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

Return on assets forecasts
Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
Page 72 of 144
Based on the proposed revenue application and the valuation of the regulatory asset base,
Eskom‟s projected return on assets will not reach Nersa‟s MYPD 2 benchmark return at the
end of MYPD 3. A return of 7.8% will be achieved by 2017/18, against the benchmark
WACC of 8.16%, as assessed by Nersa for MYPD 2. Eskom‟s revenue sacrifice (and
therefore the shareholder‟s revenue sacrifice) is significant – about R203 billion over the
period. Table 32 reflects the return sacrifices as a result of not earning the higher returns
and represents an investment into the economy by the government as Eskom‟s shareholder.
Table 32: Revenue sacrifice at 8.16% on WACC
2013/14 2014/15 2015/16 2016/17 2017/18 MYPD 3
Eskom revenue sacrifice (Rm) - 58 208 - 58 628 - 48 243 - 31 256 - 6 299 - 202 633
MYPD 3 ROA % 0.9% 1.5% 3.2% 5.2% 7.8%
Nersa target ROA @ 8,16% 3.2% 6.0% 8.2% 8.2% 8.2%
Using the Eskom cost of capital of 8.31% the revenue sacrifice escalates to R209 billion.
Table 33: Revenue sacrifice at 8.31% on WACC
2013/14 2014/15 2015/16 2016/17 2017/18 MYPD 3
Eskom revenue sacrifice (Rm) - 59 374 - 59 914 - 49 416 - 32 739 - 7 875 - 209 319
MYPD 3 ROA % 0.9% 1.5% 3.2% 5.2% 7.8%
Eskom WACC @ 8,3% 8.3% 8.3% 8.3% 8.3% 8.3%
3.5 Cost components excluded (risks)
3.5.1 Industry restructuring
This revenue application assumes that the Independent System Market Operator will be
implemented during the MYPD 3 period, but that this will have no impact on the revenue and
related cash-flow requirements. Should this assumption be incorrect, the issue will need to
be reviewed at the time of implementation.