signals a new-found willingness by the courts to scrutinise the way regulators set prices and tariffs. This added level of regulatory accountability can only bode well for major sectors of SA’s economy that are subject to economic regulation.
There is a well established body of administrative law that provides reason for this hesitation of the courts “to step into the shoes of the regulator”. But the unfortunate consequence of this hesitancy has been that regulators have had almost absolute discretion in the development of regulatory methods and the determination of regulated prices within SA.
Judge LE Leach added that given the circumstances, he had “not the slightest hesitation in concluding that Nersa’s decision … was wholly irrational and unreasonable and, for that reason, ought to have been reviewed and set aside by the courtWhereas the majority court ultimately found the maximum price decision to have been irrational, it did so on different grounds to those of the SCA.
With this and related observations in mind, Khampepe wrote that “ne of the most relevant factors in the regulator’s entire equation . ought to have been Sasol’s own marginal costs of production. It is not entirely clear how the regulator is to use Sasol’s marginal cost in determining maximum allowed gas prices. A literal interpretation of the judgment would suggest that prices be set at Sasol’s marginal cost, but the court would be well aware that this is a recipe for disaster: Sasol would not recover its fixed costs of production, to say nothing of exploration costs and associated risk, and so on.
Source: Energy Industry News (energyindustrynews.net)
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