Presentation to NERSA Work performed relating to Deloitte s review of Eskom s RCA application Daryl Elliott Associate Director, Monitor Deloitte January 2016
Introduction and Context Deloitte s involvement in reviewing the 2013 / 2014 RCA application for Eskom Purpose and context of this presentation: To provide a brief overview of Deloitte s involvement in reviewing Eskom s 2013 / 2014 RCA application To outline the objectives and scope of our review To summarise the procedures performed To summarise the key conclusions from our review 2 2016 Deloitte Touche Tohmatsu Limited
Scope of the Deloitte involvement and timing Deloitte s scope of work agreed with Eskom In September 2015, Deloitte was engaged by Eskom to review the 2013 / 2014 RCA application, prior to Eskom s submission thereof to NERSA Deloitte was engaged by Eskom to provide an independent view of both the mathematical and verifiable accuracy of the application, and its alignment to the regulatory rules and principles Specifically, the scope of work can be summarised as follows: 1. To validate that the RCA application is supported by verifiable source data (audited regulatory accounts, audited financial statements, MYPD3 determination and other verifiable data sources) 2. Review the application for alignment, robustness and veracity with the MYPD methodology Expressing a view on the prudency of Eskom expenditure was not within the scope of our engagement This engagement was not an audit or review engagement, and Deloitte did not express an opinion or a review conclusion on the underlying information 3 2016 Deloitte Touche Tohmatsu Limited
Work performed 1 - To validate the mathematical and verifiable accuracy of the application This portion of our engagement was performed as an agreed upon procedures engagement with Eskom (in accordance with ISRS 4400), whereby our procedures as agreed with Eskom included: Obtain the 2013 / 2014 RCA submission from Eskom Extract selected financial information from the submission for both Allowed and Actual amounts (agreed with management) in the following categories: o Revenue variance o Coal Burn o IPPs o OCGTs o Other Primary Energy o Environmental Levy o SAE Net position Agree Allowed financial information to the NERSA reasons for decision document relating to the MYPD3 decision Agree Actual financial information to Eskom s audited annual financial statements for the year ended 31 March 2014, or supporting schedules and related information where appropriate 4 2016 Deloitte Touche Tohmatsu Limited
Work performed 2 To review the application for alignment and robustness in terms of the MYPD methodology This was a review of the calculations and substantiation for the various elements of the application against the tariff methodology to validate the interpretation and application of the regulation, and validation of the underlying assumptions and principles of the application Reference documentation considered in our review included: MYPD Methodology (Dec 2012) NERSA s MYPD3 and RCA for MYPD2 decisions Eskom financial information contained in amongst others the Annual Financial Statements, Integrated Report and The energy wheel 5 2016 Deloitte Touche Tohmatsu Limited
Conclusions from work performed 1 - Mathematical and verifiable accuracy Areas of mathematical / verifiable inaccuracy were adjusted by Eskom in their final submission to NERSA A total of 290 line items of financial information was verified Discrepancies were noted on 8 of the 290 items None of the discrepancies were considered to have a material impact on the RCA submission, and all were accepted by Eskom management and adjusted accordingly 6 2016 Deloitte Touche Tohmatsu Limited
Conclusions from work performed 2 - Regulatory alignment The RCA submission is robust in terms of the underlying data used as well as the interpretation and application of the MYPD Methodology We note to Eskom and NERSA that there is scope for interpretation around certain areas, specifically: Handling of cross border positions Prudency with respect to the Revenue variance Prudency with respect to the OCGT variance Prudency with respect to the Coal burn variances. Deloitte has not expressed a view on the prudency of the actual amounts incurred and the resulting variances 7 2016 Deloitte Touche Tohmatsu Limited
Eskom s 2013/14 application was verified for accuracy and alignment RCA Review Item Allowed ito MYPD Rules MYPD3 Approved Figures Eskom Actuals ito AFS Revenue Variance Coal Burn IPP Purchases OCGT Costs Other Primary Energy Environmental Levy SAE Net Position Service Quality Incentives Balance of claim 8 2016 Deloitte Touche Tohmatsu Limited
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