The Energy Regulator has voted to reject Eskom’s fifth multiyear price determination (MYPD5) application for the three financial years from 2022/23 to 2024/25 and will now request the utility to make a new one-year submission "preferably based on the principles of a new [methodology] approach that is under consideration".

The State-owned utility told Engineering News & Mining Weekly that it was “considering the options available to it in terms of the law” following the decision and stressed that it was committed to ensuring that the required legal and consultation processes were followed.

The rejection was made during the Energy Regulator’s September 30 meeting, where it was decided that the MYPD5 application had been made under a methodology that was no longer valid or relevant given the changes under way in the electricity sector, including Eskom’s unbundling.

Eskom submitted the three-year MYPD5 application on June 2 and, until Thursday’s decision, it was anticipated that the National Energy Regulator of South Africa (Nersa) would initiate the normal public participation processes to have it adjudicated in time for implementation on April 1.

The contents of the submission have not been published, but Eskom is likely to be seeking allowable revenue of about R300-billion over the period.

The revised tariffs must be submitted to Parliament by March 15, 2022, to allow Eskom to implement these revised tariffs for municipal customers.

On September 24, Nersa published a consultation paper on a new price determination methodology and set October 22 as the closing date for written submissions, with public hearings to follow from October 25 to 29.

In the paper, Nersa argued that the current revenue-based methodology had fallen short in providing stable prices, noting that electricity tariffs had surged by 175% over the past decade, despite consumer inflation having remained within a 3% to 7% band.

Nersa suggested a shift to a “cost-to-serve approach”, based on the principles of activity-based costing, type-of-service costing, and marginal pricing to set tariffs.

When the paper was published, Eskom indicated a willingness to engage on a new methodology.

However, it also said it was not in a position to make an application on the basis of a methodology that had not been subjected to stakeholder consultations and suggested that any determination made on a methodology that had not been finalised would likely be reviewed by the public.

The utility also indicated that it would require between nine and 12 months to prepare a new submission and that it would, thus, not be feasible for the regulator to make a revenue determination in time for implementation on April 1, 2022.

Nersa said Eskom's MYPD5 application was based on the MYPD4 methodology, "whose applicable control period is ending on 31 March 2022".

"After due consideration of the rationality and legality of applying an expired MYPD4 methodology and whether this was in the public interest, the Energy Regulator rejected Eskom’s MYPD5 application," Nersa said in a statement.

The Energy Regulator would request Eskom to submit a one-year interim application for the 2022/23 financial year, preferably based on the principles of a new approach that is under consideration.