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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possible impact of higher electricity prices on the economy and consumers on the other. It
supported Eskom‟s ultimate goal of being able to raise funding for capacity expansion based
on the strength of its own balance sheet, as opposed to using the government‟s support, as
is currently the case. The National Treasury concurred with Eskom‟s assumption that no
dividends would be paid out to the shareholder during MYPD 3.
The returns generated over the MYPD 3 period are less than the returns determined by
Nersa and achieve an appropriate balance between the needs of Eskom and its customers.
They therefore remain as projected in the proposed submission.
Macroeconomic indicators
Some of the proposed application‟s macroeconomic assumptions were questioned.
Specifically, the National Treasury‟s CPI projections were lower. It believed the proposed
electricity price increases would have a more pronounced effect on the CPI than Eskom
predicted because of the planned reweighting of the CPI basket, adding between 0.7 and 1
percentage points to CPI as opposed to Eskom‟s projected 0.3 to 0.6 percentage points.
The National Treasury requested that further information on the economic impact be
included in the application. This has been done.
Assumptions regarding coal costs and the Energy Conservation Scheme
There were concerns regarding Eskom‟s assumption of single-digit coal cost increases. It
was suggested that the macroeconomic impact – specifically the possible unintended
consequences of securing coal supplies for Eskom and limiting the increase in coal prices to
single-digit increases – be assessed.
Since primary energy constitutes a third of Eskom‟s costs, it is critical for the company to
exhaust all avenues to keep these cost increases within single digits. The broader economic
impact will be assessed further.
It was suggested that introducing a mandatory ECS required prior policy decisions by the
DoE. Eskom accepts that there are certain policy decisions needed to inform the way
forward on these matters.