BLACK FRIDAY
15% DISCOUNT
on our annual subscription.
Offer valid from 23 Nov – 30 Nov 2020.

Much at stake in court battle between Eskom and Nersa

It promises to be a titanic and perhaps dirty battle.
Eskom believes it has been done in to the tune of R135bn and that Nersa's tariff determinations are at the root of its financial problems. Image: Moneyweb

Eskom and the National Energy Regulator of South Africa (Nersa) will see each other in court on Wednesday (January 15).

It is an unprecedented case, in which the embattled power utility is asking for the court’s assistance against what it sees as an irrational regulator.

Eskom wants that part of the current tariff determination that disallowed a total of R69 billion from tariff revenue – in light of the same amount of government assistance being promised to Eskom – reviewed and set aside.

It is asking the court to allow it to add the amount to its tariffs for the next two years.

And that’s just the first round …

Less than two weeks from now the same court will hear another of Eskom’s applications, this time to have three different Nersa decisions (to claw back about R32.7 billion from consumers) reviewed and set aside. These relate to costs Eskom incurred in the 2014/15 to 2016/17 period due to actual conditions turning out differently from what had been assumed when the tariffs, which fell far below the R66.6 billion Eskom applied for, were determined.

About a month later the two parties expect to be back in court to debate the merits of Nersa’s tariff decision for 2018/19. Eskom also wants this reviewed, set aside and remitted back to Nersa. In this case Nersa allowed Eskom little more than R190 billion, over R30 billion less than it applied for.

This will be the first time that Eskom challenges Nersa’s determinations formally and publicly. It is convinced and spells out in court papers that Nersa’s inadequate tariff determinations are at the root of its financial ruin and it’s putting the whole economy at risk.

Read: Finally, a credible plan to fix Eskom

‘Not fair’

The utility believes it has been done in by R135 billion in relation to the three court applications.

Eskom must be terrified that any future government bailouts could in effect disappear if Nersa consistently adjusts its allowable revenue accordingly.

It is however not only for Eskom that the stakes are high.

Nersa is convinced that it acted strictly in accordance with the Electricity Regulation Act, the Electricity Pricing Policy and its own methodology, and believes the court should respect its technical expertise and experience. It sees itself as a fair regulator having considered Eskom’s sustainability while also protecting the consumer against undue risk.

It is frustrated with the failure of Eskom as the licensee to follow its decisions by cutting costs. Instead, it argues, Eskom takes poor decisions and operates inefficiently.

Read: Nersa: Eskom hiding inefficiencies, maladministration from court

For Nersa, its credibility as a regulator is at stake.

If Eskom is successful on Wednesday, the consumer will have to cough up R69 billion more in the next two years, and if the two subsequent applications succeed, Nersa will have to reconsider its limited tariff allowances.

The already cash-strapped consumer is seriously at risk.

Further to this is another application from Eskom to claw back a further R27-odd billion in relation to 2018/19, which is already with the regulator.

The fact is that Eskom and its regulator are currently miles apart.

According to Eskom, Nersa has made stupid mistakes and acted completely irrationally, while Nersa sees Eskom as a delinquent licensee. It promises to be a titanic, perhaps dirty fight.

It will also be costly, fought with money generated from consumers, licensees and taxpayers, and could take a long time to adjudicate.

While it might bring greater clarity on Nersa’s powers in the long run, it has resulted in complete uncertainty about the future electricity price path in South Africa, which is something investors hate.

Roadmap

In the Eskom Roadmap to Recovery, published by Public Enterprises Minister Pravin Gordhan in October, he calls for the speedy finalisation of amendments to the Nersa Act to provide for a mechanism for a licensee like Eskom, or its customers, to appeal a regulator decision.

That would presumably fast-track the journey to price certainty and save costs.

According to Democratic Alliance Shadow Minister of Energy Kevin Mileham, the Nersa Amendment Bill has not yet been tabled to Parliament’s energy portfolio committee.

He is also wary of any move that might put Nersa’s independence in jeopardy.

Shareholder influence

While the roadmap has been adopted by cabinet, it is in the first place a Public Enterprises document; changes to the Nersa Act would have to be driven by the Department of Energy.

The latter department referred questions about the proposed amendment to Nersa, and Nersa reportedly failed to respond.

If there is a lack of alignment between the departments about this, it would not be the first time.

Remember the power purchase agreements the Department of Energy negotiated with 27 independent power producers that Eskom, residing under Public Enterprises, refused to sign?

There are currently calls for Eskom to be removed from Public Enterprises as its shareholder to the Department of Energy.

On the face of it, that might eliminate this kind of misalignment.

On the other hand, government has on more than one occasion voiced its intention to “engage Nersa” about being more lenient with Eskom on the tariff front.

What would be easier for a minister who gets saddled with the Eskom headache than to solve it by leaning on Nersa, should the two both reside under him or her?

Whether Eskom remains within Public Enterprises or not, there is a lot at stake for consumers. The wording and architecture of an amendment to the Nersa Act will have to be carefully studied and considered.

Until then, the matter is with the courts.

 

Listen to Nompu Siziba’s interview with energy expert Chris Yelland (or read the transcript here): 
 

COMMENTS   26

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

A major percentage of the electricity price is for the bloated payroll, looting and corruption at the utility. In fact, a massive percentage.

Eskom seeks to claw this back from consumers killing the economy with its unsustainable price hikes in the process.

Consumers also respond with electricity theft and getting off the grid.

The same thing is going on with water prices.

The ANC has broken this economy to a point beyond fixing and the whole shebang goes down in a blaze of loadshedding.

For which Eskom will want a further tarrif increase

Yep, Eskom’s fight to increase tariffs is just plain ridiculous. Firstly, coal power is declining worldwide as countries move to renewables. It’s dirty and contributes heavily to global warming. In effect, Eskom is a dinosaur. Secondly, Eskom has been riddled with corruption, for which we are expected to pay while ANC individuals have been filling their own pockets. Thirdly, commonsense maintenance has not been carried out, leading to major malfunctions. Bottom line: Eskom’s crisis is Eskom’s fault. So why should we pay?

Correction; Eskom IS riddled with corruption (and incompetence).

Eskom revenue runs at about R1/kWh, which is ok.

Thing is, by the time that kWh gets to consumers it is an unaffordable uncompetitive unreliable R2.50/kWh due to:
1. A little bit is distribution.
2. Most of it is the margin that councils must generate from certain customers in order to serve all customers electricity and one heck of a lot of other things.

Has anybody done a study of the total rand value of electricity sales to end consumers and total TWh?

local councils have also become addicted to the revenue from electricity sales, its easy money, but in a future where more households and companies have grid tied PV or even go off grid all together, I see big pain incoming and more municipalities in financial distress.

That is the revenue from sales to SOME customers, some just continue to use without cost or consequence (Soweto being a case in point).

PJJ, my council went overboard on tariffs designed to hurt solar. What they don’t realize is a bunch of people are at or past the tipping point. May as well invest, go offgrid without loadshredding and lock in energy cost for next two decades. I will leave a small connection to council for charging batteries, because their bylaws allow them to charge you for connectivity if you do not connect. True story

@Johan

I agree, my current PV setup wouldn’t be big enough for a true off grid experience but if my council where to change the tariff structure much more than what it is now, I too would just pull the plug, PV + storage now costs around R2.5 per kWh

With my current consumption I now average around R2.1 per kWh, so its getting mighty close, I think I am 2 rate hikes away from breaking even.

So – in the interim they all waste time & money (of which we have precious little) slugging it out in court…

Exactly the point. 2 useless corrupt ANC institutions wasting more tax money on high sounding but irrelevant issues while the fix will cost no money.

This is just bad in so many ways. But is it particularly bad in that it frightens investors who require stability and certainty. It is absurd that the end users of a product must pay more for an ever decreasing service. Quite frankly ESKOM has failed to carry out its mandate and should be penalised for damages arising from its failure.

One arm of the state fighting with another arm of the state over the opportunity to extort money from the citizenry. This is Luthuli House for you- a boxing gym where cadres fight against cadres and the winner walks away with the country. Every now and then, when there are no clear winners, they call in the judge to adjudicate in the looting spree.

Does this mean the new CEO agrees with this stupidity? If he did not he would have stopped it not so?

Does this then mean the new CEO thinks the consumer is going to continue to bail Eskom out?

I hope not as then we are just in the same boat as before?

TSK!!!

The new ceo is just ‘a puppet on a string ‘ for eksdom

We all need to get off the Eskom heroin. Cold turkey. Now.
Step 1: Install grid-tied solar. It pays for itself in less than 3 years – and even shorter if Eskom manages to get all the tariff increases it is asking the court for.
Step 2: Install battery backup. This allows the grid-tied solar to keep on generating electricity even during loadshedding. Cost is still high, but getting more competitive by the day. Even at today’s rates, your capital investment is recovered in roughly 6 years. And the new technology batteries easily have a 20-year lifespan.
Step 3: Buy popcorn and sit back to watch Eskom, NERSA, the Dept of Energy, the (thieving and corrupt) municipalities, the non-paying electricity “customers” in every city and town, SARS, and last but not least – the political oligarchy – slug it out with each other, as each one tries to keep his/her specific scam going and his/her pockets lined with loot.
Step 4: Profit…

I’m in the fifth year of that solution. Beautiful.

Unfortunately Darwin, Eskom/Government already have off grid self supporting individuals in their sights. This via a new bill that they are pushing through to impose yet another taxation specifically for off grid users.

Ja, Serious!

@Serious
No surprise there, the looters will go to any measure to continue their theft. But there are a few steps one can take, both of a practical nature and in law, to fight them. Also, ask yourself whether they have the manpower and the will to come after domestic users – a la Scamral and E-tolls. I think (and sincerely hope) not.

If I ran a little shop and either closed or ran out of stock for a while then when I reopened I just put all the prices up to get back what I basically threw away.

Somehow don’t think that is going to wash in Economics 101.

Hereshoping
I live in a retirement village in mid KZN. The municipality here charges between 6 and 8000-00 Rand to install prepaid meters. We have battled with them on this exorbinate charge but get nowhere. WE have tried the public prosecutor and every other means but get no answers. The meter costs R600-00 so where does all other costs come in. If you get a prepaid meter then you can go solar otherwise you still have your basic meter reading chargewhich isR183 per month. Absolute rip off

@Hereshoping
1. Looking at those numbers, there is no doubt whatsoever that your municipality is controlled by looters and criminals, who should be sitting in jail, but are unlikely to ever do so – this should not come as a surprise in 2020 Azania.
2. Don’t get a prepaid meter. The R183 should include your first 100kWh or so of usage, just make sure? If so, scale your solar installation to cater for everything you use above whatever is included in the R183.

Let’s face it! Neither ‘current’ administration, at least for the most part, of either of these 2 institutions are the reason for this problem. The fight should actually be these 2 backed up by the people of SA, against the ANC and the rest of their “tripartite alliance”.

For they were all part and parcel in the loot-freely days and continue to be there today (the do nothing and hope the issue vanishes along with non-accountability days).

After all Eskom is not the only thing (SOE, department, economy or part of SA) to collapse…it’s merely the benchmark or symbol of South Africa’s destruction!

Amen!

Remove monopoly and both NERSA and ESKOM become redundant. Taxpayer won’t have to pay for eithers incompetence AND will be able to source electricity at reasonable and market related rates. Lets hope the ANC continues to deny and pretend and promise, because reality is just that, and soon enough they too will tossed in the rubbish bin with the likes of the old NP, where they belong.

This is where the ANC, Eskom and NERSA show there true colours – that they do not care about SA, it is all about the individuals and the gravy train. It would have been so easy during the first spate of load shedding to throw open the field to IPP’s; even generator ships parking in CT or Durban and generating. These would all be operating now and no pathetic shortage of power, whitewashed as “load shedding”.

The ANC motto; Alooter continua and screw SA.

If Eskom get their increase I believe the ordinary citizens of this country must take to the streets in protest. This is now a form of electricity ‘apartheid’.

Agree, Colson. We need an ‘Arab Spring’ in that we simply go ahead and install our own PV power and batteries, and to hell with what the ANC or Eskom says. There are finance options that make this possible and repay you with electricity savings. As with Etolls, the greedy, useless ANC just doesn’t have the manpower to investigate millions of households. I have had PV panels for about 5 years now, and have cut my electricity bill from a high of 1500 kilowatts (units) per month before to just 120 Kw last month and 100 the month before. Loadshedding? What loadshedding?

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: