Tuesday, January 18

Eskom wants 20% more next year


The energy regulator Nersa presented four new options to Eskom to determine the rates that it will be allowed to charge from April 1 of next year, but the company continues with its legal request to force Nersa to process its request in accordance with the existing pricing methodology.

Nersa previously rejected Eskom’s request, which Moneyweb says is for a 20% increase, because the existing pricing methodology has expired.

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Eskom says the current methodology has not expired, and Nersa’s own internal legal counsel also said that it does not expire unless Nersa replaces it with a new methodology, which it has not.

Confusion

Instead, Nersa has embarked on a confusing process of public participation on the proposed new principles underpinning the methodology, or the new methodology, or the principles used in applying the existing methodology, depending on which of Nersa’s contradictory pronouncements one is based.

Read:

Nersa proposes a complete overhaul of Eskom’s pricing
Dear Nersa, see you in court – Eskom
Nersa’s plan would make households pay much more, says Eskom

In this context, it is unclear how Eskom’s new fees will be determined.

The current fees expire at the end of March 2022 and, in the absence of a legal determination prior to that date, Eskom could be unable to legally collect any fees.

That would place the burden on the taxpayer to bail out Eskom to the tune of up to R300 billion.

If Nersa follows an alternative process that does not comply with the legal prescription, the rates will be vulnerable to legal challenge.

The new rates must be presented in parliament before March 15 of each year and must be finalized in a timely manner so that municipalities include them in their budgets for the new financial year that begins July 1.

Nersa’s four options

In a letter dated Nov. 12 incorporated into its answering affidavit to the court, Nersa has given Eskom four different options to determine its rates:

  1. Eskom and Nersa agree on pricing principles, consult the public, and then determine a percentage increase using the agreed principles.
  2. Eskom and Nersa agree on a percentage increase and consult the public about it.
  3. Determine a percentage increase with Eskom as part of a court-ordered settlement in lieu of money owed to Eskom. According to Nersa, this may result in an increase of approximately 15% and will include approximately R59 billion “owed” to Eskom due to previous court orders that resulted from Nersa’s failure to apply the pricing methodology correctly.
  4. Use the three principles in consultation to determine the rates of generation, transmission, distribution and marketing.

The fourth option is the one that Nersa prefers.

Its electricity subcommittee recommended on Friday that the regulator adopt all three principles, namely activity-based costs, differentiated costs based on load profile and marginal prices, but for implementation only after 2022/23.

Nersa also submitted to the courts a proposed schedule to determine the rates.

‘Completely unreal’

Eskom CFO Calib Cassim, in an affidavit in response to Nersa’s proposals, says this calendar gives Eskom six weeks over Christmas to prepare a new application in accordance with the new principles. Cassim says this is completely unreal. The rejected application took a year to prepare.

It also does not allow at least 40 days to consult with the National Treasury and the local government association Exit before submitting the application, as required by law.

The seven weeks that Nersa’s internal processes allow, as well as public consultation, are “several times more compressed than any period of time previously provided by Nersa,” says Cassim.

It notes that Nersa’s full-time regulator for electricity, Nhlanhla Gumede, during a public hearing on November 12 on the principles apologized for the impression that it would be implemented in 2022/23.

That was the same day that Nersa filed its response affidavit containing conflicting statements.

‘Exuberance’ about the three principles

“Although in our exuberance we may or may have communicated or found that this is what we are saying, it was never like that because there are many dependencies and political positions that would have to be clarified before the principles that could be proposed can be implemented.” Gumede said during the public hearing.

Cassim accuses Nersa of taking a “totally irresponsible approach to both this litigation and Eskom’s finances” by refusing to accept that the only practical way forward is to process Eskom’s application that it previously rejected and continue to defend its own position.

It says that Eskom showed in its detailed response to the new principles proposed by Nersa that “they are not technically sound, cannot be implemented and are not found in any other jurisdiction in the world.”

Cassim says that Eskom cannot update its application on the basis of “principles”. You need clarity on the methodology with which it will be evaluated.

The Electricity Regulation Law establishes that an efficient operator has the right to recover its efficient cost and a reasonable margin of electricity rates.

David Mertens from the Association of South African Chambers (Asac) says the industry will ensure that Eskom only recoups cost efficiently. He says the Eskom app should be made public and stakeholders should have enough opportunity to study and respond to it.

If this doesn’t happen, Asac is prepared to challenge the tariffs, he says.


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