Newly appointed National Energy Regulator of South Africa (Nersa) CEO Christopher Forlee insists that the Energy Regulator will not take any “illegal” decisions when making a determination in February about the trajectory of Eskom’s 2017 tariffs. Instead, any decision will seek to navigate the constraints placed on the regulator by a 2016 court judgment – which found the most recent Regulatory Clearing Account (RCA) adjustment to Eskom’s tariffs to be “irrational, unfair and unlawful” – and Nersa’s mandate to ensure that licensees remain financially sustainable.

Nersa’s technical experts, Forlee tells Engineering News Online, are currently assessing all the possible aspects, in light of the fact that legal certainty on the treatment of future RCA applications is unlikely to be secured prior to the March 15 deadline for delivering municipal tariff guidelines to the National Treasury and the South African Local Government Association. The Supreme Court of Appeal has not yet handed down a date for Nersa’s appeal of the August 16, 2016, Gauteng High Court ruling.

However, he says it is premature to speculate on the nature of the 2017 tariff determination, which will be considered by the Energy Regulator’s February 23 meeting. Nersa will, however, not process the two additional RCA applications received from Eskom for the 2014/15 and 2015/16 financial years before the legal appeal is settled – the utility is seeking to claw back a further R44-billion for the two years in question.

Under the third multiyear price determination, or MYPD3, through which Eskom was granted five yearly increases of 8% between April 1, 2013 and March 31, 2018, the State-owned utility is guaranteed an increase of only 2.2% on April 1. This, after accommodations are made for the recent RCA adjustment, which saw Eskom’s tariffs rise by 9.4% in 2016 and by 12.69% in the previous year, owing to the respective RCA reconciliations for the first year of the MYPD3, as well as the full MYPD2 period, which ran from April 1, 2010, to March 31, 2013.

It is understood, but not confirmed by Forlee, that the technical experts are assessing whether or not to recommend a higher adjustment to the Energy Regulator on the basis of economic considerations and Eskom’s financial viability outside of any RCA application process. This could enable Eskom to recover unforeseen, yet prudently incurred, costs for 2014/15 and 2015/16.

Eskom interim CEO Matshela Koko is already on record as arguing that 2.2% will not be enough even to cover Eskom’s commitment to the renewables independent power producers (IPPs), the cost of which, he claims, will translate to a tariff increase of 4.9%.

As a fulltime member of the Energy Regulator, as well as the leader of Nersa secretariat, following his January 1 appointment to the post by Energy Minister Tina Joemat-Pettersson, Forlee has refrained from engaging with the technical experts on the possible options, so as to reduce the risk of being “conflicted” when he joins the other fulltime and part-time regulators to preside over the matter. The fulltime regulator member primarily responsible for electricity regulation, Mbulelo Ncetezo, is engaged with Nersa’s technical experts on the options to be presented to the energy regulator, Forlee explains.

“All I can tell you for certain is that we will not make any decision that is  illegal,” he states, stressing that Nersa disagrees with, and is contesting, the High Court’s ruling that it acted illegally in granting Eskom an RCA adjustment in 2016.

An electrical engineer and former Eskom bursary recipient, Forlee (48) has deep insight into the operations of the utility, as well as the electricity supply industry, having overseen energy matters as a former deputy director-general in the Department of Public Enterprises from 2008 to 2012. In addition, he is into his second stint at Nersa, having worked on the first MYPD in 2007.

Forlee does not concur with a current perception that Nersa has been stripped of its top talent, but acknowledges that the new team of full-time regulators will need to establish their credentials, much as Thembani Bukula, Dr Rod Crompton and Ethèl Teljeur had done during their respective tenures.

He views his role primarily as one of ensuring “continuity and stability”, rather than reforming the 200-employee-plus organisation. However, he would like to improve the attractiveness of Nersa as an option for young engineering talent, while also refining the “robustness” of Nersa’s processes. For instance, he believes there is real potential to increase the use of online systems to manage applications and improve turnaround times.

However, he admits that in the electricity sector, a key priority is to re-establish certainty – an outcome that is largely in the hands of the courts and government.

“When we partially acceded to Eskom’s RCA request last year, we also instructed them to move ahead with preparing a MYPD4 application. However, until there is legal certainty, Eskom cannot do so, because they don’t know what to factor in. So that, from an energy regulator perspective, is the top priority.”

A second area of priority for Forlee relating to the stability of the electricity sector relates to resolving the current deadlock between Eskom and the renewable IPPs on the signing of power purchase agreements for projects that were selected in the most recent rounds of the Renewable Energy Independent Power Producer Procurement Programme.

He views it as partially related to the RCA impasse, as Eskom, “in the normal course” would pass on the costs and, therefore, have no reason to refuse to sign. “But given where we are currently, Eskom is expressing worry that it may not be able to pass-through all the costs. Therefore, legal resolution has to be a priority.”

Outside the area of electricity, other priorities relate to the Rompco pipeline tariff application, as well as the Transnet Pipelines 2017/18 tariff application. “I know that electricity is top of mind, but we are also seized with gas and petroleum matters,” Forlee stresses.