Nersa decries Eskom’s assertions that tariffs were determined improperly

The National Energy Regulator of South Africa (Nersa) has hit back at Eskom’s assertions that it did not follow the proper legal framework and its own methodology when it determined the 2018/2019 tariff decision and instead “reverse engineered” its decision in order to achieve the lowest possible tariff.

Judgment was reserved on Tuesday in the matter where Eskom asked the court to review Nersa’s decision that it says was procedurally invalid and made on incorrect considerations that resulted in devastating effects on the utility’s liquidity.

In the single year determination, Nersa granted Eskom a 5.23% tariff increase and not the 9.9% increase the utility asked for.

Nersa has defended its decision, saying it was fully justified and carefully considered to balance out Eskom’s interests and the effect on customers.

‘Scandalous and vexatious’

“This is not some rogue regulator that has acted through fraudulent purpose or reckless disregard,” argued Nersa’s senior advocate Rafik Bhana.

Nersa said Eskom had not provided any proof or real evidence showing the occurrence of reverse-engineering and instead relied on changes that Nersa made in the ongoing process which involves collating public comment, information from Eskom and assessing the information through workshops at Nersa.

In its submission before the court on Monday, Eskom argued that the court should set aside Nersa’s decision because the regulator was “at best confused about the information before it and at worst operated in bad faith to reverse engineer a predetermined outcome”.

Nersa’s legal representative argued that Eskom’s allegations were not only unsubstantiated but “scandalous and vexatious”.

“The use of the words bad faith denote fraud and dishonesty,” argued Nersa’s legal team which said this had a defamatory effect on Nersa’s integrity and should be struck from Eskom’s papers.

“It has had an effect on putting doubt in the minds of the public about what the operations of the regulator are.”

Premature 

On top of making what it says are unsubstantiated claims, Nersa added that Eskom’s application was premature and went against the spirit of the intergovernmental relations framework which requires the two organs of state to attempt to resolve their issues without turning to the courts.

Nersa said despite making Eskom aware of the intergovernmental dispute resolution guidelines the utility still pursued the legal route which could overburden Nersa with legal costs and result in the courts “interfering in issues of policy or functions of Nersa to unknown and adverse consequences”.

“Disputes between state organs are strategic as the parties in this application could place the economy at risk if cooperation between the organs ceases to be a priority,” said Bhana.

Bhana contends that the court should rather refer the matter back to Nersa, particularly because the issues which Eskom has raised can be dealt with through the regulatory clearing account (RCA) process that is currently underway for the 018/2019 tariff.

The RCA is a mechanism that allows Eskom to retrospectively recover costs it incurred over a tariff period that were not properly accounted for in the assumptions or budget.

“Considering the review of the decision without allowing for the outcome of the RCA application could result in conflicting decisions and an undesirable result for the economy,” said Bhana.

Eskom took issue with how Nersa accounted for its coal costs, operational spend, asset base, transmission and independent power producer costs, among other things, which, according to Bhana, could all be resolved using the RCA.

The outcome of Eskom’s current RCA application is expected in March.

Can’t put lipstick on a pig

Eskom said it was unfair to expect it to delay its review application until the RCA process is concluded saying Nersa has held up previous RCA applications, particularly those in the period spanning 2014 to 2017, which had a negative effect on Eskom’s finances. A delay which the utility could not risk.

“The more fundamental point of principle to be made is that the RCA process is not an internal remedy to reverse an unlawful tariff decision,” said Eskom’s senior advocate Matthew Chaskalson.

Chaskalson said the RCA process would not be able to remedy the complaints brought by Eskom because it is designed to address “reasonable projections in light of actual experience, it is not designed to correct irregular misdirections and matters of principle”.

Instead, the utility says it wants the RCA process to be concluded in tandem with the court proceedings and should the court rule in its favour it has also asked to be granted the opportunity to make another submission to Nersa within 60 days of the judgment or 2018/2019 RCA determination.

Nersa would then make a supplementary tariff determination which will grant Eskom any additional amounts that it would have been entitled to in that year.

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