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

Electricity Pricing Policy
Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
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The EPP, which was gazetted by the Department of Minerals and Energy in 2008, sets out
three basic principles regarding cost reflectivity:
Eskom‟s revenue requirement should be set at a level covering the full cost of
production, including a reasonable risk-adjusted margin or return on appropriate
asset values.
Migration to cost-reflective prices should take place over five years (from 2008).
All tariffs should become cost reflective, subject to specific cross-subsidies.
2.3 History of MYPD
From the late 1980s through to the mid-2000s, increases in electricity prices were
consistently below the rate of inflation as measured by CPI, resulting in a steep price decline
in real, inflation-adjusted terms. This was unsustainable. Electricity prices had to start
increasing in real terms. To date there have been two MYPD cycles: MYPD 1 and MYPD 2.
2.3.1 MYPD 1
The first MYPD ran from 1 April 2006 to 31 March 2009 and allowed price increases slightly
above the expected CPI inflation rate for each of the three years. The MYPD determination
for the third year was reopened twice, and resulted in a 27.5% annual price increase for
2008/09. This was the highest percentage increase since 1977, when prices increased by
48.2%, and 1979, when prices increased by 32.5%.
In 2009/10, due to lack of clarity on the funding of the capacity expansion programme,
Eskom, instead of submitting a full MYPD 2 application, applied for an interim increase to
cover escalations in its primary energy and operating costs. Nersa implemented an interim
price increase of 31.3% for that year. The MYPD 2 period therefore started in 2010/11.