South African state-owned power company, Eskom, will be submitting an early fourth multiyear price determination (MYPD4) application to the National Energy Regulator of South Africa (Nersa). This move is to try and get the tariff increases in line with the utility’s cost increases, Eskom CFO, Anoj Singh said on Tuesday.
“We are certainly contemplating, and will, lodge an early MYPD4 application with Nersa to try and get tariff increases that are more in line with our cost increases.”
Speaking at the utility’s interim results presentation, Singh said that while the utility prepares the MYPD4 documents, which once submitted will go through an 18-24 month adjudication process, the power company will be in the process of submitting two Regulatory Clearing Account (RAC) submissions for 2013/14 and 2014/15.
Singh added that the MYPD4 will be on a longer-term tariff trajectory of 10-years compared to the MYPD3, which has asked for five-years.
The RCA balance for the first year (2013/14 period) of the third multi-year price determination (MYPD3), which was submitted earlier this month, is seeking an RCA totalling ZAR22.8 billion ($2 billion).
The reason for submitting two RCA applications is to ensure that the risk-mitigation measure will be implemented reasonably over the MYPD4 tariff path, Singh said.
“The RCA process is a risk mitigation measure for both Nersa as well as Eskom. And for us to have two RCAs adjudicated gives us relative comfort that the risk-mitigation measure will actually be implemented, and implemented reasonably, over the long-term MYPD4 tariff path.”
In an earlier statement, Eskom explained that the MYPD Methodology (NERSA’s regulatory rules) allows Eskom “to adjust for the over or under recovery of preceding years’ regulated costs and revenues through the electricity tariffs in subsequent years.”
NERSA added in a separate statement that: “The RCA is a depository for qualifying variances between the revenue and expenditure approved for Eskom in the MYPD3 determination and its actual revenue and expenditure.
“The RCA is necessitated by the fact that the revenue and expenditure approved for Eskom is largely based on forecasts. The MYPD Rules require that from time to time a reconciliation of these variances be done in order to quantify over/under collection of revenue and over/under-expenditure on Eskom’s part. The Energy Regulator allows only expenditure that has passed the efficiency test.”
According to Engineering News, the utility reported a 22% rise, to ZAR11.3 billion ($780 million), in net profit for the six months to the end of September on the back of an 8% increase in revenues to ZAR87.9 billion ($6 billion).
The utility’s earnings before interest, taxes, depreciation and amortisation increased by 9% to ZAR24.9 billion ($2 billion). Gearing dropped from 66% to 60% and its debt-to-equity ratio improved to 1.50 from 1.90, media reported.
The improved figures have been attributed to the first ZAR10 billion tranche of a R23 billion ($2 billion) capital injection from the state in addition to the ZAR60 billion ($4 billion) subordinated loan to equity.
According to Engineering News: “There is likely to be considerable resistance to yet further tariff increases, which have surged over the past decade, with Eskom currently charging 82.6c/kWh, up from 74c/kWh in 2014/15. However, Eskom consistently argues that tariffs are still not cost reflective.”