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Tariff tussle

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Tariff tussle

26th February 2021

By: Terence Creamer
Creamer Media Editor

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Much attention is, quite correctly, being given to the 15.68% tariff increase granted to Eskom by the energy regulator following a court order arising as part of an ongoing battle over the National Energy Regulator of South Africa’s (Nersa’s) treatment of a R69-billion equity injection.

This double-digit hike has arisen despite the two protagonists agreeing, as reflected in the order signed by Justice Joseph Raulinga, to add back only R10-billion of the R23-billion Eskom argued that it was due.

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The R23-billion figure represents one year of a three-year injection announced in 2019 ahead of Nersa’s fourth multiyear price determination (MYPD4) adjudication. Under huge public pressure to contain the hikes, Nersa decided to simply exclude the injection from Eskom’s allowable revenue – a decision that resulted in lower increases, but neutralised the injection.

The High Court ruled on July 28 last year that Nersa’s treatment of the equity injection was unlawful and ordered that the first R23-billion be added back in the 2021/22 financial year, with the balance to be recouped in the next tariff cycle, which begins on April 1, 2022.

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Nersa has not contested the unlawfulness of its treatment of the injection, but successfully appealed the court’s right to bypass the regulator by ordering that the first R23-billion be added back without remitting the decision to Nersa itself for deliberation. No Supreme Court of Appeal date has yet been set to hear this matter.

The long and the short of it, however, is that the R59-billion balance has not magically disappeared and is likely to feature in Eskom’s MYPD5 application.

The case is an extremely complex one and has been made all the more confusing by the fact that it coincided with various other legal applications by Eskom – applications that arose from the utility’s claim, with which the court agreed, that Nersa had misapplied its methodology when adjudicating the 2018/19 revenue application, as well as three regulatory clearing account (RCA) applications.

The upshot was Nersa’s announcement, on January 28, that the utility was indeed entitled to recover an additional R6-billion through the tariff following its re-adjudication of the RCA applications and a supplementary 2018/19 revenue application. Prior to that, the regulator had also already determined that half of the R13.2-billion approved following Eskom’s 2018/19 RCA application be liquidated in 2021/22.

In other words, a tariff hike of greater than 9% was already baked in prior to the court order, which by adding back R10-billion of the equity injection, will translate to an additional 5.44 c/kWh and raise the tariff to 134.30 c/kWh.

Although developments have been confusing, arguments that the latest hike is the outcome of a behind-the-scenes stitch-up are inaccurate. All processes have been conducted in the public domain, including various virtual court hearings.

Sadly, what emerged during these processes is that Nersa, under extreme public pressure, acted improperly. And by doing so has amplified the pain for consumers in the name of consumer protection.

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