Eskom tariff case is based on fear-mongering - regulator

Eskom should not be allowed to blackmail the country into paying higher electricity prices by threatening to collapse the economy if it doesn’t get its way, experts and the regulator said on Wednesday.

The power utility has taken the National Energy Regulator of SA to court, arguing that the electricity price increases it was allowed to implement in the three financial years ending in 2021/ 2022 were not sufficient.

The Pretoria High Court reserved judgement on the matter but promised that it would take into account the urgency of the matter.

When Eskom applied for 15% tariff increase for each of the three years to 2022, Nersa only approved a 9.41% tariff increase for the 2019/20 year, which would decrease to 8.1% and 5.2% in the successive years. Eskom said this has created a gaping hole in its finances, and the resulting liquidity constraints could collapse the company, putting the whole country in jeopardy.

The move to take the regulator to court over tariff increase dispute is unprecedented. Nersa said the only time its decision was challenged in court was in 2008, when the Midvaal Municipality disputed its licensing decision.

Facts before fear 

When Nersa took the stand later on Wednesday, it said Eskom should not get away with fear-mongering.

“What is evident in this application from my learned colleague is, the atmosphere in which the story is being told and in which the argument is being made is one of fear-mongering,” said Advocate Myron Dewrance representing the regulator.  

He asked the court to consider the facts in which Nersa based its decision rather than fear that load shedding may escalate to stages never experienced before or that Eskom could completely collapse if not granted its wish.

He also said that if government felt that Nersa’s decision was crippling Eskom, it would have intervened and probably be the one that took Nersa to court. However, no government department was listed as an interested party in Eskom’s application.

Eskom cannot fail

Eskom argued that since there was a call from the highest office in the country to keep Eskom in business, the court must consider how Nersa’s decision to grant it lower tariff increases went against that call. President Ramaphosa said in his state of the nation address in June 2019 that the power utility cannot fail, a remark that he repeated at the ANC's 108th-anniversary celebration over the weekend.

In its court papers, Nersa said it rationally considered the sustainability of Eskom when it included the R23bn cash injection Eskom would get every year from government between 2019/20 and 2021/22 to arrive at the approved tariffs. It said it also had to think about consumers' ability to afford the increases, how elevated prices would affect electricity sales, and in turn prompt Eskom to ask for even higher increases in future to compensate for less demand.

Organisation Undoing Tax Abuse CEO, Wayne Duvenage, told Fin24 the organisation was pleased to see that the regulator’s current board had taken this stance on Eskom, which he said was needed back in 2008 to 2010 when the power utility was awarded massive tariff increases as it allowed unchecked escalation of costs in the construction of Medupi and Kusile.

“What we are saying is, Nersa needs to stand its ground and the court needs to hear why it has taken that decision. Eskom is still not doing enough to reduce its primary energy and operating costs as well as its staff complement. Eskom’s argument is totally wrong,” said Duvenage.