Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
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Electricity Pricing Policy<br />
Overview of <strong>Multi</strong>-<strong>Year</strong> <strong>Price</strong> <strong>Determination</strong><br />
2013/14–2017/18 (MYPD 3)<br />
Page 39 of 144<br />
The EPP, which was gazetted by the Department of Minerals and Energy in 2008, sets out<br />
three basic principles regarding cost reflectivity:<br />
<strong>Eskom</strong>‟s revenue requirement should be set at a level covering the full cost of<br />
production, including a reasonable risk-adjusted margin or return on appropriate<br />
asset values.<br />
Migration to cost-reflective prices should take place over five years (from 2008).<br />
All tariffs should become cost reflective, subject to specific cross-subsidies.<br />
2.3 History of MYPD<br />
From the late 1980s through to the mid-2000s, increases in electricity prices were<br />
consistently below the rate of inflation as measured by CPI, resulting in a steep price decline<br />
in real, inflation-adjusted terms. This was unsustainable. Electricity prices had to start<br />
increasing in real terms. To date there have been two MYPD cycles: MYPD 1 and MYPD 2.<br />
2.3.1 MYPD 1<br />
The first MYPD ran from 1 April 2006 to 31 March 2009 and allowed price increases slightly<br />
above the expected CPI inflation rate for each of the three years. The MYPD determination<br />
for the third year was reopened twice, and resulted in a 27.5% annual price increase for<br />
2008/09. This was the highest percentage increase since 1977, when prices increased by<br />
48.2%, and 1979, when prices increased by 32.5%.<br />
In 2009/10, due to lack of clarity on the funding of the capacity expansion programme,<br />
<strong>Eskom</strong>, instead of submitting a full MYPD 2 application, applied for an interim increase to<br />
cover escalations in its primary energy and operating costs. Nersa implemented an interim<br />
price increase of 31.3% for that year. The MYPD 2 period therefore started in 2010/11.