By ruling in Eskom’s favor, Judge Jody Kollapen on Friday removed the cornerstone of an argument that energy regulator Nersa brought against the advice of its own in-house legal counsel.
Kollapen ordered Nersa to process the rate request that Eskom submitted to Nersa in June, which Nersa rejected in September.
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While the request was for the next three financial years, the order is provisional in nature and refers only to Eskom’s rates for 2022/23. The court will make a final determination at a later stage.
Read: Dear Nersa, see you in court – Eskom
The ruling came after Eskom submitted a semi-urgent request to review and overturn Nersa’s decision to reject the request.
It was prepared in terms of the 2016 version of the multiannual rate determination methodology developed by Nersa, called MYPDM4.
At a regulator meeting in September, Nersa’s legal advisor, Mbuyiseni Murathi, informed the regulator’s members that this methodology was still valid.
Despite the objections of half of the regulatory members and only thanks to the casting vote of the meeting chairman Fungai Sibanda, the regulator decided to reject Eskom’s request. In court documents, he argued that the methodology had expired.
In an affidavit, Nersa’s full-time regulatory member for electricity, Nhlanhla Gumede, stated that Eskom submitted its application early and should have waited for the new methodology.
Attorney Patrick Ellis, representing Nersa, admitted that Nersa left a void by not developing a new methodology.
Following the rejection, Nersa published a discussion paper on the way forward. While the title indicated that it was a new methodology, it simply proposed three principles for future rate setting, which the regulator subsequently adopted.
The discussion paper also indicated that the MYPD4 methodology has expired.
In its ruling, Kollapen noted that the methodology “is a detailed document of more than 40 pages and provides considerable detail of how a rate request will be submitted and the information and how it will be submitted.”
“It is complex and covers matters of an operational, technical and financial nature.”
Kollapen said that the determination of rates is complex and the use of a methodology is “central and indispensable” in that process.
During the hearing he also noted that the principles are broad and can be interpreted differently by different stakeholders.
In its ruling, it rejects the suggestion that the methodology has a time limit, adding that it makes no business sense and is impractical.
Therefore, Eskom had the right to use MYPDM4 for its application.
Read: Renewable energies will not be enough, says Nersa
Kollapen also referred to an “apology” from Gumede during public hearings on the new principles when he corrected a misconception that the new principles will apply to the 2022/23 determination. He said, and this was later confirmed by a decision of the regulator, which will only apply from 2023/24.
Impractical ‘repackaging’ request
Nonetheless, Nersa requested that Eskom “repackage” its application for 2022/23 in accordance with the three new principles and suggested a timeline for the determination that would ensure that a decision is made in time for implementation on April 1 of next year.
However, Eskom argued that it needed more time to prepare its application and was legally obliged to consult with the National Treasury and the local government association Salga for 40 days before sending it to Nersa.
There was clearly not enough time to do all of this.
Kollapen rejected Nersa’s argument that this consultation could be waived, saying that the regulator’s proposal to determine the next set of rates is illegal and impractical.
The request cannot be presented and decided “on the basis of a non-existent methodology,” it concluded.
Order and schedule
He ordered Nersa to process the June application for 2022/23.
In doing so, Nersa should post Eskom’s request for comment on Wednesday, December 8. The public must be able to make statements until January 14, and Nersa must hold three public hearings between January 17 and 21.
Kollapen ordered Nersa to make a final decision by February 25, 2022.
Hasha Tlhotlhalemaje, Eskom’s general manager of regulation, said in a statement issued by the utility company: “The High Court’s decision is a relief as it will contribute to the stability of the electricity industry and therefore to the economy of the country “.
Eskom previously told the court that without their intervention it would be without a legally valid rate as of April 1. Therefore, it would not be able to generate income legally, which would be a disaster not only for Eskom, but for the entire economy.