United industry ‘can take Eskom tariff fight to top court’

The energy intensive users who were defeated by Eskom and energy regulator Nersa in their fight against interim tariff increases might take the matter all the way to the Constitutional Court, if they get support from industry.

This was the response of David Mertens, spokesperson for the Nelson Mandela Bay manufacturers who not only lost the case on appeal, but were also slapped with a cost order.

A disappointed Mertens said the fight could proceed, provided the group gets wide support from industry. They will consult their legal team and decide on the way forward.

The Supreme Court of Appeal ruling on Tuesday overturned an earlier ruling in the North Gauteng High Court in terms of which Eskom would have had to repay a portion of the 9.4% tariff increase it implemented on 1 April last year due to procedural shortcomings in the approval process.

The High Court finding also casts a shadow on two further interim tariff applications that Eskom has already submitted to Nersa. Nersa had shelved these pending the outcome of the appeal.

The case centred around the Regulatory Clearing Account (RCA), a mitigation measure that forms part of the approved methodology to determine Eskom’s tariffs for multi-year periods (MYPD methodology). It provides for a reconciliation of the cost and revenue forecasts for a specific tariff year with actuals and interim tariff adjustments to address shortfalls or overruns.

The tariff increase that was the subject of this court challenge related to variances in 2013/14, the first year of the current five-year tariff period (MYPD3).

The applications pertaining to 2014/15 and 2015/16 that have already been submitted to Nersa, but were on hold pending the outcome of the appeal, can now be considered.

This has been confirmed by Eskom head of legal affairs Suzanne Daniels in reaction to the ruling on Tuesday afternoon.

Moneyweb earlier reported that Eskom submitted the two applications for additional revenue totalling R43 billion based on excessive diesel cost and lower than expected electricity sales volumes in those two periods. Last year Moneyweb reported that the two applications if granted, would have led to a 22% tariff increase at that stage.

The utility is further expected to prepare applications relating to revenue shortfalls in 2016/17 and 2017/18. Although the diesel cost was considerably lower in these two periods, the actual sales volumes were considerably below forecast, which could indicate applications in excess of R10 billion per period.

Over and above these applications Moneyweb reported that Eskom is expected to submit an application for an average tariff increase of 20% from 1 April next year and 27% for bulk municipal purchases from 1 July next year.

The SCA on Tuesday found that although Eskom did not comply with the prescribed procedure for the relevant tariff application, the non-compliance to provide quarterly updates to the RCA reconciliation did not preclude Nersa from considering the application.

The court stated that the RCA is a mitigating measure against unforeseen circumstances that could affect Eskom’s financial health. To disqualify the application for the failure to provide quarterly reports would be to defeat the purpose of the mechanism and negate the role of the regulator, the court found.

It stated that such a position might have rendered Eskom non-viable and threatened the supply of electricity regionally or countrywide.

The court took note of the need for early warning signals through the quarterly reports to customers of the possibility of future tariff increases, but said the bi-annual reports that Eskom did submit could have given that signal. Nersa has full discretion to sanction Eskom for its failure to comply fully the court found.

Brought to you by Moneyweb