TARIFF DECISION FOR FFS REFINERS (PTY) LTD FOR ITS BRACKENFELL STORAGE FACILITY LOCATED AT BRACKENFELL, WESTERN CAPE PROVINCE FOR 2020, 2021 AND ...
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TARIFF DECISION FOR FFS REFINERS (PTY) LTD FOR
ITS BRACKENFELL STORAGE FACILITY LOCATED AT
BRACKENFELL, WESTERN CAPE PROVINCE FOR
2020, 2021 AND 2022 LICENCE NUMBER:
PPL.sf.F3/80/9/2008
10 SEPTEMBER 2020TABLE OF CONTENTS Introduction ............................................................................................................................6 Applicable Law .......................................................................................................................7 The Methodology ...................................................................................................................7 Decision-Making Process ......................................................................................................7 The Application ......................................................................................................................8 ASSESSMENT OF THE APPLICATION ...................................................................................... 8 Calculation of The Allowable Revenue (AR)..........................................................................8 Regulatory Asset Base (RAB)................................................................................................8 Property, Plant And Equipment (PPE) ...................................................................................9 Net Working Capital .............................................................................................................10 Deferred Tax ........................................................................................................................10 Weighted Average Cost of Capital (WACC) ........................................................................11 COST OF EQUITY ............................................................................................................... 12 COST OF DEBT .................................................................................................................. 12 Debt To Equity Ratio ............................................................................................................12 Operational Expenditure (E) ................................................................................................13 Depreciation and Amortisation .............................................................................................14 Tax Expense (T)...................................................................................................................15 Allowable Revenue (AR) ......................................................................................................16 Volumes ...............................................................................................................................17 Tariff ....................................................................................................................................17 Conclusion ...........................................................................................................................18 LIST OF TABLES Table 1: Tariff approved for the storage facility ........................................................... 4 Table 2: Calculation of Net Working Capital .............................................................. 10 Table 3: WACC calculation ........................................................................................ 13 Table 4: Operating Expenses .................................................................................... 14 Table 5: Tax Expense Calculation ............................................................................. 16 Table 6: AR Calculation ............................................................................................. 17 Table 7: Tariff calculation ........................................................................................... 18
ABBREVIATIONS AND ACRONYMS AR Allowable Revenue BER Bureau of Economic Research CAM Cost Allocation Manual CAPM Capital Asset Pricing Model CPI Consumer Price Index CPIf Consumer Price Index Forecast Cpl Cents per litre APP Application FC Forecast Act Actual NERSA National Energy Regulator of South Africa NRBTA Net Revenue Before Tax Allowance PPE Property, Plant, Vehicles and Equipment RAB Regulatory Asset Base PPS Petroleum Pipelines Sub-Committee RFR Regulatory Financial Reporting RRM Regulatory Reporting Manuals SRAB Starting Regulatory Asset Base the Act the Petroleum Pipelines Act, 2003 (Act No.60 of 2003) TOC Trended Original Cost VAT Value Added Tax WACC Weighted Average Cost of Capital
THE NATIONAL ENERGY REGULATOR OF SOUTH AFRICA
In the matter regarding
THE 2020, 2021 AND 2023 TARIFF APPLICATION FOR THE STORAGE FACILITY IN
BRACKENFELL, WESTERN CAPE PROVINCE
By
FFS REFINERS (PTY) LTD (LICENCE NUMBER: PPL.SF/F3/80/9/2008)
THE DECISION
1. On 10 September 2020, the National Energy Regulator of South Africa (NERSA or ‘the
Energy Regulator’) approved tariffs for the 2020 Financial Year (FY), 2021 FY and 2022
FY, as a condition of FFS Refiners (Pty) Ltd’s operation licence, for the operation of its
petroleum storage facility located at 36 Viben Street, Brackenfell in Western Cape
Province (Licence Number: PPL.sf.F3/80/9/2008).
2. The tariffs approved by NERSA for the petroleum storage facility are maximum tariffs,
expressed in Rands per cubic metre per month (R/m3/month) and are exclusive of the
Value Added Tax (VAT). The tariffs approved are shown in Table 1 below.
Table 1: Tariff approved for the storage facility
2020 2021 2022
(R/m3/month) (R/m3/month) (R/m3/month)
FFS Refiners 1 414.37 1 489.48 1 569.64
3. The tariffs will be applicable for the periods starting from 10 September 2020 to 31
December 2020, 1 January 2021 to 31 December 2021, 1 January 2022 to 31 December
2022. Upon lapsed of the 2022 tariff period, the 2022 tariff will remain in force until
NERSA takes a decision to approve a new tariff for the storage facility in line with section
28(5)(b) of the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) [‘the Act’].
4. Furthermore, FFS is required to comply with the requirements of Regulation 9 of the
Regulations made in terms of section 33(1) of the Act (‘the Regulations’) and make afinancial provision for the rehabilitation of land used in connection with the licensed activity. 5. Although NERSA approved the tariffs applied for, for future tariff applications, FFS is required to use the elements of the Allowable Revenue (AR) calculated by NERSA and/or the actual costs incurred as a base when submitting future tariff applications. The elements of AR determined by the Energy Regulator may still be subjected to a further prudency assessment and verification.
REASONS FOR DECISION
Introduction
1. On 8 January 2010, the National Energy Regulator South Africa (NERSA or ‘the Energy
Regulator) issued a license with conditions to FFS Refiners (Pty) Ltd to operate its
petroleum storage facility located at 36 Viben Street, Brackenfell in Western Cape
Province (License number: PPL.sf.F3/80/9/2008). The facility is owned and operated by
FFS Refiners, a privately owned company with limited liability established in terms of
the Companies Act, 1973 (Act No.61 of 1973).
2. The facility in Brackenfell allows for waste lube oil collected to be separated from other
waste oils such as ship slops. The Lube depots analyse the incoming material and
separate oil from water. The water-free product is then transferred for further processing.
3. On 20 February 2020, FFS submitted a tariff application for its Brackenfell storage
facility for the period 1 January 2020 to 31 December 2022 (3 years). The application
was declared adequate on 11 March 2020.
4. The application is based on the Tariff Methodology for the approval of Tariffs for
Petroleum Loading Facilities and Petroleum Storage Facilities, Version 4, approved on
24 August 20171 (‘the Tariff Methodology’).
5. This is not FFS’ first tariff application. The first tariff for the Brackenfell storage facility
was approved for the 2016 Financial Year (FY).
6. Whilst the Energy Regulator had noted and approved FFS’s request for an extension to
submit its tariff application after the lapse of the 2017 FY tariff, it remains concerned
about the length of time FFS took to apply for new tariffs. FFS is therefore, requested to
apply for a new tariff at least 6 months before the 2022 expires.
1
Available at www.nersa.org.za7. In this tariff application, FFS applied for tariffs of R1 414/m3/month for the 2020 FY, R1
489/m3/month for the 2021 FY and R1 569/m3/month for the 2022 FY. The tariffs applied
for are maximum tariffs and are exclusive of Value Added Tax (VAT).
Applicable Law
8. The legal basis for NERSA to approve tariffs for petroleum loading and storage facilities
is derived from the National Energy Regulator Act, 2004 (Act No. 40 of 2004) (‘NERSA
Act’), read with the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) (‘the Act’)2.
The Methodology
9. NERSA is required by section 28(2)(a)(i) of the Act to approve tariffs based on a
systematic methodology applicable on a consistent and comparable basis. The tariff
application by the FFS was prepared using the Tariff Methodology.
10. The Tariff Methodology prescribes the use of the Trended Original Cost (TOC) method
for the valuation of assets.
11. FFS has in this case used the TOC valuation method to determine its Property, Plant,
Vehicle and Equipment (PPE) values.
Decision-Making Process
12. As part of the public consultation process, NERSA published the non-confidential
version of the tariff application on its website for public comment. Notices inviting the
public to submit written comments on the tariff application were published in the Beeld
and the Business Day Newspapers on 24 June 2020. The closing date for receiving
public comments was 4 August 2020. The public participation process was carried out
in accordance to section 4 of the Promotion of Administrative Justice Act, 2000 (Act No.
3 of 2000).
13. No comments were received from stakeholders or members of the public by the closing
date.
2 Available at www.nersa.org.za14. Due to the COVID-19 pandemic restrictions, the Energy Regulator waived the public
hearing for this application. NERSA considers the request for submission of written
comments as a sufficient form of public consultation for this application.
THE APPLICATION
Assessment of the Application
15. NERSA used the TOC Tariff Methodology to assess the outcome of the tariffs applied
for by FFS for the Brackenfell storage facility.
16. Data supplied by FFS was used for most of the calculations performed in this evaluation.
Where this is not the case, the reasons for not using the FFS’ supplied data are provided.
Calculation of the Allowable Revenue (AR)
17. In accordance with the Tariff Methodology, the following formula was used to determine
the FFS’ AR:
AR = (RAB x WACC) + E + D ± C +T
Where:
RAB = Regulatory Asset Base
WACC = Weighted Average Cost of Capital
E = Expenses: Operating and Maintenance Expenses for the tariff period
under review
D = Depreciation Expense for the tariff period under review
C = Clawback Adjustment from a preceding tariff period in relation to the latest
estimates for that tariff period
T = Tax: estimated Tax Expense for the tariff period under review
18. The elements of the AR are discussed in more detail in the paragraphs below.
Regulatory Asset Base (RAB)
19. According to the Tariff Methodology, RAB is to be determined by applying the following
formula:
RAB = (V - d) + w ± dtaxWhere:
V = Value of Operating Property, Plant, Vehicles and Equipment
d = Accumulated Depreciation and Accumulated Amortisation of inflation
write-up for the period up to the commencement of the tariff period under
review
w = Net Working Capital
dtax = Deferred Tax
Property, Plant and Equipment (PPE)
20. FFS states that the Starting Regulatory Asset Base (SRAB) as approved by NERSA
has been trended to arrive at the qualifying RAB values for each tariff period. The TOC
asset valuation method was used in accordance with the Tariff Methodology. The SRAB
was trended using the Consumer Price Index forecast (CPIf).
21. In its application, FFS determined the PPE values of R6 860 638, R7 175 117, and R7
503 303 for the 2020 FY, 2021 FY, 2022 FY, respectively. NERSA calculated the PPE
value to be R5 643 926, R5 661 987, and R5 664 371 for the 2020 FY, 2021 FY, 2022
FY, respectively.
22. The difference in the PPE value submitted by FFS and that determined by NERSA
emanates from the different CPI values used in trending the asset values. NERSA used
the actual CPI for the past period of the assets (2015 to 2019 FY), while FFS used the
CPI forecast (CPIf) of 5.60% for all the past period of the asset (2015 to 2019). The
actual CPI and CPIf data used by NERSA was sourced from the Bureau of Economic
Research (BER) and is published on the NERSA website.
23. Any difference in the asset values submitted by FFS for the period under review and the
values determined by NERSA will be subject to clawback in the subsequent tariff
periods, once the audited costs are being submitted and verified through the Regulatory
Reporting Manuals (RRM).Net Working Capital
24. Net Working Capital (w) refers to the various regulated business operation’s funding
requirements other than PPE in service. These funding requirements include
Inventories, Trade Receivables, Operating Cash and Trade Payables.
25. The following formula from the Tariff Methodology was used to determine the Net
Working Capital.
Net Working Capital = Inventory + Trade Receivables + Operating Cash – Trade Payables
26. FFS calculated its working capital by considering the following elements:
a) Trade receivables are based on 45 days of turnover based on current customer
contracts (expected tariff x capacity x 12);
b) External trade payables are settled within 30 days; and
c) The allowance for operating cash is taken as a standardized factor of 30 days
operating expenditure.
27. NERSA calculated the net working capital based on 30 days of AR for receivables,
operating cash is based on 45 days of operating expenditure (opex) and trade payables
are based on 45 days of operating expenditure. The comparison of working capital is
shown in Table 2 below.
Table 2: Calculation of Net Working Capital
Net Working FFS NERSA
Capital
R’million 2020 2021 2022 2020 2021 2022
AR 4 901 640 5 161 927 5 436 264 4 951 782 5 189 184 5 437 440
Operating
3 829 429 4 043 877 4 270 344 3 829 429 4 043 877 4 270 344
Expenses
Receivables 747 715 747 715 747 715 402 221 421 504 441 669
Operating cash 477 755 504 510 532 762 477 755 504 510 532 762
Less Payables (17 939) (18 943) (20 004) (477 755) (504 510) (532 762)
Net Working
1 207 532 1 233 282 1 260 473 402 221 421 504 441 669
Capital
28. The difference between the Net Working Capital calculated by FFS and NERSA is due
to the different AR values used in determining the Trade Receivables value and also the
different days used to calculate operating cash and trade receivables.29. The Net Working Capital and the PPE value were added to determine the RAB value on
which a return is earned. The RAB values are depicted in Table 3 below.
Table 3: Calculation of the RAB
FFS NERSA
Net Working
Capital (R) 2020 2021 2022 2020 2021 2022
PPE-d 6 860 638 7 175 117 7 503 303 5 643 926 5 661 987 5 664 371
Net Working
1 207 532 1 233 282 1 260 473 402 221 421 504 441 669
Capital
- - - - - -
Dtax(liability)
RAB 8 068 170 8 408 399 8 763 778 6 046 147 6 083 491 6 106 040
30. The difference in the RAB values calculated by FFS and NERSA is due to the difference
in the PPE and Net Working Capital values calculated by both parties.
Weighted Average Cost of Capital (WACC)
31. Section 5 of the Tariff Methodology stipulates that the following formula must be used
to determine the WACC:
E
q
D
t
W
A
C
C
*
K
e
*
K
d
D
t
E
q
D
t
E
q
Where:
Eq = Shareholders’ Equity
Dt = Interest Bearing Debt
Ke = Post-tax, real Cost of Equity derived from the Capital Asset Pricing
Model (CAPM)
Kd = Post-tax, real3 Cost of Debt
32. In the tariff application, FFS states that the WACC calculation is in line with the Tariff
Methodology. In calculating the WACC, the following components of the WACC were
analysed:
a) Cost of Equity;
3
First convert from pre- to post-tax and then from nominal to real.b) Cost of Debt; and
c) Debt to Equity Ratio.
Cost of Equity
33. The Tariff Methodology prescribes that the Cost of Equity be determined according to
the Capital Asset Pricing Model (CAPM). FFS applied the CAPM to calculate their Cost
of Equity.
34. FFS applied a Risk Free Rate (Rf) of 3.82%, a Market Risk Premium (MRP) of 5.04%
and Beta of 0.75, which resulted in a Cost of Equity of 16.60%.
35. NERSA applied a Rf of 5.31%, MRP of 4.75% and a Beta of 0.75, which resulted in a
Cost of Equity of 17.87%.
36. The Tariff Methodology requires that data used to calculate the Cost of Equity be that of
12 months prior to the commencement of the tariff period under review. In this regard,
the data used by NERSA in its determination of Cost of Equity is that of December 2018,
while FFS used data as at August 2018, hence the difference between the Cost of Equity
values.
Cost of Debt
37. FFS calculated a Cost of Debt of 1.69% (post-tax, real) using a CPIf for the tariff period
under review of 5.60% and a nominal Cost of Debt of 10.25% for the tariff periods under
review.
38. NERSA performed a similar calculation and arrived at the post-tax real Cost of Debt of
1.69%.
Debt to Equity Ratio
39. The Tariff Methodology requires a minimum debt to equity ratio of 30:70 for the efficient
operation of the licenced activity.
40. The Tariff Methodology states that, “the actual interest bearing debt and the equity
pertaining to the regulated assets for the tariff period under review must be subject to
the Energy Regulator finding the licensee’s debt to equity ratio reasonable. If afterconducting reasonableness checks, the Energy Regulator finds the debt ratio to be
unreasonable, the Energy Regulator must assume a reasonable debt ratio. A minimum
debt to total capital level of 30% will be assumed reasonable”.
41. FFS indicated that its actual debt ratio to equity ratio is 20:80. Therefore, FFS had to
base its calculations on the minimum debt to equity ratio of 30:70 in calculating its WACC
value.
42. NERSA also used a debt to equity ratio of 30:70 in determining its WACC as the Tariff
Methodology requires a minimum debt to equity ratio of 30:70 for the efficient operation
of the licenced activity.
WACC
43. FFS calculated its real WACC to be 12.13% and NERSA calculated a WACC of 13%.
The difference in the WACC calculated by FFS and that calculated by NERSA is due to
the different Cost of Equity and Cost of Debt values. The WACC calculation by the FFS
and by NERSA is depicted in Table 3 below.
Table 3: WACC calculation
Detail Formula FFS NERSA
Risk Free Rate (before-tax real) a 3.82% 5.31%
Market Risk Premium (real) b 5.04% 4.75%
Beta c 0.75 0.75
Cost of Equity (post-tax real) e=(a+(b*c)) 16.60% 17.87%
Cost of Debt (Pre-tax) e 10.25% 10.25%
Corporate tax rate f 28% 28%
Nominal Cost of Debt g=e*(1-f) 7.83% 7.83%
CPI forecast h 5.60% 5.60%
Cost of Debt (post-tax real) I=(1+g)/(1+h)-1 1.69% 1.69%
Capital Structure:
Debt ratio j 30% 30%
Equity Ratio k 70% 70%
WACC l=(d*k)+(i*j) 12.13% 13.00%
Operating Expenditure (E)
44. Regulation 5(2) read with regulation 4(2)(a) of the Regulations made under the
Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) [‘the Regulations’], provides that the
tariffs approved by the Energy Regulator must enable an efficient licensee to recover thereasonable operational and maintenance expenses of the storage facility in the year in
which they are incurred.
45. The FFS licensed storage facility does not generate any revenue from external
customers, as the facility is used entirely for FFS’s own use. The licensed activity
accounts for 80% of the group’s total expenses allocated according to throughput
percentage.
46. FFS states that expenses are planned for the efficient operation and maintenance of the
core business. These expenses are to be categorised in accordance with the Regulatory
Reporting Manual (RRM). The fully allocated cost attribution approach for the allocation
of costs is used.
47. NERSA accepts the operational expenses projections by FFS. (refer to Table 4). Any
difference between the expenses provided in this tariff application and actual expenses
incurred will be subject to a giveback or clawback in the next tariff period.
48. The yearly increases of estimated expenses are based on a CPI values for the tariff
periods applied for. The CPI forecasts are published on the Energy Regulator’s website
and are sourced from the BER.
Table 4: Operating Expense
2020 2021 2022
Expense Description R R R
Fixed Cost 3 646 636 3 850 847 4 006 495
Variable Cost 182 793 193 030 203 839
Total 3 829 429 4 043 877 4 270 334
49. NERSA allows the projected costs subject to further verifications and audits. Any
difference between the expenses provided in this tariff application and actual expenses
incurred would be subject to a clawback in favour of the customers or FFS in the next
tariff determinations.
Depreciation (D)
50. Section 8.1 of the Tariff Methodology prescribes that Depreciation be calculated on a
straight line basis over the service life of each of the assets or classes of assets.51. FFS depreciated its assets on a straight line basis using the useful life of 25 years and
arrived at the values of R38 087 for the 2020 FY, 2021 FY and 2022 FY.
52. NERSA also applied a straight line basis to calculate depreciation and arrived at the
different values of R165 936 for the 2020 FY, 2021 FY and 2022 FY. The difference in
depreciation value calculated by FFS and that calculated by NERSA is due to NERSA
depreciating land in line with the Tariff Methodology, in order to reimburse FFS for its
investment.
Tax Allowance (T)
53. Section 7.1 of the Tariff Methodology states that:
“Each licensee must make a once off election between the use of either (a) flow-through
(actual tax) payment, or (b) notional tax payment”.
54. FFS has elected to use notional tax. NERSA interprets a notional tax expense to mean
the tax due according to accounting requirements rather than the actual tax payable in
the period under review.
55. Section 7.3 of the Tariff Methodology prescribes the following formula for calculating the
notional tax expense:
Tax = {(NRBTA)/ (1-t)*t}
Where:
NRBTA = Net Revenue before Tax Allowance
= {(RAB*WACC) + E + D (historic & write up) ±C} - {E + Depreciation (historic))}
t = Prevailing Corporate Tax Rate of the licensee
56. The tax calculation is shown in Table 5 below.Table 5: Tax Expense Calculation
FFS NERSA
R
2020 2021 2022 2020 2021 2022
Allowable Revenue before tax
4 612 085 4 859 537 5 120 468 4 683 985 4 914 959 5 157 112
allowance
Less: Operational Expenses 3 829 429 4 043 877 4 270 344 3 829 429 4 043 877 4 270 344
Less: Depreciation (historic) 38 087 38 087 38 087 165 936 165 936 165 936
Less: Clawback 0 0 0 0 0 0
Taxable income before Gross
744 569 777 573 812 047 688 621 705 147 720 842
up
Taxable income after Gross
1 034 124 1 079 963 1 127 843 956 418 979 371 1 001 170
up (taxable income/1-t)
Tax Component in income
289 555 302 390 315 796 267 797 274 224 280 328
(i.e. Gross up * 28%)
57. Table 5 above shows that there is a difference in tax allowance expense due to a
different AR (before tax) and depreciation (historic) being used by FFS and NERSA in
calculating tax expense.
Allowable Revenue (AR)
58. FFS calculated the AR based on Rate of Return (ROR) approach. This is in accordance
with the Tariff Methodology.
59. NERSA also performed the calculations of AR based on the ROR approach. The
comparison between the AR calculated by FFS and NERSA are shown in Table 6 below.
Table 6: AR Calculation
FFS NERSA
R
2020 2021 2022 2020 2021 2022
Asset value (PPE – d) – ToC 6 860 638 7 175 117 7 503 303 5 643 926 5 661 987 5 664 371
Net Working Capital (w) 1 207 532 1 233 282 1 260 473 402 221 421 504 441 669
RAB 8 068 170 8 408 399 8 763 776 6 046 147 6 083 491 6 106 040
Ke 16.60% 16.60% 16.60% 17.87% 17.87% 17.87%
Kd 1.69% 1.69% 1.69% 1.69% 1.69% 1.69%
WACC 12.13% 12.13% 12.13% 13.00% 13.00% 13.00%
Return on Investment 782 656 815 661 850 134 628 799 632 683 635 028
Operating Expenses 3 829 429 4 043 877 4 270 344 3 829 429 4 043 877 4 270 344
Depreciation - - - 165 936 165 936 165 936
Amortisation - - - 59 821 72 464 85 814
Tax Expense 289 555 302 390 315 796 267 797 274 224 280 328
Allowable Revenue 4 901 640 5 161 927 5 436 264 4 951 782 5 189 184 5 437 44060. The difference in AR is mainly due to the incorrect formula4 applied by FFS to calculate
AR, different RAB, WACC and tax expenses calculated by FFS and NERSA.
Volumes
61. FFS projected its volumes to be 361m3 for the 2020 FY, 2021 FY and 2022 FY. FFS
has assumed 12 stock turns per annum.
62. FFS states that the Brackenfell Depot is committed to receiving and separating lubes for
further processing at the FFS process facilities, therefore, no estimate of volume
throughput can be given. The throughput depends on the availability of lubes and
bottlenecks in the process facilities.
63. FFS charges a capacity based tariff for product stored / capacity utilised by the customer
(i.e. If, say, a client purchases 10 cubic metres of storage but only used 50% of this
capacity the full capacity usage will be charged).
64. NERSA accepts the use of total operating capacity as proposed way of estimating
volumes for FFS. NERSA will continuously monitor this against the volumes submitted
to NERSA on a monthly basis, any difference will be subject to a clawback adjustment
in future tariff periods.
Tariff
65. The tariffs calculated by FFS and NERSA are based on the total AR divided by 80% of
the total utilisation capacity. The proposed tariffs are expressed as Rands per cubic
metre of tank capacity per month and are exclusive of VAT.
66. The tariffs calculated by FFS and NERSA are summarised in Table 7 below.
Table 7: Tariff calculation
Formula FFS NERSA
2020 2021 2022 2020 2021 2022
Allowable Revenue a 4 901 640 5 161 927 5 436 264 4 951 782 5 189 183 5 437 440
Volume (m3) b 361 361 361 361 361 361
Rands/m3
Tariff ( C = [a/ (b*80%)]
1 414 1 489 1 569 1 429 1 497 1 569
/month) /12
(1%) (0.53%) (0.02%)
% difference
4
FFS erroneously calculated the AR. It did not include costs relating to depreciation and amortization for 2020, 2021
and 2022 tariff periods.67. The differences in the tariffs applied for by FFS and those determined by NERSA are
due to the following:
a) the RAB values in the application are different from those determined by the NERSA
due to different net working capital, depreciation and amortisation;
b) the different WACC values for the tariff periods under review, resulted in different
returns on investments due to the different Risk free and MRP applied by both
parties;
c) the different values in RAB, WACC resulted in different ARs and ultimately resulted
in different tariffs; and
d) FFS erroneously did not include costs relating to depreciation and amortization in
its computation of AR.
68. FFS is required to use the elements of the AR calculated by NERSA and/or the actual
costs incurred as a base when submitting future tariff applications.
Conclusion
69. From the conspectus of the facts and evidence, it is appropriate and in compliance with
the requirements of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) to
make the decision set out above. The decision finds a reasonable balance between the
interests of customers on the one hand and the interests of investors on the other.You can also read
