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Appeal stalls clawback of R42bn by Eskom from customers

Oct 20 2016 09:07
Chris Yelland and Joanne Taylor, EE Publishers

Johannesburg - Both Eskom and the National Energy Regulator of South Africa (Nersa) have submitted applications for leave to appeal a 16 August 2016 judgment by Judge Cynthia Pretorius in the Pretoria high court.

The judgment by Judge Cynthia Pretorius had set aside Nersa’s R11.2bn regulatory clearing account (RCA) award for Eskom’s 2013/14 financial year, and declared the award “irrational, unfair and unlawful”.

The award had allowed Eskom to recover R11.2bn from electricity customers by means of a 6% increase in Eskom’s 2016/17 electricity tariffs.

Nersa’s application for leave to appeal will be heard in the Pretoria High Court on November 2016, and it is expected that Eskom’s application will be heard at the same time. The outcome has massive financial implications for Eskom, Nersa and electricity customers in South Africa.

Process stalled

In the meantime, the processing of Eskom’s RCA applications to recover a further R19bn and R23bn from electricity customers for its 2014/15 and 2015/16 financial years respectively, has stalled pending the outcome of the applications for leave to appeal and, if granted, the subsequent appeals themselves.

The financial stakes are extraordinarily high, and already issues relating to the constitutional separation of powers between the judicial and executive branches of government have been raised in Nersa’s application for leave to appeal.

Thus, if the appeals do not go Nersa’s and Eskom’s way in the Pretoria high court and the Supreme Court of Appeal in Bloemfontein, it seems inevitable that the matter will be referred to the Constitutional Court of South Africa in Braamfontein for a final ruling.

Nersa has advised EE Publishers that it only received Eskom’s application for a R19bn clawback for its 2015/16 financial year on May 13 2016, which according to the judgment by Pretorius was “out of time”. Quarterly reports required from Eskom in terms of the multi-year price determination (MYPD) RCA methodology for this financial year were also not received.

Furthermore, while Eskom’s RCA application for a R23bn clawback for its 2015/16 financial year was received within time on July 15 2016, only one of the required quarterly reports for this financial year was received by Nersa.

Nersa says this makes it impossible to comply with Pretorius' judgment in respect of Eskom’s 2013/14 RCA application, which ordered Eskom and Nersa to follow the MYPD methodology and rules properly in the submission and evaluation of future RCA applications.

Still unexplained, however, is why Nersa as regulator granted indulgences over an extended period to its licensee, Eskom, allowing the utility to deviate from the MYPD RCA methodology and rules without censure. In order to serve the interests of electricity customers, Nersa should have issued formal Notices of Non-Compliance in terms of the Electricity Regulation Act, as and when such non-compliances occurred.

What the judge said

Pretorius' judgment indicated that RCA applications and quarterly reports must be made available to electricity customers timeously, to provide adequate signals to electricity customers of pending price increases so that they could plan properly.

The judge also indicated that Nersa must give notice to customers of any deviations from the MYPD methodology and rules contemplated by Nersa when processing Eskom’s applications for price increases, including RCA applications.

However, Nersa has still not published Eskom’s 2014/15 and 2015/16 RCA applications and the associated quarterly reports, nor any notice of any intended deviations from the MYPD methodology.

In addition, Nersa has refused to provide the 2014/15 and 2015/16 RCA applications and quarterly reports to the public, and to EE Publishers for the purposes of this article, pending clarification from the courts on the way ahead. Nersa says that until it receives such clarification, it is not in a position to process or follow the rules in dealing with Eskom’s 2014/15 and 2015/16 RCA applications.

Downplaying concerns

However, despite what would appear to be an alarming situation arising from the judgment by Pretorius and the pending appeals, Nersa’s electricity regulator board member Thembani Bukula downplayed the impact of any delay in processing of the 2014/15 and 2015/16 RCA applications, including the impact on Eskom’s cash flow.

Bukula indicated that there are several other remedies at the disposal of the regulator, including condonement, to ensure Eskom’s continued financial sustainability. He further pointed out the significant savings Eskom was now achieving since stopping the outflow of about R1bn per month for diesel to power its open cycle gas turbines in the Western Cape.

Nersa’s view is that the judgment was flawed in placing Nersa’s MYPD and RCA methodology and rules on the same level as the Electricity Regulation Act, with the force of law, as opposed to a hierarchy of requirements, firstly comprising the act, followed by its associated regulations, and then by the MYPD and RCA methodology and rules.

“We will consider Eskom’s financial health, reserves and other financial metrics carefully on an ongoing basis to ensure the utility’s short-, medium- and long-term sustainability, in a manner that is efficient. Nersa is under no obligation to liquidate the RCA on any particular date.

"We will make such decisions based on Eskom’s needs, while balancing these with the needs of customers for an electricity price trajectory that is affordable and sustainable for present and future generations," said Bukula.

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nersa  |  eskom  |  electricity costs  |  tariff hikes


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