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

Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
3.3 Analysis of advantages and disadvantages
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On balance, the advantages of cost-reflective prices and the better economic outcome over
the long term outweigh any economic disadvantages, so the need to move towards cost
reflectivity is necessary. Most of the identified disadvantages can be minimised by adopting
an optimal migration path and employing targeted interventions using other mechanisms for
those customers that require assistance.
3.4 Cost components
The move towards cost-reflective prices that started in MYPD 1 continues in MYPD 3 as
Eskom applies for revenue to recover the following components:
Primary energy, including costs relating to IPPs.
Operating costs, including IDM.
Depreciation, based on Eskom‟s recently valued replacement asset base.
Return on assets, which by 2017/18, still fall short of the 8.16% target Nersa set
for Eskom in MYPD 2.
In regulatory terms, a price that fully addresses all of the above components would be “cost
reflective”.
3.4.1 Generation primary energy costs
Generation primary energy costs are estimated to escalate at 8.3% annually. Coal and coal
handling costs comprises 75% of the total costs and the balance is attributable to water,
nuclear, gas, environmental levy and other direct generation-related primary energy costs.