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

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Overview of Multi-Year Price Determination 2013/14–2017/18 (MYPD 3) Page 52 of 144 In summary, the research found that using taxes to fund the gap would have a severely negative impact on the economy and that, regardless of the price path adopted in principle, the effect on the economy of using state resources (in the form of taxes) was unpalatable. 3.1.3 Users pay for what they consume Cost-reflective prices minimise economic distortions caused by inadvertently subsidising larger consumers of electricity. If prices are not cost reflective, then in effect every unit of electricity supplied is subsidised, either by taxpayers or by future users of electricity. In addition, there are also inter-tariff subsidies. Currently, energy-intensive industries and affluent customers contribute the largest subsidies. 3.1.4 Improved energy efficiency and reduced environmental impact The University of Pretoria study cited earlier also found that non-cost-reflective prices failed to give customers an incentive to be energy-efficient. “Cheap” electricity would therefore result in increased energy demand, which would in turn put more pressure on generation capacity and require accelerated infrastructure expansion for little or no additional economic output. Cost-reflective prices send the right price signals to motivate electricity users, particularly larger customers, to invest in energy-efficient technologies and processes. Such user behaviour has the potential to curb demand growth, helping to reduce environmental emissions from power generation and alleviating the need for purchasing additional costly primary energy and investment in generating infrastructure. 3.1.5 Improved security of supply Cost-reflective prices improve security of supply in two ways: They improve Eskom‟s creditworthiness, helping it to secure finance for future capacity expansion. They encourage customers to use electricity efficiently, contributing to a supply/demand balance that allows Eskom to do essential plant maintenance,
Overview of Multi-Year Price Determination 2013/14–2017/18 (MYPD 3) Page 53 of 144 extending the useful life of generation, and transmission and distribution infrastructure. 3.2 Disadvantages of cost-reflective prices 3.2.1 Steep price increases Transitioning to cost-reflective prices too quickly may require price increases that some customers, especially energy-intensive and low-margin businesses affected by the global economic downturn, may find difficult to adjust to. Eskom realises this and has proposed an extended period of price adjustment to smooth the impact of these increases. 3.2.2 Potential conflict with cross-subsidisation If poorly implemented, cost-reflective prices have the potential to add to the financial burdens of South Africa‟s poorest households. A truly cost-reflective price, applied uniformly to all Eskom‟s customers, would effectively erase cross-subsidisation and run counter to the government‟s socioeconomic goal of protecting the most vulnerable. Eskom is working to ensure that cross-subsidies continue to be applied in parallel with the move towards cost- reflective prices. For more on cross-subsidisation see Protection for the poor in the Balancing the economic effects chapter. 3.2.3 Electricity theft and late payment The perception that cost-reflective tariffs are too high may result in an increase in electricity theft, which is undesirable both because it poses a danger to the public and because of lost revenue to Eskom. Late payment and default on payment may also increase. 3.2.4 Possible disincentive to investment Price increases may make South Africa seem less appealing for investment, particularly in the short term, because these price increases add to the basic costs involved in running or expanding a business.
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Page 3 and 4: Overview of Multi-Year Price Determ
Page 5 and 6: EXECUTIVE SUMMARY Introduction Over
Page 9 and 10: ESKOM PROFILE Overview of Multi-Yea
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Page 31 and 32: Price path: Funding: Other: Overvie
Page 37 and 38: 2 THE MYPD PROCESS Key points Overv
Page 39 and 40: Electricity Pricing Policy Overview
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Page 43 and 44: Base case application Overview of M
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Page 73 and 74: 3.5.2 Carbon tax Overview of Multi-
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7 CONCLUSION Overview of Multi-Year
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Transmission Overview of Multi-Year
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Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

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