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[2020] ZAGPPHC 2
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Eskom Holdings SOC Limited v National Energy Regulator of South Africa and Others (74870/2019) [2020] ZAGPPHC 2; 2020 (5) SA 151 (GP) (10 February 2020)
IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG DIVISION, PRETORIA)
(1)
REPORTABLE:
YES/
NO
(2)
OF
INTEREST TO OTHER JUDGES:
Case No: 74870/2019
10/2/2020
In
the matter between:
ESKOM
HOLDINGS SOC
LIMITED
Applicant
and
NATIONAL ENERGY REGULATOR OF SOUTH
AFRICA
First Respondent
MINISTER OF MINERAL RESOURCES AND
ENERGY
Second Respondent
MINISTER OF
FINANCE
Third
Respondent
SOUTH AFRICAN LOCAL GOVERNMENT ASSOCIATION
Fourth Respondent
JUDGMENT
KOLLAPEN, J
Introduction and the relief sought
[1]
This
is an application for urgent relief ("Part A") by the
applicant ("Eskom") pending an application in terms
of the
Promotion of Administrative Justice Act
[1]
("PAJA") for judicial review and setting aside of a
decision taken by the first respondent (National Energy Regulator
of
South Africa ("NERSA")) in relation to an application by
Eskom for electricity tariff increases for the 2019/2020,
2020/2021
and 2021/2022 financial years ("Part B").
[2]
In its Notice of Motion Eskom seeks the
following interim order:
1.
Condonation
for non-compliance with the Rules of Court relating to service and
time periods and Part A be heard on semi-urgent basis
in terms of
Rule 6(12).
2.
An
order directing that, pending the finalisation of the review in Part
B:
a.
Eskom be authorised to increase each of
its standard tariffs for 2020/2021 financial year, excluding the
Homelight tariff, by 16,60%
over the corresponding tariffs for the
2019/2020 financial year;
b.
Eskom is authorised to increase each
of
its
standard tariffs for 2021/2022,
excluding the
Homelight tariff, by 16,72% over
the corresponding tariffs for
2020/2021 financial year;
c.
Eskom
is authorised to impose on municipalities in the 2020/2021 and
2021/2022 financial years, the tariffs increased in accordance
with
a. and
b.
above,
provided that these tariffs are tabled before Parliament on or before
15 March 2020.
3.
Costs in Part A to be costs in Part B.
Background
[3]
In
2006, the Energy Regulatory Act
[2]
("ERA") was enacted establishing NERSA as well as a tariff
regime which would apply to all electricity licensees (including
Eskom). In accordance with this regime all electricity licensees will
be entirely self-financing and will cover the reasonable
cost of
their licensed operations (including capital costs and a reasonable
return on capital) through their tariffs. The ERA also
set as one of
its objectives the need to! facilitate a fair balance between the
interests of customers and end users, licensees,
investors and the
public.
[4]
The
regime contained in ERA, succeeded a very different regime in which
Eskom tariffs were maintained at artificially low levels
by pricing
electricity without adequately accounting for the costs of
generating, transmitting and distributing electricity.
[5]
Since
2006, Eskom tariffs have been determined by NERSA under a system of
multi-year price determination ("MYPDs") governed
but
NERSA's own MYPD methodologies (""M YPDMs"").
This application applie5 to the MYPDM4 determination made
by NERSA
for the 2019/2020 to 20 1/2022 financial years. The MYPDMs are
discussed herein below.
[6]
On 14 September 2018, Eskom applied to
NERSA for approval of electricity tariffs for the financial years
2019/2020, 2020/2021 and
2021/2022 and sought the following tariff
increases:
i.
2019/2020 - 15% increase on
standard tariffs amounting to R219 billion;
ii.
2020/2021 -15% increase on
standard tariffs amounting to R252 billion;
iii.
2021/2022 - 15% increase on
standard tariffs amou1 ting to R291 billion.
[7]
NERSA made its determination on 7 March
2019, allowing g for the following tariff
increases for the financial years 2019/2020, 2020/2021
and 2021/2022:
i.
2019/2020 - 9.41% amounting to a
total allowable revenue of R206 billion;
ii.
2020/2021 - 8.1% amounting to a
total allowable revenue of R222 billion;
iii.
2021/2022 - 5.22% amounting to a
total allowable revenue of R233 billion.
Given
the difference in the increase applied for and that granted, Eskom
contends that it results in a shortfall in its revenue
of some R102
billion over the three financial years in question and that the
decision by NERSA stands to be reviewed and set aside
on a number of
grounds. ·
The issue for determination
[8]
While
the determination of the tariff by NERSA is the subject of a detailed
process, the sole issue that arises in this part of
the application
is the treatment by NERSA of an annual government equity injection
of 23 billion
per year in the
calculation of Eskom's annual allowable revenue.
The Regulatory Framework
[9]
NERSA in terms of the National
Electricity Regulatory Act
[3]
("NERA") has the mandate to
inter
alia,
regulate the generation,
transmission and distribution of electricity. NERSA's functions are
set out in section 4 of the NERA and
include the consideration of
applications for licences and issuing of licenses for the operation
of generation, transmission or
distribution facilities and the
regulation of electricity prices and tariffs.
[10] The legal regime
governing electricity prices and tariffs comprises the ERA, the
Electricity Pricing
Policy
[4]
("the EPP") and the MYPDMs. These three components operate
within a clear legal hierarchy.
[11]
ERA, which is the only Parliamentary
legislation governing the determination of electricity tariffs is at
the apex of the legal
hierarchy. The EPP is a policy instrument and
subordinate to ERA. The MYPDMs are instruments issued by NERSA
setting out the methodology
to be applied by NERSA in determining
Eskom's tariffs and are subordinate to ERA and the EP.
[12]
The MYPD methodology however provides
that NERSA is not precluded from 'applying reasonable judgment on
Eskom's revenue after due
consideration of what may be in the best
interest of the overall South African economy and the public.·
Energy
Regulator Act
[13]
Section 2 of the ERA sets the following
objectives:
"2
Objects of Act
The objects of this Act are to-
(a)
achieve the efficient, effective,
sustainable and orderly development and operation of electricity
supply infrastructure in South
'Africa;
(b)
ensure that the interests and
needs of present and future electricity customers and end users are
safeguarded and met, having regard
to the governance, efficiency.
effectiveness and long-term sustainability of the electricity supply
industry within the broader
context of economic energy regulation in
the Republic;
(c)
facilitate investment in the
electricity supply industry;
(d)
facilitate universal access to
electricity;
(e)
promote the use of diverse energy
sources and energy efficiency;
(f)
promote competitiveness and
customer and end user choice; and
(g)
facilitate
a
fair balance between the
interests of customers and end users, licensees, investors in the
electricity supply industry and the public.”
(Emphasis added)"
[14]
Section 14 of the ERA provides as
follows:
"14 Conditions of licence
(1)
The Regulator may make any
licence subject to conditions relating to-...
(d)
the setting and approval
of prices, charges, rates and tariffs charged by licensees;
(e)
the methodology to be used
in the determination of rates and tariffs which must be imposed by
licensees;"
[15]
Section 15 of the ERA set out the
"Tariff principles" as follows:
"15 Tariff principles
(1)
A licence condition determined
under section 14 relating to the setting or approval of prices,
charges and tariffs and the regulation
of revenues-
(a)
must
enable
an efficient licensee to recover the full cost of its licensed
activities, including
a
reasonable
margin or return;
(b)
must provide for or prescribe
incentives for continued improvement of the technical and economic
efficiency with which services
are to be provided;
…
(2)
A licensee may not charge
a
customer any other tariff and make
use of provisions in agreements other than that determined or
approved by the Regulator as part
of its licensing conditions."
(Emphasis added)."
The MYPDM
[16] The MYPDM is the
methodology developed by NERSA to determine the allowable tariffs and
tariff increases
to be charged by licensees to consumers.
[17] MYPDM4 lists the
following objectives in section 2.2:
"2.2 In
developing the MYPD Methodology, the following objectives were
adopted:
2.2.1
to ensure Eskom's
sustainability as
a
business
and limit the risk of excess or inadequate returns; while providing
incentives for new investment;
2.2.2
to ensure reasonable
tariff stability and smoothed changes over time consistent with
socio-economic objectives of the Government;
2.2.3 to appropriately
allocate commercial risk between Eskom and its customers'
2.2.4
to provide efficiency
incentives without leading to unintended consequences of regulation
on performance;
2.2.5
to provide
a
systematic basis for revenue/tariff
setting; and
2.2.6
to ensure consistency
between price control periods."
[18] The MYPD
methodology is intended to provide for a "cost plus" system
of tariffs. The tariffs
are to be set to recover Eskom's "allowable
revenue" on the projected consumption of electricity. The
formula in MYPDM4
for determining "allowable revenue"
("AR") is set out in section 5.2 of the MYPD methodology
and provides as
follows:
"The
following formula must be used to determine the AR:
AR=
(RABxWACC) +E+PE+D+R&D+IDM±SQl+L&T±RCA
Where:
AR
=
Allowable Revenue
RAB=
Regulatory Asset Base
WACC=
Weighted
Average Cost of Capital
E=
Expenses (operating
and maintenance costs)
PE=
Primary Energy costs (inclusive
of non-Esko ,)
D=
Depreciation
R&D=
Costs related to research and development programmes
projects
IDM=
Integrated Demand Management costs (EEDSM ,
PCP, DMP, etc.)
SQI=
Service Quality Incentives related to
costs
L&T=
Government imposed levies or taxes (not
direct income taxes)
RCA=
The balance in the Regulatory
Clearing Account (risk management devices of the MYPD)."
[19]
The
MYPDM4 methodology in turn provides the details and content of how
each one of these costs components and the projected sales
volumes
are to be determined so that there is a detailed system for
projecting the total revenue upon which the tariffs will be
based.
The tariff application and the NERSA process
[20]
On 14 September 2018, Eskom submitted a
multi-year application under MYPDM4 for tariffs to apply from 2019 to
2022. On 2 October
2018, NERSA confirmed that Eskom's application
complied with the Minimum Information Requirement for Tariff
Applications and the
MYPD4 methodology.
[5]
[21]
On 19 October 2018, NERSA published
Eskom's application on its website and invited comments by 30
November 2018. Representations
from interested organisations were
accepted by NERSA in December 2018 and between 14 January 2019 and 5
February 2019 NERSA held
public hearings in respect of Eskom's
2019-2022 application in the major centres around South Africa.
[22]
NERSA made its decision on 7 March 2019
and its re sons for the decision was published on 9 October 2019.
[23] Eskom launched the
present application on 10 October 2019.
The case for the Applicant
[24]
The applicant locates the relief it
seeks in what it describes as a deep financial crisis that has the
potential to impact with
great devastation on the South African
economy. It argues that even though inefficiencies, mismanagement and
State Capture have
impacted on its current liquidity problems they
have but been a relatively minor cause of those problems. It
characterises inadequate
electricity tariffs approved by NERSA over
the years as one of the more significant contributors to its
liquidity crisis. Eskom
in this regard relies on a report published
by the World Bank in August 2016
[6]
conducted on the financial viability of electricity sectors in
Sub-Saharan Africa. The study concluded under Chapter 6 in regard
to
so called "hidden costs" which translates to prudent and
efficient costs "hidden" from consumers by virtue
of it no
being reflected in the consumer prices that Eskom's financial
situation is 81% attributable to inadequate tariff increases.
It says
that it has been in a downward spiral for more than a decade having
no other choice than to incur debt in order to stay
afloat. This
cycle of resorting to debt has snowballed out of control and
currently stands at some R441 billion in debt securities
and
loans.
[7]
[25]
Statistics
[8]
,
however, shows that historically the average price per kilowatt has
increased with considerably from 2006 to 2018, from 17.91c/kWh
in
2006 to 93.79c/kWh in 2018.
Year
2006
2007
2008
;mo9
;2010
2011
2012
2013
2014
1
2015 ·
2016
2017
2018
Tariff
increase
5.10
5.90
27.5
31.3
24.8
25.8
16
8.0
8.0
9.4
2.2
2.2
5.23
Average
Price
(c/kWh)
17.91
18
.09
25.24
33.14
41.57
52.3
60.66
65.51
70.75
79.73
87.23
89.13
93.79
GDP
growth
5.6
5.4
3.2
-1.5
3
3.3
2.2
2.5
1.8
0.6
1.3
1.3
0.7
This table prepared by NERSA included in its
reasons the decision reflects both the percentage increase as well as
the actual increase
over the period 2006-2018.
[26] The starting
point for determination of allowed revenue is the basic formula that
is applied
by energy regulators worldwide when regulating electricity
prices in terms of a "cost-of-service" methodology:
"Allowed
revenue
=
Primary
energy costs
[9]
+
operating
and maintenance costs
[10]
+
depreciation
[11]
+
return
on capital
[12]
"
.
[27] The average
electricity tariff may then be calculated as:
"Average
tariff per kWh
=
Allowed
revenue+ sales volumes (kWh)".
[28] NERSA reached its
decision on the quantification of Eskom's allowable revenue by
deducting from each
of the three years' total allowable revenue
amounts of R23 billion per year which amounts constitute annual
equity injections that
the Government had committed to Eskom
[13]
.
Eskom's stance is that these amounts were earmarked as equity
injections and that NERSA misappropriated them and converted them
into tariff subsidies by deducting them from Eskom's total allowable
revenue.
[29] In addition it
argues that issues of affordability and the impact of tariffs on
consumers and the economy
are as a matter of law not relevant in the
determination of a tariff as section 15(1) of the NERA provides that
a license condition
must enable a licensee to recover the full cost
of its licensed activities including a reasonable margin or return.
[30]
To this end it contends that NERSA's
decision that it seeks to have reviewed in Part B, is in conflict
with the principle of legality
, is
ultra
vires,
irrational, unreasonable and
procedurally unfair on the basis
inter
alia that:
30.1
NERSA's decision was unlawful and
falls to be reviewed and set aside in terms of section 6(2) (i) of
PAJA and the legality principle
enshrined in section 1(c) of the
Constitution. Section 15(1) (a) of ERA provides that conditions
imposed by NERSA on licensees
in relation to tariffs:
"must enable an efficient licensee to
recover the full cost of its licensed activities, including
a
reasonable margin or return".
ERA nor any other Act of Parliament
makes provision for NERSA to subsidise Eskom tariffs by including
Government equity injections
in its allowable revenue;
30.2
NERSA's decision is procedurally
unfair and falls to be reviewed and set aside in terms of section
6(2)(c) of PAJA due to NERSA's
decision to include the R23 billion
being inconsistent with
M"'PDM4
and the EPP;
30.3
NERSA failed to consult Eskom and
Government before taking the R23 billion into consideration as part
of Eskom's allowable revenue;
30.4
NERSA's decision is unreasonable
and contrary to what can be expected from a reasonable administrator
under the circumstances. NERSA
failed to take into account certain
relevant consideration and took into account irrelevant consideration
when it arrived at its
decision.
30.5
NERSA's decision was irrational
in the following manner:
30 .5.1 It did not have consideration to the
purpose of the R23 billion, as was announced by President Ramaphosa
in his! February
2019 state of the nation address as well as in the
Appropriation Bill B6 of 2019 and
Special Appropriation Bill B10 of 2019;
30.5.2 NERSA ignored the goal of Government
policy (both as reflected in the EPP and the statements by the
President and Minister
of Finance.)
The case for the Respondent
[31]
On the limited issue of how it treated
the R23 billion committed by Government, NERSA's stance is that it
was entitled to independent!
assess and verify the figures and
projections presented by Eskom and apply reasonable judgment to
Eskom's determination of its
allowable annual revenue or any
component thereof. This it did in respect of various components of
the Eskom calculation but none
of them require further consideration
in this part of the application. They may well arise in Part B.
[32]
It says further that it took note that
the shareholder injection was intended to assist Eskom with debt
repayments but that its
view was that if the cash injection was not
taken into account (one assumes in determining allowable revenue) it
would have caused
excess returns to Eskom. NERSA then goes on to say
that in balancing excess returns, as required by the MYPD4
methodology, the
R23 billion Government assistance was used to
reallocate risks between Eskom and its customers in accord nee with
the MYPD methodology.
In brief NERSA took the R23 billion into
reckoning in the determination of Eskom's allowable revenue which
Eskom calls an impermissible
misappropriation.
[33]
NERSA also maintains that in coming to
its decision it as required to and did in fact seek to balance both
Eskom's interest and
those of the public in line with section 2(g) of
the ERA.
[34]
Finally it also argues that in substance
the relief Eskom seeks is not interim but final in nature and
therefore the Court should
subject Eskom's case to the requirements
of final as opposed to interim relief.
Analysis
[35] In
National
Energy Regulator of South Africa v Borbet SA (Pty) Ltd
[14]
,
the Supreme Court of Appeal
summarised the legal regime governing NERSA in the determination of
tariffs as follows :-
"[12]
The provisions set out above create
a
situation where licensees are the
ones empowered to charge
a
tariff
for electricity consumption within parameters set by the Regulator.
Licences, as can be seen from the provisions of s 14(1)(d)
and (e) of
ERA, may contain conditions relating to the setting and approval of
prices, charges, rates and tariffs to be charged
by licensees.
Licences may be made subject to conditions relating to the
methodology to be used in the determination of rates and
tariffs
which must be imposed by licensees (s 14(1) (e)). NERSA is therefore
responsible for determining whether
a
licence should be granted; the terms
of the licence; the methodology by which tariffs and charges are to
be determined and the imposition
of that methodology on the licensee
by way of
a
licence
condition; and the tariffs and charges that the licensee may recover
from its customer. All of these are embodied directly
or indirectly
in the licence and the obligation to adhere to them flows from the
licence.
"
The
relationship between Eskoms' sustainability and the consumer and the
exercise of reasonable judgment by NERSA
[36] It was
contended on behalf of Eskom that to the extent that section 15(1) of
ERA required that
a license condition 'must enable an efficient
licensee to recover the full cost of its licensed activities,
including a reasonable
return', there was no scope in this process to
consider questions of affordability or the impact of tariffs on the
consumer. Accordingly
they argued that reasonable judgment and the
MYPDM afforded NERSA no discretion when it came to matters of
affordability and the
impact of a tariff on the consumer.
[37]
In
Borbet
(supra)
the Court made reference to
what it described as the balance to be struck between Eskoms'
sustainability and the impact on the consumer
and the South African
economy and expressed itself as follows :-
"[3]
Electricity tariff increases affect all South Africans. They impact
the
business world
as
well
as
domestic
households. Thus, there is
a
statutory framework to ensure
fairness
so
that
tariff increases have the result that electricity infrastructure
remains sustainable while at the
same
time ensuring that undue hardships
are not imposed on consumers."
[38]
This appears to be in line with the
objectives of the ERA
[15]
which provides for a fair balance to be struck amongst others between
consumers and licensees.
[39]
Accordingly to interpret section 15(1)
in isolation without regard to the context of the ERA as a whole
would have the effect of
distorting the objectives of the Act and it
must be that even in seeking to ensure a licensee is able to recover
the full cost
of its activities and a reasonable return, the issues
of affordability and impact on the consumer remain relevant and are
required
to be factored into such a determination. The process of
determining tariff increases is not only a matter of calculation but
also
involves reasonable judgment and a balancing
o(
what may well be conflicting
interests - those of licensees as against those of end users.
[40]
In addition PAJA in section 4(1) and (2)
obliges an administrator when taking an administrative action that
affects the public to
afford the public the opportunity to be
heard.
[16]
This obligation means that the views and the impact of the decision
on the public are relevant considerations in the decision to
be then
taken. To insulate questions of affordability and i pact on the
consumer from the decision to be taken will have the effect
of
undermining PAJA in this respect and will largely negate the public
participation element that preceded the decision that Eskom
seeks to
have reviewed.
[41]
However reasonable judgment does not
afford NERSA a license to use its discretion as it pleases. Its
actions remain open to review
in terms of PAJA and the exercise of
reasonable judgment must occur within the framework of PAJA and the
law developed in terms
thereof by our Courts.
[42]
This is an important matter in the
determination of this part of the relief as I understand Eskom's case
to be that a tariff must
be arrived at by application of section
15(1) and the MYPD methodology to the exclusion of considerations of
affordability and
impact on the consumers of electricity. For the
reasons given above, I do not agree with that approach.
NERSA's treatment of the R 23 billion equity
injection
[43]
It appears not to be in dispute that the
equity injection that the South African Government committed to Eskom
in the amount of
R 23 billion per year over three years', was
intended to assist Eskom with its debt repayments.
[44]
NERSA says that it noted that Eskom's
application was based on negative returns for 2019/2020 and 2020/2021
which is contra the
MYPD methodology. This is admitted by Eskom
however Eskom submits that in doing this it was attempting to close
the gap between
too-low tariffs and cost-reflective tariffs, in a
manner that was as gradual as possible for the sake of electricity
consumers
as well as the country's economy. The three year plan of
Eskom resulted in a negative returns of R16 687 million and R2 765
million
for 2019/2020 and 2020/2021, respectively before yielding a
positive return of R20 314 million for the year 2021/2022. This plan
says Eskom is part of an attempt to achieve long term sustainability,
taking into consideration the affordability to consumers
of
electricity.
[45]
Eskom argues that the tariff fixed by
NERSA will result in a negative return to Eskom over the full period
covered by MYPDM4. Indeed
in NERSA's reasons for decision in showing
how it arrived at the allowable revenue there are negative returns
forecast for all
three years covered by the MYPDM4 of respectively
R8.7 billion, R9.3 billion and R9.8 billion. When NERSA, in its
reasons says
it decided to reverse the negative returns that Eskom
reflected and grant it a positive return, it is difficult to see how
the
projected negative returns set out above could be characterised
as positive returns.
[46]
It appears from Eskom's application to
NERSA that it established a Weighted Average Cost of Capital ("WACC")
return at
9.1%. NERSA assessed this at 7.1% which would have resulted
in a price increase of 53% in order to provide a cost reflective
tariff.
Because this would have led to a too high tariff, it then
fixed the WACC at 1.5% which would have then translated into a tariff
increase of 22.59%. This was still too high for NERSA and it then
took into account the R23 billion equity injection to reduce
the
tariff increases to 9.4 %, 8.1 % and 5.2 %, respectively over the
three year period.
[47] NERSA's
stance is that the MYPD methodology provides that it may apply
reasonable judgment on
Eskom's revenue or any component of thereof
and in light thereof it was entitled to treat the R23 billion as it
did and that a
Court should be slow to intervene when it acts within
a margin of appreciation of what the methodology allows. It further
states
that its action are therefore not
ultra vires
nor are
they irrational as ultimately there is a rational relationship
between the means used (the utilisation of the R 23 billion
injection) and the end sought to be achieved (affordable tariffs) .
[48] While indeed
the MYPDM does afford NERSA the right to apply reasonable judgment on
Eskom's revenue,
I am not sure if that allows NERSA in the
determination of allowable revenue to take into consideration an
equity injection that
was intended to be used to pay Eskom's debts,
to offset a high tariff increase and by doing so treating the R23
billion as revenue.
If ultimately the exercise is about determining
the cost to the licensee of its licensed activities, an equity
injection cannot
have the effect of reducing those costs as NERSA has
purported to do. It also violates basic principles of accounting by
treating
an equity injection as revenue.
[49] In my view
the reasonable judgment that NERSA is allowed to exercise cannot
translate into an
open ended discretion that insulates it from
scrutiny and judicial review. It must accordingly be arguable that
the decision by
NERSA in its treatment of the R23 billion equity
injection is open to review and possible attack.
The
requirements for interim relief (final relief)
[50]
NERSA has complained that even though
the relief in part A is characterised by Eskom as interim relief, in
truth and reality it
constitutes final relief and therefore they say
Eskom should satisfy the requirements for a final interdict. In this
regard it
says a Court imposed tariff which Eskom seeks as interim
relief will have final effect in that if granted, it will be
implemented,
have immediate effect on consumers and even if revisited
later, those consequences cannot necessarily be reversed in so far as
it relates to individual consumers.
[51]
It is so that the characterisation of
the relief sought cannot always be dispositive of the nature of the
relief in question. It
is the effect of the relief that must be
considered and in the context of these proceedings what is sought in
Part A is the imposition
of an electricity tariff pending the
determination of Part B. The relief sought in part A is of a
temporary nature which a Court
dealing with Part B is free to revisit
and make a final determination upon. It cannot therefore be said that
the relief sought
in part A is anything other than interim relief.
See
Gipla Agrimed (Pty) Ltd v Merch
Sharp Dahme Corporation and Others
[17]
[52] For the
applicant to succeed in Part A it must satisfy the requirements for
interim relief which
are:-
a)
A
prima
facie
right (even one open to some
doubt);
b)
A well-grounded apprehension of
irreparable harm, if interim relief is not granted and final relief
is ultimately granted;
c)
The balance of convenience must favour
the granting of interim relief;
d)
There must be no other ordinary remedy
that is available to give adequate redress to the applicant.
[53]
In addition to the above the caution
expressed by the Constitutional Court in
National
Treasury and Others v Opposition to Urban Tolling Alliance and
Others
[18]
("OUTA") may well be
apposite in this matter when it said that:-
"[44]
The common-law annotation to the Setlogelo test is that courts grant
temporary restraining
orders against the exercise of statutory power
only in exceptional cases and when a strong case for that relief has
been made out.
Beyond the common law, separation of powers is an even
more vital tenet of our constitutional democracy. This means that the
Constitution
requires courts to ensure that all branches of
government act within the law. However, courts in turn must refrain
from entering
the exclusive terrain of the executive and the
legislative branches of government unless the intrusion is mandated
by the Constitution
itself
[45]
It seems to me that it is unnecessary to fashion
a
new test for the grant of an interim
interdict. The Setlogelo test, as adapted by case law, continues to
be a handy and ready guide
to the bench and practitioners alike in
the grant of interdicts in busy magistrates' courts and high courts.
However, now the test
must be applied cognisant of the normative
scheme and democratic principles that underpin our Constitution. This
means that when
a
court
considers whether to grant an interim interdict it must do
so
in
a
way that promotes the objects, spirit
and purport of the Constitution.
[54]
In these proceedings the interim relief
sought would indeed not only have the effect of restraining the
exercise of NERSA's statutory
powers but go beyond that in seeking to
have a tariff other than the one determined by NERSA imposed by this
Court. Under those
circumstances I would take the view that arising
out of the remarks in
OUTA
that
such relief though competent should only be granted in the clearest
of cases and when a strong case has been made out.
[55]
I proceed to deal with the requirements
for interim relief:
a)
A
prima
facie
right (even one open to
some doubt)
[56]
In the analysis above which deals with
how NERSA treated the R23 billion Government equity injection it does
appear that even though
NERSA is allowed some latitude in applying
reasonable judgment in dealing with Eskom's revenue, the
appropriation of the R23 billion
equity injection in the reduction of
Eskom's annual allowable revenue may have been beyond the powers of
NERSA as it cannot be
said that it constitutes reasonable judgment
but rather that it constitutes the erroneous treatment of an equity
injection as constituting
allowable revenue. It may well contravene
the provisions of section 15(1) as the determination of the costs of
licensed activities
is somewhat distorted by the allocation of R23
billion toward revenue and finally it also may constitute an
impermissible departure
from the MYPD methodology in how allowable
revenue is to be determined.
[57]
Mindful that on this leg of the test all
that Eskom's has to show is a
prima
facie
right, even one open to some
doubt, I must conclude that this aspect of the test for interim
relief has been established.
b) A well-
grounded apprehension of irreparable harm if the relief is not
granted and final relief
is granted
[58] It is largely
Eskom's case that it stands on a financial precipice and the refusal
of interim relief
will be catastrophic not just for Eskom but for the
South African economy and the long term interests of the South
African state.
It argues that the determined tariffs of 9.4 % for
2019/2020, 8.1% for 2020/2021 and 5.22% for 2021/2022 will result in
a loss
of at least R102 billion, in revenue. This it says will impact
on its ability to service its debt of some R441 billion of which
R318
billion is guaranteed by the South African Government. It thus argues
that if it defaults in its debt repayments, it will
trigger the
obligation of Government in terms of the guarantees Government has
issued and that if Government defaults in meeting
the Eskom debt, it
will have the domino effect of rendering other Government debts of
close to some R980 billion also immediately
payable. All of this it
says is likely scenarios if the interim relief is not granted.
[59] Eskom also
submitted that NERSA's approach has the effect of raising concerns
amongst lenders and investors
about Eskom's ability in future to
repay its debts. This concern is also directly linked to Government
and Governments ability
to guarantee portions of Eskom's debt as well
as its own. Eskom says that if the interim relief is not granted it
will not be able
to service old debt whilst being unable to obtain
new debt including project specific loans.
[60] While the
financial situation at Eskom is indeed grave, it has been so as a
result of a number of factors
that have arisen over a number of
years. Eskom itself says that tariffs approved by NERSA have
historically not enabled it to meet
its costs and enjoy a return. At
the same time it concedes that mismanagement, inefficiencies and
State Capture may have also had
a negative impact on its operations
and its liquidity. These are also factors to be considered at this
stage of the test.
[61] The scenario Eskom
has portrayed is based on a projection of its operations, costs,
sales and the interim
relief that is sought is in substance for a
single year of its operation namely 2020/2021. The relief sought does
not apply to
the
financial year
2010/2020 a n d my vie w is that no interim relief needed to be
considered for the year 2021/2022,
as part B will in all probability have been disposed of by then.
[62]
What one is then left with is an
approved increase of 8.1% (as opposed to a sought interim increase of
16 .60%) which if interim
relief is not granted will be the tariff
increase for 2020/2021. It is not clear what the impact of that will
be on Eskom's position,
how the Government will respond thereto, what
the Finance Ministry's stance will be in the event that Eskom faces
the kind of financial
crisis that it anticipates. Even if one accepts
that on Eskom's version it will face dire consequences if interim
relief is not
granted, it is not clear what the political response to
that situation may be.
[63]
Ultimately the financial health and the
survival of Eskom is a matter that falls squarely within the remit of
the political sphere
of government, influenced by the prevailing
economic realities as well as the legitimate demands of the
developmental state. It
cannot be that a tariff determination for
effectively a single year should be elevated to determining the
survival or the demise
of a significant state owned entity and nor is
it desirable to leave that determination to a Court.
[64]
To that extent and in the light of the
myriad of considerations that must ultimately be brought to bear on
the operations and the
future of Eskom it cannot be said that there
exists a well-grounded apprehension of irreparable harm if the
interim relief is not
granted.
[65]
In
Cape
Gate (Pty) Ltd and Others v Eskom Holdings (SOC) Ltd and Others
[19]
the applicants bought their
electricity from the Emfuleni Municipality, which in turn bought it
in bulk from Eskom. When Emfuleni
defaulted on its Eskom debt (over
R1 billion), Eskom decided to interrupt its electricity supply, which
in turn threatened the
survival of the applicants' businesses. In
considering the requirements for an interim order the Full Bench
considered the following
in regard to irreparable harm:
"[154] If the interruption is proceeded
with, the applicants, and potentially other consumers in similar
positions, will shut
down. That will render their review right moot.
Yet Eskom will not be destroyed if the interruption decision is not
implemented.
It may have to wait before national treasury devises
a
recovery plan that will ensure
payment for it, but that is
a
far
lesser fate than awaits the applicants."
c.
The balance of convenience favours
the grant of interim relief
Eskom's stance on this part of the test is
that:-
[66]
The loss totalling R69 billion
[20]
over three years under NERSA's decision will cause massive financial
prejudice to it and threatens the countries' economy as a
whole in
that:
66.1. It would affect significant
portions of existing drawn down debt that are project specific and
subject to warranties
in relation to Eskom's ability to complete
relevant projects;
66.2
Due to Eskom's and the South African
state debt being interlinked default on one facility can trigger
default on other facilities
causing the outstanding capital and
interest amounts to become potentially payable immediately;
66.3
As long as NERSA's decision stands
without interim relief, Government has no means of addressing the
Eskom liquidity crisis and
the crisis has the potential to become a
national financial crisis.
[67] Eskom says that
the relief it is seeking provides for a balance of minimising
consumer shock while
remedying the consequences of NERSA's decision:-
67.1
The R69 billion does not get allocate
all at once; Eskom has done this to avoid shock to the consumer
should an immediate jump take
place. Eskom has instead crafted the
relief to be based on an assumption that it should be entitled to an
additional revenue allocation
of R15.5 billion in 2020/2021 and R43
billion in 2021/2022;
67.2
This will improve Eskom's income
statement from a R17.6 billion loss to a R4.7 billion loss with the
long term plan being to improve
Eskom's income to a positive balance;
67.3
Eskom submits that there will be no
material risk to the consumer should the interim relief be granted as
NERSA already determined
that consumers owe Eskom an aggregate amount
of R36.7 billion in respect of 2014/2015 to 2017/2018 financial years
which amount
must be included in subsequent tariff increases.
[68]
In
OUTA
the following was held in regard to
the requirement for balance of convenience:
"[47]
The balance of convenience enquiry must now carefully probe whether
and to
which extent the restraining order will probably intrude into
the exclusive terrain of another branch of government. The enquiry
must, alongside other relevant harm, have proper regard to what may
be called separation of powers harm. A court must keep in mind
that
a
temporary
restraint against the exercise of statutory power well ahead of the
final adjudication of
a
claimant's
case may be granted only in the clearest of cases and after
a
careful
consideration of separation of powers harm. It is neither prudent nor
necessary to define 'clearest of cases'. However,
one important
consideration would be whether the harm apprehended by the claimant
amounts to
a
breach
of one or more fundamental rights warranted by the Bill of Rights.
This is not such
a
case.
…
[55]
A court must be satisfied that the balance of convenience favours the
granting
of
a
temporary
interdict. It must first weigh the harm to be endured by an
applicant, if interim relief is not granted, as against the
harm
a
respondent
will bear, if the interdict is granted. Thus a court must assess all
relevant factors carefully in order to decide where
the balance of
convenience rests.
…
[63]
There is yet another and very important consideration when the
balance of convenience
is struck. It relates to separation of powers.
In /TAC we followed earlier statements in Doctors for Life and warned
that
-
'(w)here
the Constitution or valid legislation has entrusted specific powers
and functions to
a
particular
branch of government, courts may not usurp that power or function by
making
a
decision
of their preference. That would frustrate the
balance
of power implied in the principle of separation of powers. The
primary responsibility of
a
court
is not to make decisions reserved for or within the domain of other
branches of government, but rather to ensure that the
concerned
branches of government exercise their authority within the bounds of
the Constitution. This would especially be so where
the decision in
issue is policy-laden as well as polycentric.
'
[64]
In
a
dispute
as the present one, this does not mean that an organ of state is
immunised from judicial review only on account of separation
of
powers. The exercise of all public power is subject to constitutional
control. In an appropriate case an interdict may be granted
against
it. For instance, if the review court in due course were to find that
SANRAL acted outside the law then it is entitled
to grant effective
interdictory relief. That would be so because the decisions of SANRAL
would in effect be contrary to the law
and thus void.
[65]
When
it evaluates where the balance of convenience rests,
a
court
must recognise that it is invited to restrain the exercise of
statutory power within the exclusive terrain of the executive
or
legislative branches of government. It must assess carefully how and
to what extent its interdict will disrupt executive or
legislative
functions conferred by the law and thus whether its restraining order
will implicate the tenet of division of powers.
While
a
court
has the power to grant
a
restraining
order of that kind, it does not readily do so, except when
a
proper
and strong case has been made out for the relief and, even so, only
in the clearest of cases.
[66]
A
court must carefully consider whether the grant of the temporary
restraining order pending
a
review
will cut across or prevent the proper exercise of
a
power
or duty that the law has vested in the authority to be interdicted.
Thus courts are obliged to recognise and assess the impact
of
temporary restraining orders when dealing with those matters
pertaining to the best application, operation and dissemination
of
public resources. What this means is that
a
court
is obliged to ask itself not whether an interim interdict against an
authorised state functionary is competent but rather
whether it is
constitutionally appropriate to grant the interdict."
[69]
As
indicated, the relief sought, if granted, will result in an effective
electricity increase of close to 17% in the coming financial
year (as
opposed to the 8.1% that NERSA has approved). A principled difficulty
that arises for the Court is what to make of the
almost 17% proposed
increase. While NERSA has in its reasons for decision dealt with the
consequences of what an increase of that
proportion will ave on the
economy, employment, electricity sales and inflation, the
determination of what an appropriate increase
should be is ideally
left in the hands of the regulator. Indeed the relief sought in Part
B of a setting aside and a remittal is
precisely for that reason
where the regulator and not the Court is required to make the
determination.
[70]
What
is sought in this part of the proceedings is that the Court set the
tariff pending the determination of Part B. This presents
significant
problems of both principle and substance. At the one level the
principle of the separation of powers militates strongly
against the
Court responding to such an invitation to set a tariff. The
determination of a suitable tariff is a complex matter
and requires a
careful weighing and balancing of a number of factors. The
legislature has appointed a specialist body with the
necessary
expertise to do precisely that and a Court should respect the
carefully crafted boundaries of its powers. Beyond the
principled
reluctance to do so this Court is also not equipped to make the kind
of determinations that Part A of the relief requires
of it. Whether
an increase of about 17% is consistent with the case advanced,
whether it strikes a fair balance between users and
licensees and its
overall impact on the economy are all complex matters that is for
obvious reasons best left to agencies with
the necessary expertise.
[71]
In
this regard NERSA says it took into account the analysis of the
financial information tested by the prudency of all costs presented
by Eskom, while the economic impact assessment depicted the potential
impact of the electricity tariff increase on inflation, economic
growth, job creation (employment) and income distribution,
international trade, and the responsiveness of demand for
electricity.
The economic factors considered the economic impact
assessment directly related to the potential impact on the economy
and the
public at large, while the financial analysis focussed on the
sustainability of Eskom and its ability to continuously provide
electricity
to the public within the confines of efficiency
standards. It also took into account the issues raised in public
hearing which
centred around affordability (access to electricity due
to loss of income) and loss of employment opportunities.
[21]
[72]
In
Borbet
the Supreme Court of Appeal held the
following:
"[117]...
This is
a
case
in which there has to be
a
degree
of judicial deference to
a
specialised
administrative body engaged in an administrative action. In this
regard the words of the Constitutional Court in Bato
Star Fishing
(Pty) Ltd v Minister of Environmental Affairs
&
others
22
[2004] ZACC 15
;
2004 (4) SA 490
(CC), are apposite:
'[48]
In treating the decisions of administrative agencies with the
appropriate respect,
a
Court
is recognising the proper role of the Executive within the
Constitution. In doing so
a
Court
should be careful not to attribute to itself superior wisdom in
relation to matter entrusted to other branches of government.
A Court
should thus give due weight to findings of fact and policy decisions
made by those with special expertise and experience
in the field. The
extent to which
a
Court
should give weight to these considerations will depend upon the
character of the decision itself, as well as on the identity
of the
decision-maker. A decision that requires an equilibrium to be struck
between
a
range
of competing interests or considerations and which is to be taken by
a
person
or institution with specific expertise in that area must be shown
respect by the Courts. Often
a
power
will identify
a
goal
to be achieved, but will not dictate which route should be followed
to achieve that goal. In such circumstances
a
Court
should pay due respect to the route selected by the decision-maker.
This does not mean, however, that where the decision is
one which
will not reasonably result in the achievement of the goal, or which
is not reasonably supported on the facts or not reasonable
in the
light of the reasons given for it,
a
Court
may not review that decision reasonably. A Court should not
rubber-stamp an unreasonable decision simply because of the
complexity
of the decision or the identity of the decision-maker.'
The
following part of an article by Professor Hoexter, cited with
approval by the court in Bato Star, bears repeating:
'[A]
judicial willingness to appreciate the legitimate and
constitutionally ordained province of administrative agencies;
to admit the expertise of those agencies in policy-laden or
polycentric issues; to accord their interpretations of fact and law
due respect, and to be sensitive in general to the interests
legitimately pursued by administrative bodies and the practical and
financial constraints under which they operate. This type of
deference is perfectly consistent with
a
concern
for individual rights and
a
refusal
to tolerate corruption and maladministration. It ought to be shaped
not by an unwillingness to scrutinize administrative
action, but by
a
careful
weighing up of the need for
-
and
the consequences of
-
judicial
intervention. Above all, it ought to be shaped by
a
conscious
determination not to usurp the functions of administrative agencies;
not to cross over from review to appeal.'
[73]
It is for all these reasons that I
conclude that the balance of convenience also does not favour the
granting of interim relief.
[74]
Under these circumstances the relief
sought in Part A must be refused. At the same time I am mindful that
the issues raised in this
application are of great significance and
that it would be in the interests of all concerned that the Part B be
dealt with and
determined expeditiously. To this end I would support
efforts on the part of the parties to have the hearing of Part B
expedited.
Costs
[75]
While this part of the proceedings were
characterised by various delays on the part of the Respondent which
resulted in the hearing
date having to be adjusted on two occasions,
I am not satisfied that such conduct warrants an adverse costs order.
Costs of this
part of the proceedings should be held over for
determination in Part B.
Order
[76]
It is ordered that:
76.1
The application under Part A is
dismissed.
76.2
Costs are reserved for
determination in Part B.
N
KOLLAPEN
JUDGE OF THE HIGH COURT
Appearance:
Applicant's
Counsels
: Adv M Chaskalson SC
A Friedman
Applicant's
Attorneys
: Gildenhuys Malatji Inc.
First
Respondents' Counsels
: Adv M Dewrance SC
S
Magardie
B
Rowjee
First
Respondents' Attorneys
: Prince Mudau Attorneys
c/o Dabishi Nthambeleni Inc.
Date
of hearing
: 15 January 2020
Date
of judgment
: 10 February 2020
[1]
Act 3 of 2000.
[2]
Act 4 of 2006.
[3]
40 of 2004.
[4]
Government Gazette 31741 of 19 December 2008.
[5]
Page 37 para [75] of the Founding Affidavit .
[6]
Page 35 para (63) of the Founding Affidavit .
[7]
Page 24 para (47) of the Founding Affidavit .
[8]
Table 148, page 243, volume 1 of the Court bundles.
[9]
Provides for revenue with which to pay for the fuel - such as coal,
diesel and uranium.
[10]
Provides for revenue with which to pay for the maintenance, employee
costs, insurance costs and others operating expenditure.
[11]
Provides the revenue, in instalments spread over the full
operational life of the assets.
[12]
Represents the cost of debt and equity capital - such as interest
expense.
[13]
In terms of the Appropriation Bill B6 of 2019 tabled on 2 April 2019
with the long title
"appropriate money from the National
Revenue Fund for the requirements of the State for the 2019/2020
financial year."
In effect an amount of R17.652 billion was
appropriated for:
"Eskom: debt obligations and
recapitalisation ".
In terms of the Appropriation Bill B10
of 2019 tabled on 23 July 2019 with the long title
"{T]o
appropriate and additional amount of money for the requirements of
the Department of Public Enterprises to assist Eskom
Holdings SOC
limited with its financial obligations and to provide for matters
connected therewith".
[14]
(2017) ZASCA 87
; 2017 JDR 1121(SCA).
[15]
Section 2(g).
[16]
"4 Administrative action affecting public
(1) In
cases where an administrative action materially and adversely
affects the rights of the public, an administrator, in order to give
effect to the right to procedurally fair administrative
action ,
must decide whether-
(a)
to hold a public inquiry in terms of subsection (2);
…
(2) If an
administrator decides to hold a public inquiry-
(a)
the administrator must conduct the public inquiry or appoint a
suitably qualified person or panel of persons to do so; and
(b)
the administrator or the person or panel referred to in
paragraph
(a)
must
(i) determine the procedure for the public inquiry,
which must-
(aa) include a public hearing; and
(bb) comply with the procedures to be followed in
connection with public inquiries, as prescribed;
(i) conduct the inquiry in
accordance with that procedure;
(ii) compile a written report on the
inquiry and give reasons for any administrative action taken
or
recommended; and
(iii) as soon as possible thereafter-
(aa) publish in English and in at least one of the other official
languages in the Gazette or relevant provincial Gazette a notice
containing a concise summary of any report and the particulars of
the places and times at which the report may be inspect ed
and
copied; and
(bb) convey by such other means of communication which the
administrator considers effective, the information referred to in
item (a) to the public concerned.
[17]
2018 (6) SA 440 (SCA).
[18]
2012 (6) SA 223 (CC).
[19]
2019 (4) SA 14 (GJ).
[20]
R23 billion per year for three years.
[21]
Page 20 para 7.6-7.9 of NERSA's reasons for decision.