The electricity sub-committee of national energy regulator Nersa will at a special meeting on Wednesday discuss the recent court ruling setting aside the interim tariff increase it granted Eskom on March 1 this year.
At the same meeting it will discuss public hearings for subsequent Regulatory Clearing Account (RCA) submissions – that is, further interim tariff increases Eskom has applied for, presumable relating to 2014/15 and 2015/16.
The whole matter is currently fraught with uncertainty, which never mixes well with business.
To start with, there seems to be different interpretations of what exactly Judge Cynthia Pretorius ordered.
At first glance, the order might seem simple:
- The Nersa decision of March 1 is reviewed, set aside and remitted back to Nersa;
- All future RCA applications should be submitted and evaluated in accordance with the prescribed methodology;
- Eskom and Nersa should pay the costs of the litigation jointly and severally.
Eskom spokesperson Khulu Phasiwe in a Facebook post a day after the ruling, criticised media reports: “Many of the reports I read are saying that the Court has ruled that the 9.4% tariff that the energy regulator had approved for Eskom has now been reversed, and that Eskom will have to pay back the money to the customers.
“But what did the Court say? In paragraph 122 the Judge said: ‘I agree with the applicants that even if the RCA increase is set aside, the revenue approved for the 2016/17 tariff will remain in force, as well as the direct tariff to customers and the tariff to municipalities.’
“In my reading, it was against this backdrop that the whole matter of the RCA was referred back to Nersa,” Phasiwe writes.
“The Court did raise concerns though, about the manner in which the RCA process was conducted, and has ordered both Eskom and Nersa to adhere to the MYPD3 regulations.”
Organisation for Undoing Tax Abuse’s (Outa’s) director legal services Ivan Herselman says Judge Pretorius in paragraph 122 referred to the original MYPD determination, that would see Eskom tariffs increase by 3.51% from April 1.
In other words if the 9.4% increase is set aside, the 3.51% increase stands, but Nersa has to reconsider the RCA application.
If Eskom interprets it as if the 2016/17 tariff – which includes the RCA increase – will remain in force, they do not take proper cognisance of the context of that paragraph, Herselman says.
He does however point out that the court did not order Eskom to repay the amounts already collected in terms of the RCA decision from customers. That is however the practical consequence of the ruling and consumers could approach the court for an order in this regard, he says.
The next question is how Nersa would be able to reconsider the RCA decision, in the absence of a cure for the procedural flaws that led to it being set aside in the first place.
“Nersa would have to remove the causes for complaint in order to be able to reconsider the matter,” he says.
The causes for complaint are the absence of quarterly reports and price signals to customers, the absence of notice to consumers that there would be a deviation from the prescribed methodology, the fact that the submission was done out of time and the failure to assess the efficiency of Eskom’s procurement electricity from specific independent power producers (IPPs).
Herselman says Nersa could reassess the efficiency, but the lack of quarterly reports and price signals as well as the late submissions are not curable. “I suspect for those reasons Nersa would have to conclude that it cannot consider the submission,” he says.
The same defects also affect the new submission for an interim tariff increase for at least 2014/15 and perhaps the 2015/16 financial years, he says.
R11.2 billion in relation to the first RCA application, and perhaps as much in relation to the second, could be lost to Eskom with a further possibility of some loss in relation to the most recent, which relates to 2015/16.
This could be devastating financially. To give a sense of perspective, it could equal or exceed the R23 billion cash injection by government in the previous financial year that was aimed at stabilising the struggling utility.
Another strong possibility is that Nersa could apply for leave to appeal the judgement, which would probably see Pretorius’s order suspended pending the appeal.
That would raise the question how Nersa could proceed to assess the latest RCA applications until such time that the appeal has been finalised and legal certainty given.
All around, there seem to be more questions than answers.
Whether the Nersa meeting on Wednesday will provide any further clarity on the way forward, remains to be seen.
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