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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Overview of <strong>Multi</strong>-<strong>Year</strong> <strong>Price</strong> <strong>Determination</strong><br />
2013/14–2017/18 (MYPD 3)<br />
Page 46 of 144<br />
The MYPD 3 application continues to use a projected sales forecast of 1.9%, after which the<br />
forecast migrates across to IRP 2010 levels. The sensitivities of a higher path have been<br />
modelled.<br />
A five-year price path towards cost reflectivity<br />
The National Treasury supported both the move towards cost reflectivity and the proposed<br />
five-year price path. However, it warned that a prolonged control period reduced certainty<br />
regarding underlying assumptions and pointed out that any significant change in these<br />
assumptions could require a reopener. It also stated that targeted measures from<br />
government to support vulnerable businesses are more appropriate than tariffs that are<br />
below the cost of supply.<br />
Salga agreed in principle that <strong>Eskom</strong>‟s tariffs need to become cost reflective, but argued that<br />
attempting to achieve this over five years would result in price increases too steep for the<br />
poor, the middle-income group and small and medium-sized businesses to absorb. It said<br />
that this would lead to increased levels of non-payment for electricity and non-viability of the<br />
electricity sector. It recommended considering a longer-term price path of, for instance,<br />
10 years, even if the MYPD 3 period only covered the first five years of that. It also<br />
recommended that the government inject additional equity into <strong>Eskom</strong> and that a cost-<br />
reflective price path take such equity into account.<br />
<strong>Eskom</strong> believes that further delays in reaching cost-reflective prices would have far-reaching<br />
negative consequences for the financial viability of the electricity industry as a whole and<br />
<strong>Eskom</strong> in particular. Delays compromise its ability to maintain operations and achieve<br />
standalone investment-grade status needed to obtain funding for future capital expansion.<br />
Returns<br />
Salga stated that the return on assets was clearly the main driver of the double-digit<br />
increases requested for MYPD 3. It said that, given the current economic environment, the<br />
shareholder should extend the revenue sacrifice over a longer period to reduce the impact of<br />
increasing returns on the overall revenue application.<br />
The National Treasury saw the proposal to phase in returns over the MYPD 3 period as<br />
striking a reasonable balance between the competing objectives of ensuring <strong>Eskom</strong>‟s<br />
financial sustainability by transitioning to cost-reflective tariffs on the one hand, and the