Electricity utility Eskom will challenge the National Energy Regulator of South Africa’s (Nersa’s) most recent revenue determination in court but will restrict the challenge to the regulator’s approach to determining its regulatory asset base (RAB).

The challenge is the latest in a growing number of legal disputes between Eskom and Nersa, with the majority of the rulings to date having been made in favour of the utility.

In February, the Energy Regulator announced that Eskom’s tariff could rise by 9.61% on April 1; an increase that was less than half the 20.5% hike for which Eskom had applied.

The tariff decision included allowable revenue of R250-billion, against the R293-billion for the year outlined in Eskom’s submission.

In late June, Nersa published the reasons for its decision, including the decision to approve a RAB of R551-billion for 2022/23, which was less than half the R1.25-trillion RAB outlined by Eskom in its application.

The new figure was also lower than the R885-billion RAB approved by the regulator for the 2021/22 financial year.

Following an analysis of the document, Eskom has decided to approach the North Gauteng High Court to challenge the regulator’s treatment of the RAB, on the basis of an incorrect implementation of the methodology, as well as what it describes as Nersa’s inaccurate assumptions when determining the RAB.

Eskom notes that Nersa’s decision to assign a lower value to the depreciated replacement value than the historical value of the RAB, as included in Eskom’s financial reports, could result in it impairing assets in line with International Accounting Standard 16, which prescribes the accounting treatment for property, plant and equipment.

The utility, thus, argues that the “incorrect” application could have serious ramifications, including a triggering of loan covenants, a call-up of government guarantees and a further loss of investor confidence.

Eskom is also questioning Nersa’s approach to determining the depreciated replacement cost of its assets, noting that the regulator’s approach has left Koeberg, Gariep and Ingula with negative value, which it describes as financially impossible.

Nersa has, for instance, calculated an accumulated depreciation for Koeberg of R222-billion, which is R42-billion higher than the R188-billion replacement cost outlined by Eskom for the nuclear station, which Nersa has not disputed.

The outcome of the case will not have a major impact on Eskom’s 2022/23 allowable revenue, but the utility wants to ensure that the treatment of the RAB is clarified ahead of the next revenue determination.

While Nersa is currently canvassing a new methodology for determining electricity tariffs, a recent North Gauteng High Court order stipulates that Eskom’s application for the 2023/24 determination be adjudicated using the current methodology.

It has also stipulated that Nersa publish the revenue application on or before August 1 and make a final decision on or before December 24, following public hearings.

In June last year, Eskom submitted a three-year fifth multiyear price determination, or MYPD5 application for 2022/23, 2023/24 and 2024/25.

Nersa adjudicated, also following a court intervention, only the first year of the MYPD5 and will thus adjudicate the second year in the coming months.

MoneyWeb has reported that the utility could apply for a 32.66% increase, which would include a R15-billion amount arising from a legal settlement associated with Nersa’s illegal decision to remove a R69-billion equity injection from Eskom’s allowable revenue.

However, Eskom may make several adjustments to the application once the hearings begin.

These adjustments, including lower independent power producer-related costs, could moderate the request.