Nersa misses deadline for new electricity tariff methodology

Energy regulator Nersa has missed its own “tight deadline” to finalise a new method for determining the tariffs Eskom, municipalities, and all other electricity licensed suppliers may charge.

A meeting of the energy regulator on Thursday (29 September) noted that it will only be finalised early next year, due to delays in the appointment of technical specialists and drafters, according to Nhlanhla Gumede, full-time regulator member for electricity and chair of the Nersa electricity sub-committee.

Gumede said the initial June deadline was extended to 30 September, but that these appointments, among other things, delayed the process.

This after Eskom had to go to court to prevent premature implementation of the proposed new methodology.

Valid methodology the only option

The saga began last year when Nersa rejected Eskom’s tariff application for the 2022/23 – 2024/25 period, on the basis that it was prepared using the 2016 methodology, which Nersa held had expired.

Eskom argued that the methodology remains valid until replaced by another lawfully developed and accepted methodology.

The court ruled in Eskom’s favour and ordered Nersa to determine the tariffs for the first of the three years by 25 February, following the existing (2016) methodology.

Eskom and Nersa later settled the rest of the legal dispute, and a court order was made based on their agreement that Nersa publish the application for 2023/24 for public comment by 1 August, and reach a decision by 24 December, following the same existing methodology.

If, then … 

Regarding the tariff determination for 2024/25, the court determined that “if Nersa publishes a new pricing determination methodology and reviews all other related regulatory requirement[s] for the industry by 30 September 2022, Eskom shall submit a revised 2024/25 revenue application by no later than 1 June 2023 to Nersa for consideration and approval by 20 December 2023”.

It was this September deadline that Nersa, and especially Gumede, was chasing.

At a public workshop Nersa held about the new methodology, Gumede had said there is no time to waste in finalising the new methodology as the current one is no longer appropriate.

Since the court order requires not only the methodology itself to be finalised but also related documents, it was always going to be a tall order. Eskom recently listed at least nine documents that licensees are bound to that must be reviewed before a new methodology can be implemented.

These include the South African Grid Code and the South African Distribution Code, the Minimum Information Requirements for Tariff Applications, the Eskom Retail Tariff and Structural Adjustment Methodology, and the Regulatory Reporting Manual.

Surprise decision

The electricity sub-committee in July took a surprise decision to extend its public consultation on the next Eskom tariff decision to cover both 2023/24 and 2024/25 in what Moneyweb considered to be a pre-emptive strike, should the new methodology not be ready by the end of September.

Gumede was the only committee member who opposed the decision.

This scenario has now played out exactly like that and the tariffs for both the coming financial year and the one thereafter will be determined according to the existing methodology.

Read: Nersa to consult on two years’ worth of Eskom tariffs instead of one

Why the rush?

During the public hearings about the new methodology stakeholders were critical of the rush to finalise it.

The Minerals Council advised Nersa to stop its “unwise” and rushed overhaul. Its technology analyst Christian Teffo said it is not ready for implementation, and that it is unfair to expect stakeholders to accept an incomplete methodology on the basis of principles only, without knowing what the impact will be.

It would be better to improve the current multi-year price determination methodology (MYPDM) incrementally while the electricity supply industry is in flux and until the current revision of the policy and legislative framework has been completed, he said.

Nersa said in a statement on 4 August that it plans a phased implementation of the methodology, but Eskom GM for regulation Hasha Tlhotlhalemaje questioned during the hearing whether this is feasible.

The three principles underpinning the proposal are activity-based costing, type-of-use tariffs and marginal pricing, which according to Eskom are not regulatory principles at all and are wholly inappropriate.

Read: ‘Wrongly placed’ ideas in Nersa plan will result in much higher tariffs: Eskom

The Energy Intensive User Group (EIUG) expressed its concern about the impact the new methodology could have on power users, and pointed out that Nersa’s proposed removal of the subsidies large power users pay to soften tariffs for others may lead to sharp increases in household tariffs.