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

Table 28 : Indirect corporate costs
Table 29: Recovery of indirect corporate overheads
Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
Page 70 of 144
The underlying purpose of the corporate divisions is to provide a value-adding service to the
licensees. Whereas direct costs are recovered from the responsible line divisions, the
corporate divisions recover their indirect costs from the line divisions through the overhead
recovery mechanism. On a net basis, the corporate divisions should break even in their
recovery of costs and therefore cannot charge a profit to the line divisions.
3.4.5 Depreciation
Depreciation allows Eskom to incrementally recover the principal of the capital invested in
assets over their lifetime. Regulators of long-asset-life industries in high-inflation
environments favour depreciated replacement values because they offer long-term price
stability without price shocks as the operating assets are replaced at the end of their lives.
Avoiding the inherent price shocks of the historical asset value approach also provides
greater comfort to credit-rating agencies and lenders.
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 MYPD 3
Employee benefit expenses 4 765 5 088 5 210 5 322 5 500 5 885 27 004
Maintenance 81 164 169 165 179 190 868
Depreciation and amortisation 1 307 2 354 2 819 3 029 2 489 2 564 13 255
Interest income/cost & Fair value gains/losses 65 317 299 321 369 - 149 1 157
IDM 7 784 2 941 2 709 1 862 1 966 3 612 13 090
Other costs - 101 - 410 - 963 - 1 338 - 739 - 737 - 4 187
Total gross costs (Rm) 13 902 10 454 10 242 9 361 9 764 11 365 51 187
IDM Recovery - 7 784 - 2 941 - 2 709 - 1 862 - 1 966 - 3 612 - 13 090
Recoveries (Rm) - 6 279 - 7 594 - 7 623 - 7 616 - 7 934 - 8 202 - 38 969
Costs attributable to unregulated
businesses (Rm)
- 161 - 81 - 89 - 117 - 136 - 449 - 872
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 MYPD 3
Generation (Rm) 11 976 8 070 7 940 7 196 7,548 9 382 40 136
Transmission (Rm) 735 1 121 1 018 866 867 896 4 768
Distribution (Rm) 1 352 1 345 1 373 1 416 1,485 1 535 7 154
Total corporate recoveries (Rm) 14 063 10 535 10 332 9 478 9 900 11 814 52 059
Eskom‟s treatment of asset valuation is aligned with the EPP, which requires the use of an
asset valuation methodology that accurately reflects replacement value. Using the
depreciated replacement asset valuation allows Eskom to generate revenue that will enable
it to replace assets with their modern equivalent in terms of performance and output at the
end of the current fleet‟s useful life. This internationally recognised approach tracks the
actual cost movement on new assets while factoring in technological improvements.