No immediate power tariff impact, but first court ruling portends material future hikes
The Eskom tariff increase for 2020/21 tabled before lawmakers this week provides no scope for any further hikes this year beyond those already sanctioned for April 1 by the National Energy Regulator of South Africa (Nersa) in previous price determinations and regulatory clearing account (RCA) rulings.
The tariff will, thus, rise by 8.76% this year, marginally above the 8.1% sanctioned under the fourth multiyear price determination (MYPD4) hikes announced in early 2019, owing to the partial liquidation of RCA adjustments sanctioned by Nersa following two separate MYPD3-related RCA applications by Eskom. The adjustments will increase the Eskom tariff to 116c/kWh from 106c/kWh.
The tariff will not be affected this year by either the recent adverse court ruling against the regulator relating to its mishandling of Eskom’s 2018/19 application, or by any possible upward adjustment that could flow as a result of recently concluded RCA public hearings covering that same financial year.
Even prior to the March 10 ruling, in which Judge Jody Kollapen reviewed and set aside Nersa’s 2018/19 determination, it became clear that neither it, nor the RCA
application could have an immediate impact on the tariff, owing to the requirement that Eskom’s tariff be tabled in Parliament on or before March 15. In the event, the hike was officially tabled on March 12.
Nevertheless, the court ruling, which is one of three live legal challenges by Eskom against Nersa determinations, is more than likely to have material implications for future tariff increases.
In his judgment, Kollapen described Nersa’s treatment of Eskom’s coal and employee cost in its 2018/19 determination as not only “highly problematic” but having departed from the MYPD methodology. Therefore, the decisions taken were “procedurally unfair, irrational and unreasonable”.
Absent any appeal, the utility has the right to make a supplementary application to Nersa within 60 days of it making its RCA determination for 2018/19 to recoup “any additional amounts which it has expended in the 2018/19 tariff year and to which it would have been entitled had the original tariff determination been made lawfully.”
These additional amounts, which are likely to run to billions of rands, should be “added to the RCA balance and liquidated in accordance with additional tariff increases to be determined by Nersa”.
The regulator is expected to make its 2018/19 RCA determination before the end of the month, or possibly early in April.
In parallel, the courts will now review the merits of Eskom’scase against Nersa’s treatment of the R69-billion in government support announced for Eskom in the 2019 Budget.
In February, Kollapen turned down Eskom’s application for urgent relief on the matter, which he said would be evaluated as part of the second phase, or ‘Part B’, of Eskom’s contestation of this aspect of Nersa’s MYPD4 determination, which governs the utility’s tariff increases for the three-year period to March 31, 2022. It is not yet certain whether or not Kollapen will preside over Part B.
Eskom regulations GM Hasha Tlhotlhalemaje tells Engineering News that Part B of the review is likely to be heard towards the end of June, with Eskom scheduled to file its supplementary founding affidavit by mid-April. Simultaneously, Eskom will push ahead with its review of Nersa’s RCA decision for years two, three and four of the MYPD3 period, for which it was granted R32-billion, rather than the R67-billion it had originally sought. It is also considering a review of the RCA for year five of the MYPD3.
Tlhotlhalemaje said that Eskom hoped that the legal processes could be wrapped up in time to influence the 2021/22 tariff, but also acknowledged that any potential appeals could delay the conclusion of the matters. For Eskom, the 2018/19 judgment set an important precedent, as it states that Nersa cannot deviate from its methodology without consultation. “The other takeaway for us is that, if Nersa decides to make a certain decision, it must substantiate that decision, it can’t just say that it is applying its judgement.
This article was published by Creamer Media’s Engineering News on 13 March 2020.