Electricity tariffs are in limbo after Gauteng High Court (Pretoria) Judge Cynthia Pretorius yesterday set aside a decision by the National Energy Regulator of SA (Nersa) to grant Eskom an effective 9.4% increase for 2016 on the grounds that neither Eskom nor Nersa had complied with the prescribed methodology for interim tariff increases, notes Legalbrief.

A Business Day report says the effect of the ruling is that unless Eskom or Nersa appeals the decision, Eskom is not permitted to continue to charge customers the tariff increase, and will have to revert to a 3.4% increase on 2015 tariffs. It would also mean it would have to refund customers the difference since the tariff came into effect on 1 April. The report says the ruling is also highly significant in that it is the first time a court has disciplined a regulator for deviating from its stated procedures.

The ruling follows an application by a group of businesses from the Eastern Cape to have Eskom’s 2013-14 application under the Regulatory Clearing Account (RCA) set aside. The RCA, notes Business Day, is the mechanism allowed by the regulator to enable Eskom retrospectively to recover costs after the close of the financial year through raising revenue in the following year.

It says the RCA application for 2013-14 allowed Eskom a tariff increase of 9.4%, which only came into effect in the 2016 year, due to the lateness of the application. Without the RCA portion of the increase, tariffs would have risen only 3.4% in 2016. Pretorius ruled that Eskom had not fully complied with the Nersa methodology in two respects. The application had been submitted outside of the permitted timeframe and was out of time. Secondly, the RCA application should have been based on quarterly reports by Eskom to Nersa. These had not been submitted.

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The technical nature of the decision is best referred back to Nersa to sort out, Pretorius decided. According to a Moneyweb report, Pretorius ruled: ‘I find it was irregular for Nersa not to have the quarterly financial reports for the 2013/14 year; not to alert customers and the public that it intended to deviate from the MYPD (Multi-Year Price Determination) methodology; and not to allow customers and the public to deal with the deviation in the public hearings and submissions to Nersa.

She added: ‘I further find that it was irrational, unfair and unlawful not to deal with the deviation in 2014, which was the subsequent year, but to wait 27 months before launching the RCA application.’ Nersa did not properly assess the efficiency ‘in an adequate manner or at all’, Pretorius found.

She also found there was some double counting, notes Moneyweb. ‘In the present instance Nersa allowed a variance for decreased revenue, but this could only be done if the lower sales had not been due to Eskom’s own inefficiencies. Nersa ignored the fact that Eskom actively encouraged its customers to use less electricity and provided monetary incentives to customers in this regard. According to the applicants, this conduct by Eskom is irrational and the decision by Nersa to compensate Eskom for the lesser income, is therefore irrational, unfair and thus unlawful.

I must agree that this results in some double counting. Eskom receives money from consumers; pays money to other consumers to use less electricity, which results in a decreased income for Eskom; and then Nersa decides to grant a RCA increase to compensate for the decreased income.’

Full Moneyweb report

Borbet and others v Nersa and others 

The ruling is a ‘massive win for electricity users in SA’, according to the Nelson Mandela Bay Business Chamber, which brought the application along with several Eastern Cape intensive-energy users, notes a Fin24 report. A BDlive report, though, says it is unclear what this means for consumers and whether it would have the effect of disallowing the tariff increase. Eskom and Nersa both said they were still studying the judgment. But Eskom it would await a decision by Nersa on the way forward.

Full Fin24 report

Full BDlive report