In ruling in favour of Eskom, Judge Jody Kollapen on Friday kicked out the cornerstone of an argument energy regulator Nersa put forward against the advice of its own internal legal advisor.
Kollapen ordered Nersa to process the tariff application Eskom submitted to Nersa in June, which Nersa rejected in September.
While the application was for the next three financial years, the order is of an interim nature and pertains only to Eskom’s tariffs for 2022/23. The court will make a final determination at a later stage.
The ruling came after Eskom filed an application on a semi-urgent basis to review and set aside Nersa’s decision to reject the application.
It was prepared in terms of the 2016 version of the multi-year tariff determination methodology developed by Nersa, referred to as MYPDM4.
In a regulator meeting in September, Nersa’s legal advisor Mbuyiseni Murathi advised regulator members that this methodology was still valid.
Despite objections by half the regulator members and only thanks to the casting vote by the chair of the meeting Fungai Sibanda, the regulator decided to reject Eskom’s application. In court papers it argued that the methodology has lapsed.
In an affidavit Nersa’s full-time regulator member for electricity Nhlanhla Gumede stated that Eskom submitted its application prematurely and should have waited for the new methodology.
Advocate Patrick Ellis, representing Nersa, conceded that Nersa left a vacuum by failing to develop a new methodology.
Following the rejection Nersa did publish a discussion document about the way forward. While the heading indicated it was about a new methodology, it merely proposed three principles for future tariff setting, which the regulator has subsequently adopted.
The discussion document also stated that the MYPD4 methodology has lapsed.
In his ruling Kollapen noted that the methodology “is a detailed document of more than 40 pages and provides considerable detail of how a tariff application is to be submitted and the information and the manner in which it is to be submitted”.
“It is complex and covers matters of an operational, technical and financial nature.”
Kollapen said tariff determination is complex and the use of a methodology is “central and indispensable” in that process.
During the hearing he also pointed out that the principles are wide and able to be interpreted differently by different stakeholders.
In his ruling he rejects the suggestion that the methodology is time-bound, adding that it makes no business sense and is impractical.
Eskom was therefore entitled to use MYPDM4 for its application.
Kollapen also referred to an “apology” by Gumede during the public hearings about the new principles when he corrected a misconception that the new principles will apply to the 2022/23 determination. He said, and this was subsequently confirmed by a regulator decision, that it will only apply from 2023/24.
‘Repackage’ request impractical
Nersa nevertheless asked that Eskom “repackage” its application for 2022/23 in line with the three new principles and suggested a timeline for the determination that would ensure a decision was made in time for the implementation on April 1 next year.
Eskom however argued that it needed more time to prepare its application and was legally bound to consult with National Treasury and local government association Salga for 40 days prior to submitting it to Nersa.
There was clearly not enough time to do all this.
Kollapen rejected Nersa’s argument that this consultation could be dispensed with and said the regulator’s proposal for determining the next set of tariffs is both unlawful and impractical.
The application cannot be submitted and be decided upon “on the back of a non-existent methodology,” he found.
Order and timeline
He ordered Nersa to process the June application for 2022/23.
In doing so, Nersa must publish Eskom’s application for comment on Wednesday, December 8. The public must be allowed to make representations until January 14, and Nersa must hold three public hearings between January 17 and 21.
Kollapen ordered Nersa to make a final decision by February 25, 2022.
Hasha Tlhotlhalemaje, Eskom’s general manager for regulation, said in a statement issued by the utility: “The decision by the High Court comes as a relief as it will contribute to the stability of the electricity industry and thereby the economy of the country.”
Eskom earlier told the court that without its intervention it would be without a legally valid tariff from April 1. It would therefore not be able to lawfully generate revenue, which would be a disaster not only for Eskom, but for the whole economy.