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It’s déjà vu all over again

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It’s déjà vu all over again

2nd February 2018

By: Terence Creamer
Creamer Media Editor

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For those of us in the media, Eskom is the gift that keeps on giving. For ten years, hardly a week has gone by without the embattled power utility inspiring a shock headline of crisis, corruption or political intrigue.

For citizens, though, Eskom has been anything but a gift. The policy failure that disqualified the utility from building new capacity, in the absence of the tariff framework needed to stimulate private investment, continues to haunt us. When combined with poor Eskom planning, management and governance, that policy lapse created a toxic cocktail of electricity shortages and steep tariff hikes. This, in turn, precipitated demand destruction, as the economy adjusted to the new tariff reality.

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However, it was not merely the steep rise in tariffs that became a problem for power-heavy firms, it was also the uncertainty of the tariff trajectory. This price-path uncertainty is actually one of the many ironies of the past ten years, during which the country delibe- rately transitioned to a multiyear tariff dispensation.

At least part of the uncertainty can be attributed to a mechanism within the methodology that allows, quite rationally, for adjustments to be made in instances of under- or overrecovery by the utility. Sadly, there have been few instances of overrecovery, which means that all the regulatory clearing account (RCA) applications to date have been to recoup “efficient costs” that exceed the assumptions made in the original determination.

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Well, South Africans should prepare for “déjà vu all over again”, to quote one of Yogi Berra’s most frequently repeated ‘Yogi-isms’. This is because the National Energy Regulator of South Africa (Nersa) is set to host yet another round of public hearings into three RCA applications, through which Eskom is seeking to recoup R66.6-billion.

The three applications are being heard together because no RCA applications have been considered since the North Gauteng High Court ruled, in August 2016, that Nersa’s approval of Eskom’s 2013/14 RCA application was unlawful.

However, the RCA mechanism has been brought back into play after the Constitutional Court refused an application, last August, by several Eastern Cape businesses for leave to appeal a June 6 Supreme Court of Appeal ruling, which upheld Nersa’s appeal against the High Court judgment.

Nersa will hold the hearings in all nine provinces between May 7 and 25 and will make a determination by the end of August. Later in the year, it will also need to adjudicate a further multiyear tariff application for the next cycle that is due to begin on April 1, 2019, after granting Eskom a 5.23% single-year increase for 2018/19 – the utility applied for 19.9%.

Therefore, while Eskom has enjoyed a short period of positive publicity, triggered by the appointment of a credible board and a respected acting CEO, South Africans should brace themselves for a return to the usual negativity.

Given the fragile financial position of the utility, the new board and executives will probably be hoping for a more sympathetic hearing this time round.

Perhaps the new Eskom leadership will even be relying on the equally famous Yogi-ism – “it ain’t over till it’s over” – as they prepare for another hostile reception. What they will hear is that “a nickel ain’t worth a dime anymore” and that Eskom should look elsewhere for salvation.

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