Judge Jody Kollapen has reserved judgment in Eskom’s application to have the National Energy Regulator of South Africa’s (Nersa’s) rejection of its latest revenue application set aside as irrational and unlawful.
Following a virtual hearing on December 1, Kollapen indicated that he expected to publish a determination, along with his reasons, next week.
In its application, Eskom requested that the ruling be made before December 15 – a date that the utility argues needs to be met to allow sufficient time for Nersa to conclude the public consultations necessary for the implementation of a lawful tariff on April 1, 2022.
Should it be made earlier, Eskom advocate Matthew Chaskalson requested that the judgment include an order directing Nersa to publish Eskom’s application for public comment within two days of the ruling to give the public more time to respond.
Besides public consultations on the allowable revenue, the tariff must also be submitted to Parliament by March 15, 2022, to allow Eskom to implement the revised tariff on municipal customers.
Eskom approached the Gauteng High Court in October for an urgent review of Nersa’s September 30 decision to reject its fifth multiyear price determination (MYPD5) application, which the utility submitted to the regulator in June.
Nersa’s rejection was based on its argument that the methodology used by Eskom to calculate its allowable revenue was applicable for the MYPD4 period, which would end on March 30, 2022, and could not be used for a determination after that date.
Therefore, the regulator said that Eskom’s MYPD5 application, covering the three financial years from 2022/23 to 2024/25, had been made prematurely.
Nersa indicated that the utility should resubmit a one-year application for 2022/23 based on a new, yet-to-be-determined methodology, the principles of which were being canvassed as part of a belated public consultation process.
During Wednesday’s hearing Chaskalson described the situation as “Kafkaesque”, arguing that it was not possible for Eskom to make a new submission based on “amorphous” principles (which had not been communicated to the utility by the time of the court hearing) rather than on the basis of a clear methodology.
Chaskalson described the argument that the methodology had expired as “wrong in law and in fact”, noting that there had, to date, been only three methodologies approved by Nersa, against four allowable revenue determinations.
Eskom also attacked Nersa’s proposed remedy, which was outlined, together with a timetable, in a letter sent to it by the regulator on November 12.
Dubbed Option 4, Nersa proposed that pricing ‘principles’ – to be finalised before the end of November – should be used by the utility to determine trading tariffs for Eskom’s generation, transmission and distribution units, which are in the process of being restructured into separate businesses.
Eskom claimed not to have received the principles by the start of the court hearing, even though Nersa’s legal representative, Advocate Patrick Ellis, said he had been told by the regulator that these had been finalised.
Chaskalson argued that Option 4 would trigger consultations with the National Treasury and the South African Local Government Association (Salga) in line with the stipulations contained in the Municipal Finance Management Act, which would add a further 40-days to the process, making it impossible for a new tariff to be implemented on April 1.
Ellis acknowledged that a “lacuna” had indeed been created by Nersa’s failure to finalise a new methodology ahead of Eskom’s application, but insisted that the remedy outlined in Option 4 provided the only rational and legal solution.
Ellis argued that the option did not envisage any “reinvention of the wheel” and should, thus, not trigger any consultations with the National Treasury and Salga.
Rather, Eskom would be expected only to repackage its application to take account of the new principles, as well as changes under way both in the electricity industry and at the utility, which was being restructured.
He argued that it was “common cause” that a new methodology would be employed for MYPD5 and, therefore, described Eskom’s June submission as “premature and opportunistic”.
However, Ellis conceded that the current court action could have been avoided had Nersa not waited months to reject the utility’s application and if it had moved earlier to begin finalising a new methodology.
While the manner in which Nersa had approach the matter was “not the best”, it would be irrational not to take account of the changes under way in the electricity market, including the fact that Eskom could no longer be viewed as the sole supplier.
Ellis also insisted that a statement made by fulltime Nersa regulatory member Nhlanhla Gumede on November 12 – when Gumede apologise for creating the impression that the proposed changes to the methodology or the underlying principles were intended for implementation from April 1 – was confusing, but not in contradiction to the remedy outlined in Option 4.
Kollapen responded by saying that, while he agreed that the comments created confusion, he did not find the remarks to be ambiguous: “They were meant to assure the public that we are dealing with something that is not imminent.”