Electricity pylons are seen along the cooling tower of the defunct Orlando Power Station in Soweto. Picture: REUTERS/SIPHIWE SIBEKO/FILE PHOTO
Electricity pylons are seen along the cooling tower of the defunct Orlando Power Station in Soweto. Picture: REUTERS/SIPHIWE SIBEKO/FILE PHOTO

In failing to award Eskom a higher tariff the country’s energy regulator has put the entire SA economy at risk, the embattled power utility argued in a legal face-off with the electricity price watchdog in the Pretoria high court on Wednesday.

Judgment was reserved, but if Eskom’s court bid succeeds, customers will pay significantly more for electricity.

Eskom has asked the court to set aside the National Energy Regulator of SA’s (Nersa’s) tariff decision for the three financial years spanning 2019-22.

It is also seeking permission to hike tariffs 16.6% in April this year and 16.72% more in April 2021.

Eskom has long complained that the tariffs decision by the regulator is not cost-reflective and has caused the utility to borrow to fund the shortfall, contributing to its R450bn debt. Now, as a crisis continues to grip the utility and load-shedding has again become a reality, Eskom has turned to the courts in the hope of getting the revenue it says it needs to “avoid financial disaster” for itself and the economy.

The utility’s argument does not square with warnings from SA business that local industry, and its employees, will suffer the consequences of higher power prices.

Equity injections

Eskom approached the court to challenge what it termed an “unjustified” and “grossly irrational” decision by the regulator in awarding tariff increases of 9.41% in the current financial year, 8.1% in the following one, and 5.22% in the 2021-22 year, leaving the utility with R101bn less than what it asked for.

In particular, Eskom is challenging Nersa’s decision to “impermissibly and irrationally” deduct from the R69bn in revenue equity injections it will get from the state.

The inadequate tariff increases compound the strains on Eskom’s liquidity, to the degree that a shortfall in revenue is likely to turn Eskom’s liquidity issue into a “national fiscal crisis”, Eskom CFO Calib Cassim said in a founding affidavit.

Nersa’s decision “undermines Eskom’s ability to cover its debt commitments and thus imperils Eskom itself” and the state’s finances, Cassim said.

The regulator contends in its papers that the equity injection from the government was carefully considered in its calculations, and that it “rationally considered the sustainability of Eskom, the affordability of consumers and the impact on the economy in the taking of its decision”.

Although Eskom has not disputed that there has been historical mismanagement within its senior ranks and that issues relating to state capture have hindered its ability to deliver electricity efficiently to the public, it said the fundamental liquidity problems it faced “are primarily a product, not of these issues, but rather of inadequate tariff increases”.

Eskom had argued that the matter is urgent because the budgeting processes of municipalities dictate that changes in tariffs must be tabled in parliament before March 15 of any given year to come into effect on July 1 of that year.

Nersa countered in its court documents that Eskom knew in June last year what the tariff decision was.   

steynl@businesslive.co.za