Advice to NERSA on regulating tariffs
Genesis was commissioned to advise the National Energy Regulator of South Africa (NERSA) on the best way to manage the differences in tariff methodologies being applied in its three regulatory divisions.
Where appropriate, NERSA wanted to standardise the tariff methodologies being used in the electricity, piped gas and petroleum pipeline sectors, all of which are regulated. This was because the market risk premium (MRP), the cost of equity and the treatment of taxation were all being determined differently by the three divisions.
The project team provided expert advice to the regulator on an appropriate methodology for tariffs. As a general principle, a well-considered and consistent treatment of variables is essential to prevent economic distortions in regulated sectors and to promote certainty among stakeholders.
The team therefore recommended that NERSA use a consistent approach across the three sectors, except in the case of objectively identifiable differences.