Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
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recipients, or even the economy as a whole. Furthermore, the total subsidy level has
increased substantially since IBT was introduced as the initial IBT rates were, on average,
below cost. Since then, increases to these customers have been below Eskom‟s average
price increases.
Currently, the subsidy is paid by Eskom‟s municipal, industrial and commercial customers,
with Eskom‟s direct industrial and commercial customers making the largest contribution to
Eskom-related subsidies because municipalities do not contribute towards the IBT-related
affordability subsidies (they also need to cater for their subsidies).
This has resulted in tariffs paid by industrial and commercial customers increasing at a rate
higher than the average price increase over the past three years. There is a view from
customers contributing towards subsidies that these subsidies are becoming unaffordable
and unsustainable.
It is generally accepted that the EPP contains sound policy principles, but still needs a
proper implementation plan, subsidy framework and tariff guidelines. In the absence of such
a national subsidy framework, cross-subsidies are currently not being managed properly.
It has become critical to put in place a sustainable national cross-subsidy framework for the
industry.
6.2.3 Improved cost-reflectivity of tariff structures
The first step in designing cost-reflective tariffs is to conduct a cost-to-serve study, which
breaks down the allowed cost of providing electricity into rational cost categories. The main
cost categories are energy (generation), demand (network costs) and customer service
costs (retail).
Eskom has completed an updated cost-to-serve study that allowed for up-to-date cost-
reflective rates to be calculated and serves as the basis for the proposed design and
changes to the retail tariffs. The tariffs contained in this document reflect the updated cost to
serve and the submitted revenue requirement by Eskom in the MYPD 3 application.
As a result of the updated cost-to-serve study, Eskom proposes to differentiate between the
cost components for Generation (energy costs), Transmission (network costs) and
Distribution (network and retail costs) with rates updated based on the cost per licensee; to