Energy regulator Nersa has presented four new options to Eskom to determine the tariffs it will be allowed to charge from April 1 next year, but the utility persists in its lawsuit to force Nersa to process your request using the existing pricing methodology.
Nersa previously rejected Eskom’s request, which Moneyweb learned was a 20% increase, as the existing pricing methodology lapsed.
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Eskom claims the current methodology has not expired, and Nersa’s own in-house legal adviser has also said that it only expires if Nersa replaces it with a new methodology – which it has not done.
Instead, Nersa embarked on a confusing process of public participation on the proposed new principles underlying the methodology, or the new methodology, or the principles used in the application of the existing methodology, according to the statements. contradictory opinions of Nersa on which we rely.
In this context, it is not clear how Eskom’s new tariffs will be determined.
Current tariffs expire at the end of March 2022, and in the absence of a legal determination before that date, Eskom may be unable to legally charge any tariff.
This would place the burden on the taxpayer to save Eskom to the tune of R300 billion.
If Nersa follows an alternative process that does not comply with legal requirements, the tariffs will be vulnerable to legal challenges.
The new tariffs must be tabled in parliament by March 15 of each year and must be finalized in time for municipalities to factor them into their budgets for the new fiscal year which begins on July 1.
Nersa’s four options
In a letter dated November 12 incorporated in its affidavit of response to the court, Nersa offered four different options to Eskom in determining its rates:
- Eskom and Nersa agree on the pricing principles, consult with the public and then determine a percentage increase by applying the agreed principles.
- Eskom and Nersa agree on a percentage increase and are consulting the public on this.
- Determine a percentage increase with Eskom as part of a court-ordered settlement instead of amounts owed to Eskom. According to Nersa, this could result in an increase of around 15% and will include around R59 billion “owed” to Eskom due to previous court orders resulting from Nersa’s failure to properly apply the pricing methodology.
- Use the three principles in consultation to determine the tariffs for generation, transmission, distribution and exchange.
The fourth option is the one Nersa prefers.
Its electricity subcommittee on Friday recommended that the regulator adopt the three principles – namely pricing per activity, differentiated costs according to the load profile and marginal pricing – but for implementation only after 2022 / 23.
Nersa also submitted to the court a proposed timetable for determining the tariffs.
Eskom’s chief financial officer Calib Cassim, in an affidavit responding to Nersa’s proposals, says this timeline gives Eskom six weeks over Christmas to prepare a new claim under the new principles. Cassim says it’s completely unrealistic. The rejected application took a year to prepare.
It also does not allow at least 40 days to consult with the National Treasury and the Salga Association of Local Governments before submitting the request, as required by law.
The seven weeks it allows for Nersa’s internal processes as well as for public consultation are “several times more compressed than any time previously provided by Nersa,” says Cassim.
He points out that Nersa’s full-time regulator for electricity, Nhlanhla Gumede, in a November 12 public hearing on the principles apologized for the impression that it would be implemented in 2022 / ’23 .
It was the same day that Nersa filed his Affidavit of Response containing conflicting statements.
“Exuberance” on the three principles
“Although we may or may have, in our exuberance, may have communicated or discovered that this is what we are saying, but it never was because there are so many dependencies and political positions. that would need to be clarified before the principles that could be proposed can then be implemented, ”Gumede said during the public hearing.
Cassim accuses Nersa of having taken a “totally irresponsible approach to both this litigation and Eskom’s finances” by refusing to accept that the only practical way forward is to deal with the request for Eskom that she previously rejected and continue to defend her own position.
He says that Eskom has shown in his detailed response to the new principles proposed by Nersa that they are “neither technically sound, nor applicable, nor found in any other jurisdiction in the world”.
Cassim says that Eskom cannot update its application on the basis of “principles”. It needs clarity on the methodology against which it will be evaluated.
The Electricity Regulation Act provides that an efficient operator has the right to recover its efficiency cost and a reasonable margin on electricity tariffs.
David Mertens of the Association of South African Chambers (Asac) says the industry will ensure that Eskom only recovers cost effectively. He says Eskom’s request must be made public and stakeholders must be given sufficient opportunities to study and respond to it.
If that doesn’t happen, Asac is ready to challenge the tariffs, he says.