Sunday, January 16

Nersa admits not having implemented the electricity tariff methodology

Energy regulator Nersa made some astonishing concessions Wednesday during a court hearing on Eskom’s request to have its rejection of Eskom’s latest rate request reviewed and overturned.

Read: Dear Nersa, see you in court – Eskom

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Judge Jody Kollapen expects to rule on the matter next week. If Eskom is successful, the court will compel Nersa to process the rejected rate request for the year beginning April 1, 2022 in terms of the existing multi-year rate determination methodology (MYPDM). Nersa is expected to immediately post Eskom’s request for public comment.

Moneyweb learned that Eskom requested a rate increase of around 20%, which includes amounts recovered in connection with insufficient recovery in previous years, as well as previous court rulings in favor of Eskom.

Read: Eskom wants 20% more next year

Defender Patrick Ellis SC on behalf of Nersa maintained that the latest version of the MYPDM has expired and admitted after being questioned by Kollapen that Nersa has left a void by not approving a new methodology in time.

However, he asked the court to allow Nersa to order Eskom to submit a revised fee request in accordance with three principles that Nersa adopted this week, namely:

  • Distinguish between the different activities of Eskom: namely generation, transmission and distribution,
  • Distinguish between the way consumers use electricity, for example, for consumption only during peak hours; base load that is a constant consumption day and night; and average merit consumption that can be adjusted during the day.
  • Use a dispatch approach in order of merit (determination of the lowest cost first to establish rates for each type of load), that is, use the generation plant that operates at the lowest cost, first.

Representing Eskom, Attorney Matthew Chaskalson SC noted that Nersa has not yet communicated this decision to Eskom and does not have details on how it should proceed to prepare a rate request following these principles.

Chaskalson described the principles as “amorphous” and confirmed a proposition by Kollapen that “it can be interpreted differently by ten different licensees.”

According to Eskom, you are legally obliged to give the National Treasury and the local government association Salga 40 days to study your rate request before submitting it to Nersa and with that in mind, there is simply not enough time to prepare a new request and have Nersa process. before the March 15 deadline to present the tariffs in parliament.

Eskom maintains that it needs at least nine months to prepare the application and Nersa needs an additional six months to publish it, consult with interested parties and make a determination.

Ellis said that if Eskom’s rates are simply increased without any structural change, there is no need to consult with the National Treasury and Salga, prompting Kollapen to point out that the purpose of the new principles appears to be to induce structural change.

Kollapen asked if no structural change is anticipated, if the existing methodology cannot be used.

Ellis said he can’t answer that question.

Kollapen asked Ellis if the new principles, even “if Eskom got them today,” will provide enough clarity for him to prepare an application, as opposed to the 40-page methodology with a clear formula and detailed technical requirements.

However, Nersa expects Eskom to simply “repackage” the rejected application, which, it contends, does not lead to such an inquiry.

On behalf of Nersa, Ellis argued that the existing methodology is inadequate, because it does not take into account the separation of Eskom and changes in the electricity supply industry. He said that it would therefore be irrational and illegal for Nersa to rely on such a methodology to determine Eskom’s rates.

Following Kollapen’s questions, Ellis also admitted that Nersa has failed to fulfill its obligation to implement a (new) methodology. He said that is why Nersa has made the proposal that Eskom follow the new principles “to overcome (Nersa’s) failure to produce a new methodology.”

Kollapen noted that Nersa only rejected Eskom’s request in September, citing the “expired” methodology and asked why the regulator did not raise this point earlier. Eskom applied in June and even met with Nersa in March.

Ellis admitted that “in a perfect world” that should have been the case and if Nersa firmly rejected it earlier, “we would not have had to sit in front of these computers today (for the virtual court hearing). The way Nersa approached the matter “is not ideal”, it could have rejected Eskom’s request earlier and developed a new methodology in time, but “that is crying over spilled milk” now and a new tariff determination must be made. , said.

He argued that Nersa can extend the validity of the current rates beyond March 31 of next year and denied that it is a “great catastrophe” as stated by Chaskalson. According to Chaskalson, Eskom would be left without any valid fee unless the court grants its request and this would result in “catastrophic damage” to the entire country, as Eskom would be left without income.

Following Eskom’s allegations that Nersa is continually changing its position by first referring to a change in the methodology and then apologizing and “clarifying” that it is only the principles underlying the application of the methodology that will change and also apologizing for a wrong impression. That the new principles will enter into force before April 1 of next year, in time for the new tariff determination, Ellis also admitted that Nersa’s pronouncements “did more to confuse the situation than to clarify it.”

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