NERSA & ESKOM Announces a 2.2% increase for 2017/18
23 February 2017
MEDIA STATEMENT
NERSA’s announcement of Eskom’s Allowable Revenue for the last year of the Third Multi-Year Price Determination (MYPD3) period (2017/18)
The National Energy Regulator (NERSA) at its meeting held today, Thursday, 23 February 2017, confirmed Eskom’s allowable revenue of R205 214million for the last year of the MYPD3 period (2017/18 financial year). The allowed revenue will result in percentage increase of 2.2% due to the base adjustments made in the preceding years as a result of the approved Regulatory Clearing Account (RCA) balances for Eskom (12.7% for 2015/16 and 9.4% for 2016/17).
The Energy Regulator confirmed the allowable revenues on the basis of the approved MYPD3 revenues and average price for 2017/18. The allowed revenue for 2017/18 is Eskom’s full year’s revenue as determined in the MYPD3 decision. The allowed revenue will be able to cover all of Eskom’s allowed costs, plus a return to the value of R33 667m as per the MYPD3 decision. The allowable revenue also includes an amount of R23 018m for the Independent Power Producer (IPP) purchases as a cost pass-through in line with the MYPD3 methodology. The cost recovery mechanism for IPP purchases will still be implemented. In this regard, any over or under-recovery will be dealt with through the RCA mechanism.
The decision by the Gauteng High Court has impacted on NERSA’s processes in considering the RCA application.
Nothing prevents Eskom from considering any possible cash flow risks and the implications thereof on its financial sustainability and make an application to NERSA for relief in this regard should it consider it necessary.
Confirmed revenues post RCA consideration as per MYPD3 decision are indicated in the table below:
CHAIRPERSON’S STATEMENT ANNOUNCING THE ENERGY REGULATOR’S DECISION ON ESKOM’S ALLOWABLE REVENUES FOR THE LAST YEAR OF THE MYPD3 PERIOD (2017/18)
Distinguished guests
Members of the media
Ladies and gentlemen
Good afternoon
I would like to take this opportunity to introduce NERSA’s new CEO and Full Time Regulator Member, Mr Chris Forlee, and the Full Time Regulator Member responsible for electricity, Mr Mbulelo Ncetezo. As you might be aware, their appointments were made by the Minister of Energy in the beginning of January this year.
Before we announce the Energy Regulator decision on Eskom’s allowable revenues for the last year of the third Multi-Year Price Determination (MYPD3), the 2017/18 financial year, I would like to share with you some background and context on how we regulate the energy industry.
Our mandate as the National Energy Regulator is to regulate the three energy industries, namely electricity, piped-gas and petroleum pipelines.
Our challenge has been and still remains regulating the energy industry in a manner that balances the interests of energy producers on the one hand and consumers on the other. This is never an easy task, for without doubt it is influenced by the greater economic environment both
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locally and internationally and as directed by the policy environment of the Government.
The legal basis for the decision of the Energy Regulator to approve electricity prices is derived from the Electricity Regulation Act, 2006 (Act No. 4 of 2006) (‘the Act’) and the National Energy Regulator Act, 2004 (Act No. 40 of 2004).
The Act places an obligation on the Energy Regulator to consider an application that has been brought in terms of section 15, read with the MYPD Methodology. Furthermore, the procedure followed in deciding the price of electricity is in line with the Promotion of Administrative Justice Act, 2000 (Act No. 3 of 2000) (‘PAJA’).
It is important to indicate that NERSA did not make any new decisions for the Eskom Revenue for the 2017/18 tariff period this morning. This decision was made on February 2013 as part of the MYPD3 decision. This morning NERSA only needed to consider the retail tariffs structural adjustments that arise out of these revenues to enable Eskom to table in Parliament by the 15 March 2017 as required by the Law. The only new matter that was considered by the Energy Regulator today was the potential financial harm that may be occasioned by NERSA not being able to process new RCA applications as a result of the interventions of the Gauteng High court. In this regard NERSA has decided to allow Eskom to make a new application that will be considered in accordance with Section 4 of the Electricity Regulation Act, should they wish to, which application will be considered through a full public consultation process.
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Considering that there was no application from Eskom, the Energy Regulator confirmed its decision made during the MYPD3 process for the 2017/18 financial year. This means maintaining the approved allowable revenues on the basis of the approved MYPD3 revenues and average price for 2017/18.
In this regard, the Energy Regulator confirms Eskom’s allowable revenues of R205 214 million for the 2017/18 financial year. The allowed revenue is Eskom’s full year’s revenues as determined in the MYPD3 decision.
Ladies and Gentlemen, you will recall that in the MYPD3 decision, the Energy Regulator approved an 8% average increase per annum for a period of five years, starting from the 1st of April 2013 to the 31st of March 2018.
However, the allowed revenue of R205 214 million for the 2017/18 financial year will now result in a percentage increase of 2.2%. The reason for the lower percentage increase is due to the base adjustments made in the preceding years as a result of the approved Regulatory Clearing Account (RCA) balances for Eskom.
You will recall that as a result of the RCA reconciliation, the Energy Regulator approved 12.7% for 2015/16 and 9.4% for 2016/17 instead of the average increase of 8%. The 2.2% increase, taking into account the adjustments already given, maintains the approved allowable revenue for the last year of MYPD3.
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The approved revenues of R205 214 million will be able to cover all of Eskom’s allowed costs, plus a return to the value of R33 667 million as per the MYPD3 decision. It is important to indicate that the allowable revenue also includes an amount of R23 018million for purchases from Independent Power Producers (IPP) as a cost pass-through in line with the MYPD3 Methodology. The cost recovery mechanism for IPP purchases will still be implemented going forward. In this regard, any over or under-recovery will be dealt with through the RCA mechanism.
Ladies and gentlemen, the decision by the Gauteng High Court has resulted in NERSA being unable to process RCA applications until its appeal has been heard and decided upon.
Nothing prevents Eskom from making an application to NERSA for relief should it consider any possible cash flow risks and implications thereof on its financial sustainability. The Energy Regulator would, upon receipt of such an application, embark on a public consultation process as required by the law before making its decision.
Thank you.
