South Africa: Nersa Likely to Investigate Eskom Governance Issues

The National Regulator of South Africa (Nersa) is looking at the possibility of initiating an investigation into governance failures at Eskom.

Announcing its decisions with regards to the power utility's two applications for the Regulatory Clearing Account (RCA) Year 5 (2017/18) and the Multi-Year Price Determination (MYPD) 4 application, Nersa expressed concern at governance failures at the power utility.

At Thursday's media briefing, Nersa announced that it had approved allowable revenue percentage price increases of 9.41%, 8.10% and 5.22% respectively over the three-year period with regards to the MYPD4 application.

The regulator granted allowable revenue of R206.380 billion in 2019/20, R221.843 billion for financial year 2020/21 and R233.078 billon for financial year 2021/22.

The utility had applied for a total balance of R219.6 billion for the duration of three years. For the 2019/20 year, Eskom applied for R219 billion, R252 billion for 202/21 and R291 billion for 2021/22.

Nersa chairperson Jacob Modise said the regulator also considered governance failures at the utility and that at the time of the decisions around Eskom, including adjustments effected, the extent of governance failures had not been fully quantified.

Modise said the regulator may initiate its own investigations and may effect adjustments to Eskom's revenue based on the relevant outcome of its investigation and/or those undertaken by other entities. These include, but are not limited to, Eskom, National Treasury, the Special Investigating Unit or any other commission of enquiry, as and when they are concluded.

Provisions of the Electricity Regulations Act

Regulatory member for electricity and piped gas at Nersa, Nomfundo Maseti, said while the regulator is not mandated to investigate fraud or corruption, the Electricity Regulations Act makes it possible for Nersa to initiate its own investigation.

"... We are in a position to initiate our own investigation, in terms of Section 4 of the Act, which [gives] the regulator authority to conduct investigations or inquiries into the activities of the licensee," said Maseti.

The investigation process, she said, would be a transparent one, whose scope and terms of reference are to be decided.

"We may also need to have the terms of reference and the scope of investigation, and we may also go out and ask stakeholders to comment on the terms of reference of that investigation. As to the timeframe of the investigation, we have not decided yet, as we may want to come up with the terms of reference before we can decide on the timelines," Maseti said.

Improving efficiencies

Nersa further made several proposals to improve operational efficiencies at Eskom, which currently faces a R420 billion debt burden.

These include reducing unplanned outages and trips, reducing water usage costs, as well as improving its energy availability factor. The regulator also advised Eskom to reduce the frequency of load shedding and provide plans on how security of supply will be ensured.

In recent weeks, South Africans have had to contend with load shedding episodes due to the power system remaining tight and vulnerable.

RCA application

At the briefing in Pretoria, the regulator also announced its decision with regards to the utility's Regulatory Clearing Account (RCA) Year 5 (2017/18). Eskom had asked the regulator for R21.6 billion, to which the regulator approved a RCA balance of R3.869 billion.

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.

The 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 response

Reacting to the regulator's decisions, Eskom said it has noted the decision which is an important step to restore its credit worthiness.

The power utility said it has looked into cost efficiencies from its operations and the shareholder (the Department of Public Enterprises) has given support of R69 billion over the next three years.

"This is an important step to restore Eskom's credit worthiness as debt providers, rating agencies and other stakeholders awaited this crucial decision. The Eskom Board will deliberate further before deciding on how best to address the shortfall and we keenly await the reasons for decision as Nersa has disallowed R102 billion of revenue over the MYPD4," said the utility.

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