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Immediate introduction of new tariff methodology ‘not feasible’

A sign on the door of a Nersa public hearing

Photo by Creamer Media

27th September 2021

By: Terence Creamer

Creamer Media Editor


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The Nersa Consultation paper on a new price determination methodology  (1.54 MB)

State-owned electricity utility Eskom says it is “not feasible” for the National Energy Regulator of South Africa (Nersa) to make a revenue determination, for implementation on April 1 2022, on the basis of a new methodology that has yet to be consulted or finalised.

On September 24, Nersa published a consultation paper on a possible new price determination methodology in which it states that the “current revenue-based methodology has fallen short in providing stable prices”.

The paper highlights the fact that electricity tariffs have surged by 175% over the past decade, in a context where consumer inflation had remained within a 3% to 7% band.

It suggests a shift to a “cost-to-serve approach”, based on the principles of activity-based costing, type-of-service costing, and marginal pricing to set tariffs.

Nersa has set October 22 as the closing date for written submissions and intends to conduct virtual public hearings, as well as one physical hearing in Gauteng, from October 25 to 29.

It is understood that Nersa’s Electricity Subcommittee, which has overseen the drafting of the consultation paper, could propose that the Energy Regulator reject a revenue application submitted by Eskom in June in favour of a determination based on the new methodology, or an interim one-year determination while the methodology is finalised.

Eskom submitted its fifth multiyear price determination (MYPD5) application, covering the three-year period from April 1, 2022, to March 31, 2024, on June 2 and it was anticipated that Nersa would formally begin the process of adjudication soon thereafter so that a determination could be made by year-end.

The revised tariffs in accordance with the determination must be submitted to Parliament by March 15 2022 to allow Eskom to implement these revised tariffs on municipal customers.

The Energy Regulator, which comprises both fulltime and part-time regulators, is scheduled to meet on September 30, where it is expected to decide how to process the MYPD5 application.

Nersa head of communications Charles Hlebela says Eskom’s MYPD5 application is undergoing the Energy Regulator’s internal approval process and that the outcome will be communicated to Eskom.

"The proposals on the process to handling the Eskom tariff application for the period starting on April 1, 2022 will be presented to the Energy Regulator on the 30th of September 2021 and the Regulator decision will be communicated immediately thereafter," Hlebela tells Engineering News & Mining Weekly.

He adds that the Energy Regulator will ensure that the 2022/23 tariff determination is done in accordance with the prescripts of the Electricity Regulation Act, taking into account the demands of the National Energy Regulator Act.

"We would request that you wait until the Energy Regulator has decided on these matters to avoid any speculation."

Eskom tells Engineering News & Mining Weekly that, having submitted the application, Nersa is required to process the application, starting with confirmation that the submission is in compliance.

“Our understanding is that this was done, since Nersa has requested areas of confidentiality before it publishes and this can only happen with a compliant application,” Eskom said in response to emailed questions.

However, Nersa has not yet published the MYPD5 revenue application on its website and has also not outlined a timeframe for adjudication, including a schedule of public hearings.

Eskom tells Engineering News & Mining Weekly that the timing does not allow for a new submission under a new methodology.

“That it is not feasible,” the utility states, explaining that it would typically need between nine and 12 months to finalise an application and complete the various legislated consultation processes required ahead of submission.

In addition, Nersa has indicated that it requires at least six months from submission to decision.

“It should also be noted that the consultation paper is not a consultation on a methodology – it is a consultation on what a methodology should entail.

“Thus, it could be inferred that Nersa still has to develop a methodology, once feedback has been received from stakeholders and that the actual methodology development, consultation and approval process will take much longer.”

Eskom refused to be drawn on whether it would take legal action against Nersa should the Energy Regulator reject its MYPD5 application saying only: “Eskom is committed to ensuring that legal processes are followed . . . [and] has a fiduciary responsibility to ensure that timeous and legal applications are made to continue the migration towards a sustainable business.”

Eskom says it will participate in the consultation initiated by Nersa on the new price determination methodology, but says it is not in a position to comment on the contents of the paper.

However, it contends that the prevailing MYPD methodology is aligned with similar cost-of-service methodologies found in other jurisdictions.

“It could be argued that the challenge that the country is facing is that the methodology was not correctly applied. This has been the outcome of several review applications in the recent past.”

Edited by Creamer Media Reporter



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