If a court application by a group of Eastern Cape businesses succeeds, Eskom’s tariff increase that took effect on April 1 will be set aside.

Borbet SA, the PG Group, Crown Chickens, Agni Steel SA, and the Nelson Mandela Bay Business Chamber on Tuesday asked the North Gauteng High Court to set the increase aside. They further asked the court to provide a just and equitable remedy that will ensure there are no undue disruptions to electricity supply and pricing in the country and that customers who overpaid receive just and equitable relief.

Eskom has already undertaken to refund its direct customers if the increase is set aside. The applicants propose that municipal tariffs be reduced in 2017/18 to compensate municipal customers for amounts paid in terms of the increase, should the application succeed.

Advocate David Unterhalter SC acting for the applicants, told Judge Cynthia Pretorius that neither Eskom nor Nersa complied with the prescribed methodology for interim tariff increases. Nersa earlier adopted this methodology after public consultation.

In terms of the methodology Eskom should open a Regulatory Clearing Account (RCA) at the beginning of a financial year to record variances from its allowed revenue that was set in terms of the Third Multi-Year Price Determination (MYPD3). This is aimed at tariff adjustments to compensate Eskom or its customers for over- or under-expenditure.

The RCA should be continuously monitored and Eskom should submit quarterly reports to Nersa about the variance with a forecast of the total variance at year-end. Nersa should do a preliminary review of these reports and provide signals to Eskom’s customers of the extent of increases that would be implemented in the next financial year.

None of this happened, Unterhalter said. Eskom submitted an RCA application compensation for variances in 2013/14, only in November 2015. This he said, was out of time.

He said Nersa’s function is not to protect Eskom. Eskom is a monopoly and Nersa’s main function is to protect customers against abuse by Eskom of its position as a monopoly to the detriment of customers.

He further argued that Nersa failed to assess whether Eskom’s excess use of power from independent power producers (IPPs) was efficient. Nersa merely passed the costs through to customers on the grounds that it was incurred in terms of approved power purchase agreements (PPAs).

Unterhalter said the PPAs fix the tariffs Eskom has to pay for such purchases, but not the volume. Eskom exceeded the forecast volumes, because the availability of its own coal-fired fleet of power stations deteriorated due to lack of maintenance. Eskom should not have been compensated for inefficiently-incurred costs, he said.

Nersa’s decision to grant Eskom R11.2 billion additional revenue, which translated to an average tariff increase of 9.4%, was irrational and unfair, Unterhalter said.

Advocate Dennis Fine SC for Nersa said it was an untenable argument that the RCA application should be brought during the year to which it applies, in this case during 2013/14. That would require Nersa to take a decision about the RCA balance – the variance between forecast revenue and expenditure and actuals – without Eskom’s audited financial statements.

The methodology requires Nersa to do the final review only after receipt of Eskom’s audited financial statements, he said.

He further argued that the development of a methodology does not preclude Nersa from exercising due judgement, taking into account economic conditions in South Africa. Nersa has to balance the interests of Eskom and its customers, he said.

There is no suggestion in the methodology that a failure by Eskom to submit an RCA application in the year under review would result in the utility forfeiting the right to a tariff adjustment.

It would not be correct to attach such drastic consequences to Eskom’s failure to submit quarterly reports, Fine said.

In terms of the methodology it would be impossible to finalise Nersa’s review within the same year without the most important document it should have before it: the audited financial statements. The methodology further provides for full public participation if the RCA balance is more than 10% of the revenue allocated for that year in the MYPD determination. It would not be possible to do that in the same year and finalise the RCA adjustment, he said.

The methodology also provides expressly for the regulator to decide on the timing of the implementation of the tariff adjustment.

Fine said nobody was prejudiced by Eskom’s failure to provide quarterly reports.

The hearing continues on Wednesday when Eskom will present its arguments.

This article was published on Moneyweb.co.za and authored by Antoinette Slabbert on the 15 June 2016