Power utility Eskom said as a result of a court order issued in July, the National Energy Regulator of South Africa (Nersa) is in the process of consulting on the utility’s multi-year price determination (MYPD) 5 revenue application for financial year 2024 and 2025.
Eskom was on Wednesday updating key assumptions in the revenue requirement for financial year 2024 and 2025.
In accordance with Nersa MYPD methodology, Eskom is required to provide any updates on changes in conditions and environments that impact various cost elements of the revenue requirements.
“The total revenue as applied for in June 2021, is R335 billion for financial year 2024 and R365bn for financial year 2025 remains the same,” said Eskom spokesperson Sikonathi Manthsantsha.
He said changes were made within the cost items as required with an offset in the return on assets.
Mantshantsha said the key changes include the following from the previous update (January 2022):
• Increases in Eskom primary energy costs combination of costs related diesel price increase and volume increase;
• Removal of arrears debt-related costs in line with Nersa decision for financial year 2023 where other customers do not contribute to the gap created by non-paying customers;
• Removal of carbon tax-related costs due to announcement by finance minister for impending legislative changes to postpone carbon tax liability beyond financial year 2025;
• Increases in independent power producer (IPP) costs mainly due to increased emergency IPP procurement;
• Slight increase in sales volumes; and,
• Further reduction in average energy availability factor for Eskom power stations of 59%.
Manthsantsha said the following assumptions have not changed from original application:
• Operating costs.
• Depreciation.
• Value of regulatory asset base.
• Capital expenditure.
He said the price increase being applied for is 32.02% for financial year 2024, and the decision will be implemented on April 1 next year.
The key contributors include:
• Depreciation of 10.67% due mainly to an incorrect regulatory asset base valuation by Nersa in its FY2023 its decision (substantially in the generation business);
• Eskom primary energy of 7.85% (of which the majority 6.09% is due only to increase in diesel and fuel oil prices, as well as volume increase in OCGT fuel; and,.
• IPP cost increase of 9.05% (due to further energy being sourced from IPPs (including emergency procurement).
“The price increase for financial year 2025 being applied for is 9.74% with IPPs contributing 5.39% to this. In addition, proposals are made for the recovery of part of the incorrectly deducted equity support from financial year 2020 to 2022 (under MYPD4), as well as the regulatory account balance decision for financial year 2020.
“These refer to prudent and efficient expenditure being recovered four to six years later,” Mantshantsha said.
He said the Supreme Court of Appeal had ordered that the remaining R59bn of the incorrectly deducted equity be added to the allowable revenue decisions for each year, starting on 01 April.
R15bn each in the financial year 2024 to financial year 2026, and R14bn in the financial year 2027.
“The proposal is to allow these recovered amounts to be targeted towards the return on assets for the transmission and distribution network businesses. It also allows for the further migration towards cost reflectivity for the Eskom network businesses,” he said.
Mantshantsha said focus could then be shifted to the generation business in subsequent years.
“Eskom has submitted proposals to Nersa to restructure tariffs during August 2022. The translation from the allowable revenue to tariffs that will better reflect the unbundled costs and fixed vs variable costs is included. This ensures that customers are more aligned to the actual costs they impose on the system.
“This also addresses the key aspect of certain customers using the electricity system as a battery and back-up. It is critical that in making strides to cost reflective revenue levels, we don’t miss the opportunity to make similar step changes in financial year 2023 relating to the tariff structures and unbundling,” he said.
The Star