- 82800_37f_0001_eskom_v_nersa_judgment_2020-07-28.pdf (0.60 MB)
In a scathing judgment made on July 28, the court declared as illegal the National Energy Regulator of South Africa’s (Nersa’s) decision to deduct a R69-billion equity injection into Eskom from its allowable revenue for the period 2019/20 to 2021/22 and has instructed that the full amount be added back to the utility’s allowable revenue over the coming three years.
Given that the injection comprised three R23-billion-a-year tranches and the fact that Eskom was already into the second year of a three-year tariff determination, Judge Fayeeza Kathree-Setiloane said that the first R23-billion should be added during the 2021/22 financial year.
This would immediately increase the 2021/22 tariff from the 116.72c/kWh approved on March 7, 2019, as part of the fourth multiyear tariff determination (MYPD4), to 128.24c/kwh.
Under Nersa’s original determination, tariffs were meant to increase by only 5.22% on April 1, 2021.
Kathree-Setiloane’s ruling meant that the tariff would now rise by about 15% on that date, unless the remedy contained in the 33-page judgment was appealed by Nersa.
Nersa could only appeal the remedy, however, having already conceded the merits of the application.
In a statement, Nersa indicated that, while it was still studying the judgment, it had "serious concern" that the ruling had gone beyond Nersa's acknowledgment of procedural unfairness by pronouncing on the MYPD4 tariff application.
"The judgment, if left uncontested, will not only disrupt the industry, but will further suppress economic recovery, considering the current threat that the country’s economy is facing. This case was not merely a case between Eskom and Nersa, but rather a case of Eskom versus the South African economy and electricity consumers," Nersa asserted.
Eskom told Engineering News that it would not seek any further hikes for April 1, 2021, beyond the one granted by the court; this despite a slew of unfavourable judgments against the regulator relating to its treatment of several Regulatory Clearing Account applications made by the utility.
Kathree-Setiloane also stated that the other two R23-billion equity-injection tranches must be added to Eskom’s allowable revenue during the 2022/23 and 2023/24 financial years, which would both fall outside of the MYPD4 cycle.
“Nersa is precluded from making any adjustment or compensation to offset the R23-billion from the allowable revenue determined for these financial years or otherwise to deduct, directly or indirectly, the R23-billion equity injection from the allowable revenue for those financial years,” the judgment reads.
Nersa was also ordered to pay Eskom’s costs, including the costs of two counsel and the costs of the Part A application, in which the utility sought urgent relief. That relief was not granted.
The next MYPD cycle was due to start from 2022/23, but Nersa indicated recently that it no longer felt the methodology to be appropriate, with fulltime member for electricity Nhlanhla Gumede calling for it to be overhauled.
He provided no indication, however, as to what methodology would be used in its place.
The judgment itself was highly critical of Nersa and even questioned the regulator’s competence.
Kathree-Setiloane described as “bizarre” Nersa’s criticism of Eskom's use of a balancing mechanism, which provided for a negative return in its MYPD4 application, as being inconsistent with the MYPD methodology.
“It criticises Eskom for providing for a negative return and then responds by imposing a more extreme negative return. This is self-evidently irrational,” the judge wrote.
She also justified her decision to prescribe a remedy, rather than to remit the decision back to the regulator.
“As concerning the limited issue of restoring the R23-billion illegitimately removed, I conclude that the court is in as good a position as Nersa to make the decision because the R23-billion that was unlawfully removed is a liquidated amount. This means that its restoration is a legal question, not an expert regulatory question.”
She also criticised Nersa for numerous delays in responding to issues raised by Eskom in its application, adding that she had “grave misgivings” that, should the matter be remitted to Nersa for redetermination, there was every likelihood that the R23-billion equity injection for 2021/22 would also be lost.
“Without the proposed substitution order, there will accordingly be an increased risk of a collapse of Eskom’s finances with catastrophic consequences for the finances of the South African State.”
Eskom welcomed the ruling, which it said allowed for the migration towards a situation where it could become more self-sufficient and reduce its dependence for further equity support from the government.
CFO Calib Cassim said the judgment would aid in instilling confidence in the regulatory regime and pave the way towards financial sustainability at the utility.
"It is understood that certain vulnerable sectors of the economy – poor residential customers and certain industrial sectors – will require special consideration. Various measures are already in place to protect the poor. In addition, Eskom has been participating, under the leadership of the Department of Mineral Resources and Energy, in proposals where certain vulnerable economic sectors would be considered for targeted support," Cassim added.