This application deals with variances between what was assumed when NERSA made its decision on Eskom’s revenue application in the 2018/19 financial year and what eventually materialised as per Eskom’s audited financial statements as Eskom spent money in order to fulfil its mandate to provide electricity to South Africans,” said Tlhotlhalemaje. Eskom’s general manager for regulation, Hasha Tlhotlhalemaje, gave a presentation providing an overview of the entire RCA application. She explained that the shortfall needed management intervention and a re-prioritisation of cost between the different licensees and cost categories. Eskom RCA: Favouring the consumer The main variances in favour of Eskom relate to primary energy costs, usage of open-cycle gas turbines, employee benefits and lower sales volumes. Read moreUp for sale: Eskom’s Pebble Bed Modular Reactor UNDP China, CCIEE launch report to facilitate low-carbon development These includemaintenance, independent power producers (IPPs), environmental levy, return onassets, research and development, demand response programmes and other primaryenergy(due to a misalignment in NERSA decision). NERSA public hearing on Eskom’s Regulatory Clearing Account 2018/19 financial year is underway in Cape Town. pic.twitter.com/6QS2Egp1g6— NERSA_ZA (@NERSA_ZA) February 3, 2020 This mechanismalso applies to Eskom, said the power utility. Sign up for the ESI Africa newsletter This ensuresfairness for both the utility and electricity consumers. The under- orover-recovery is then catered for through adjustment to future electricitytariffs. AFD and Eskom commit to a competitive electricity sector Addressing thehearing, Tlhotlhalemaje said: “The context within which the Eskom Board hasapproved the RCA application is based on the NERSA prudency guidelines. We aretherefore asking the regulator to review the application based on theefficiency and prudency of expenditures, some of which were already committedprior to the regulatory revenue determination. The application is to recover prudently-incurred costs for the year 2018/19 according to the Multi-Year Price Determination (MYPD) methodology guided by the Electricity Regulation Act (ERA), the Electricity Pricing Policy (EPP) and NERSA’s reasons for the decision on the 2014 RCA application. Low carbon, solar future could increase jobs in the future – SAPVIA “We are alsomindful and committed to complying with the approach decided by NERSA withregards to amounts associated with governance failures. The recovery of moneysfrom McKinsey, for example, has already been included in the RCA balancedetermination related to this application. Eskom has made a case for its Regulatory Clearing Account (RCA) application totalling R27 billion at the first session of the National Energy Regulator of South Africa (NERSA’s) public hearings. “Achieving the amountthat was assumed by NERSA would have meant Eskom decreasing coal costs byapproximately 17% and ignoring its existing contractual obligations to coalsuppliers. Regarding the assumed cost of employee benefits, it was based on anassumption that Eskom would lose about 6,000 employees at a go, which did notmaterialise, irrespective of whether the assumption had any merit in the firstplace,” she explained. “OCGTs were used in accordance to NERSA’s scheduling and dispatch rules to ensure security of supply. Reduced usage would have increased incidents, duration and severity of loadshedding,” added Tlhotlhalemaje. Generation #NersaHearing-Members of environmental organization EarthLife Africa demonstrate outside Nersa hearing. pic.twitter.com/IiVCPZecwh— POWER987News (@POWER987News) February 4, 2016 McKinsey, the wagebill, and corruption It is worthnoting that Eskom’s application also includes variances that are in favour ofthe electricity consumer where initial revenue determination assumed highercosts for the year under review). Tlhotlhalemajeemphasised that due to the complexity of the various aspects of theapplication, and specialist staff required to deal with each aspect, Eskom hadscheduled to deal with these in more detail at each of the public hearings tobe held over the next three weeks in various provinces. Finance and Policy When a regulatormakes a revenue determination for a future period it does so based onassumptions, estimates and forecasts regarding that future period, stated Eskomin a statement. Featured image: Stock “In addition, we continue to work with law enforcement agencies to recover moneys that were lost to Eskom under corrupt circumstances and our future revenue applications will be adjusted based on the outcomes of current investigations,” she said. “While Eskom implemented measures such as an embargo on external appointments in order to work within financial constraints, this did not lead to the savings assumed for purposes of the revenue determination. TAGSelectricity tariffsEskomNersaSouth Africa Previous articleWind energy manufacturing job market awaits green lightNext articleUK don’t isolate nuclear in pursuit of net-zero, says expert Nicolette Pombo-van ZylAs the Editor of ESI Africa, my passion is on sustainability and placing African countries on the international stage. I take a keen interest in the trends shaping the power & water utility market along with the projects and local innovations making headline news. Watch my short weekly video on our YouTube channel ESIAfricaTV and speak with me on what has your attention. Appropriate subject matter experts will be attending the respective public hearings – as opposed to Eskom’s presentation the first hearing, which was a high-level overview of the full application. Eskom has implemented this approach over a number of years in order to provide a rationale behind its application and deal with stakeholder concerns adequately. Join the discussions on Power Strategy at the African Utility Week and POWERGEN Africa conference. Click here to register to attend or for more information about the event. RELATED ARTICLESMORE FROM AUTHOR BRICS Any revenue adjustments due to RCA are implemented within a period that is sustainable for Eskom and consumers. The period for recovery of adjustments pertaining to FY 2018/19 (the subject of the current application) needs to consider the impact of approved RCA adjustments that Eskom has not yet recovered dating back to 2015.