Eskom wins tariff battle against regulator

A court has set aside the Eskom tariff decision for 2018/2019 made by the National Energy Regulator of SA (Nersa) and berated the regulator for “unfairly, irrationally and unreasonably” departing from methodology by which the tariff was determined.

The judgment provides confirmation that the decisions of Nersa are reviewable, which could open the way for Eskom to challenge future price determinations.

The case, heard by judge Jody Kollapen in the high court in Pretoria, is one of three that Eskom has on the go to challenge Nersa decisions. It does not have an immediate impact on electricity tariffs but as it opens the way for Eskom to make a supplementary tariff application for 2018/2019 it is likely to do so in the future.

The court said that this application could be made after Nersa completes its deliberations on Eskom’s regulatory clearing account (RCA) application for 2018/2019 which is under consideration. The RCA is a mechanism that Eskom can use to recover costs that were reasonably incurred over and above the costs allowed by Nersa in the initial price application.

The dispute refers back to 2018/2019 when Eskom requested a 18,91% average price increase and was granted only 5,23% by Nersa. To determine tariffs Nersa applies a methodology which calculates Eskom’s costs, depreciation on its assets and return on capital.

Kollapen accepted Eskom’s arguments that in the tariff application in question, Nersa had deviated from the methodology in important respects, without informing Eskom before hand to allow it an opportunity to be heard.

On the costs of Eskom’s coal, Nersa did not use the agreed methodology, which requires a detailed analysis of the grade of coal procured, its burn rate and a host of other factors. Instead, it adjusted the price it had calculated in 2013/2014 and escalated it by an industry index.

Nersa also arbitrarily excluded two power stations — Hendrina and Arnot — from Eskom’s asset base on the grounds that Eskom had excess capacity. Employee costs were also calculated in an unreasonable way, said Kollapen, using 2007 staffing levels as a benchmark to determine the extent to which Eskom was overstaffed.

Nersa also refused to allow Eskom to recover the costs for its demand management —  the system by which it discounts customers to drop load from the grid when supply falls below demand. This “lacked justification” as Eskom was obliged to have such programmes, he said.

A second court application is before the same court, in which Eskom is seeking to challenge Nersa’s treatment of the R69bn bailout it received from the Treasury in the 2019 budget. Nersa has claimed that this amounts to revenue in Eskom’s hands, which has the effect of reducing the amount that Eskom can claim from consumers through the tariff.

A third court application has also been made in which Eskom is challenging Nersa’s decisions on the RCA for 2015/2016 and 2016/2017.