natural gas

The National Energy Regulator of South Africa (NERSA) has initiated a public consultation process on two Eskom applications.

These refer to a regulatory clearing account (RCA) application of R21.6 billion for the fifth year (2017/18) of the multi-year price determination (MYPD) 3 period. This is a backward-looking application as the NERSA MYPD methodology requires Eskom, after financial year end, to submit its RCA application to NERSA based on efficient and prudent costs reflected in audited financial statements.

The second application is the MYPD 4 revenue application of R219 billion for 2019/20. R252 billion for 2020/21 and R291 billion for 2021/22.

Eskom, in this revenue application, has applied the NERSA MYPD methodology, with a smoothed price path over the MYPD 4 period by phasing-in of the return on assets. The phased implementation as adopted will ensure that by only the 3rd year (2021/22) will the allowed revenue cover the full debt service commitments.

This revenue requirement would correspond to a phased 15% average price increase for each year of the MYPD 4 period. However, the allowed revenue being applied for does not cover the entire debt commitment costs, equating to a cash shortfall for the 2019/20 and 2020/21 years.

The RCA is an account in which all potential adjustments to Eskom’s allowed revenue which has been approved by NERSA is accumulated and managed. This methodology allows Eskom to adjust for the over or under-recovery of preceding years’ regulated costs and revenues through the electricity tariffs in subsequent years.

Eskom will use the proceeds from the liquidation of the MYPD3 RCA decisions to contribute to mitigating the debt service shortfalls.