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Jun 22, 2012

Eskom moves to secure five-year tariff visibility as it initiates MYPD3 process

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Eskom confirmed on Friday that its third multiyear price determination (MYPD3) application to the National Energy Regulator of South Africa (Nersa) would be for a five-year period, rather than the three-year horizon that prevailed during the first two MYPD periods.

In other words, the application, which Eskom hopes to formally submit to Nersa during July, covers a period from April 1, 2013, through to March 31, 2018. No further details as to the nature of the application have been provided, including the size of the increases being sought.

The utility has submitted a draft of its proposed MYPD3 application to the South Africa Local Government Association (Salga) and the National Treasury for comment, in compliance with the requirements of the Municipal Financial Management Act.

Both entities have 40 days in which to comment, but Eskom is hoping to accelerate this mandatory consultation process in order to meet its stated goal of making a final application to Nersa next month.

The regulator will then initiate public hearings on the application, before making a final determination, which Public Enterprises Minister Malusi Gigaba has to table to lawmakers by March 15, 2013.

Eskom says the five-year determination period should help ensure ‘a predictable, longer-term price path for customers, investors and the country’.

CE Brian Dames has indicated previously that the application will take its cue from President Jacob Zuma’s State of the National address, in which Zuma outlined the need for a moderation in the rate of tariff increases.

However, he has also indicated that the principle of transitioning towards cost-reflective tariffs will be incorporated.

Dames insists that power tariffs are not yet cost reflective, despite a slew of double-digit price increases since 2008, which increased the utility’s average selling price to 50.3c/kWh in 2011/12, up from 40.3c/kWh in the prior year – ahead of the increases, Eskom’s average tariffs were closer to 20c/kWh.

Dames has also indicated that the average of 77c/kWh being paid to independent power producers (IPPs) is more in line with what would be cost reflective.

But once the new power stations that are currenlty under construction (Medupi, Kusile and Ingula) are included, together with the new renewable energy IPPs that will emerge over the coming few years, it is anticipated that a cost-reflective tariff could be higher than 95c/kWh.

It is anticipated, therefore, that Eskom could apply for increases of around 15% a year for the five-year period, which would raise tariffs to closer to 98c/kWh by the end of the period.

However, various scenarios will be presented and it will be up to Nersa to make the final determination.

Eskom spokesperson Hilary Joffe tells Engineering News Online that Eskom’s draft application contains a number of assumptions and scenarios, including expectations for primary energy inflation, as well as the cost associated with the introduction of renewable energy and conventional IPPs, as currently outlined in the Integrated Resource Plan.

She says the utility wants to offer the National Treasury and Salga an opportunity to digest and comment on the application and its assumptions before releasing further details.

But Dames has also indicated that the MYPD3 application will seek to balance the need to improve the long-term financial viability of the group, which includes incorporating IPPs, with the economy’s need to sustain growth and create jobs.

It will also include proposals for shielding poor consumers from the full brunt of future increases.



 

Edited by: Creamer Media Reporter
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