Officials of energy regulator Nersa last week told a meeting of its electricity subcommittee that Eskom is refusing to cooperate with a Nersa audit of its struggling generation fleet.

They recommended the establishment of a tribunal aimed at issuing Eskom with a compliance notice. Such a tribunal has the power to impose a fine of R2 million or 10% of annual turnover per day as long as the non-compliance continues*. In the case of Eskom that would be R20 billion per day.

This comes as the country is hovering on the brink of load shedding, following one instance of late-night blackouts last week to prevent a total grid collapse. This is due to the poor performance of Eskom’s coal-fired power stations.

Eskom denies refusing an audit, but has serious questions about the standard against which Nersa will do the audit as well as the regulator’s mandate in this case. It nevertheless proposed quarterly workshops where it will share information Nersa might request and is prepared to arrange “regular operational visits” to its power stations.

Nersa regulator members were not impressed with this offer and instructed officials to write to Eskom one more time.

Should Eskom persist with its current attitude, the officials have the green light to continue with the establishment of the tribunal provided for in the Electricity Regulation Act.

Nersa stated in the reasons for its fourth multi-year tariff determination (MYPD4) that it would embark on such an audit and presumably it could result in a further reduction of Eskom’s allowed revenue, recovered through electricity tariffs.

This came after Eskom based its revenue application for 2019/20 to 2021/2022 on the assumption of an energy availability factor (EAF) of 78% over all three years. Before the determination was finalised it became clear that this was too high and Nersa reduced it to 71.5%, 72.5% and 73.5% in the three consecutive years.

‘Audit is essential’

In the current year to date the EAF is only 67.69% on average. During its meeting last week officials cited this underperformance as part of the reason the audit is essential.

At the time of the MYPD4 decision Nersa said it would embark on an audit of Eskom’s struggling coal-fired power stations to test the validity of the EAF assumption.

Early in August it wrote to Eskom to notify it of the plans to implement this part of the decision.

Nersa stated that the audit would be limited to the following key areas of management and performance:

The management of planned outages,

The management of unplanned outages (trips and forced shutdowns),

The management of partial load losses,

Coal management, and

The execution of the new build programme;

Nersa indicated that the audit would be done over a period of one year and would include the analysis of documents, workshops and visits to power stations.

Eskom in response to questions said it is “very willing to allow Nersa to undertake audits on any licensee”. This is a reference to the three licences Eskom holds, namely for generation, transmission and distribution of electricity.

Eskom said such audits are required in terms of legislation, and for generation it’s done to check compliance with its generation licence conditions, various grid code requirements and regulatory rules.

Agreement followed by accusation

“Audits need to be undertaken in accordance with a particular scope as is normal for any auditor,” Eskom states. It then accuses Nersa of moving outside of this prescribed framework.

“Eskom has requested Nersa to provide this information. However, Nersa then changed its mind and decided that it wishes to audit Eskom on progress in accordance with the assumptions in this MYPD 4 decision,” it argues.

The correct mechanism to test assumptions underlying the revenue determination is the regulatory clearing account (RCA), Eskom says. “Eskom has always provided Nersa with the variances in the performance from the assumption in the RCA process. These have been published for public consultation. Eskom will continue to do so.”

This is only the latest in a series of disputes between Eskom and Nersa, with Eskom having filed three different court applications to challenge five separate Nersa tariff decisions.

These are aimed at clawing back at least R100 billion of revenue Eskom believes it was wrongfully denied by the regulator.

The first, urgent, application – aimed at setting aside the part of Nersa’s MYPD4 to deduct the R69 billion of government assistance from Eskom’s return on assets – is set to be heard early in December.

If Eskom succeeds with this, electricity tariffs will increase by about 16% per year in the next two years, instead of around 8% in 2020/21 and 5% in 2021/22 as Nersa determined.

* The Electricity Regulation Act states:

(4) If the tribunal finds that the allegation contemplated in subsection (3) is correct it may impose a penalty of 10% of the annual turnover of the licensee or R2 000 000 (whichever is the higher amount) per day conimencing (sic) on the day of receipt of the notice contemplated in subsection (2).