Power tariff application to be submitted to Nersa in July

14th June 2012 By: Terence Creamer - Creamer Media Editor

State-owned power utility Eskom will submit its third multiyear price determination period (MYPD3) application to the National Energy Regulator of South Africa (Nersa) during July, CE Brian Dames has confirmed.

He says Eskom is taking its cue from President Jacob Zuma’s State of the National address, in which he outlined the need to moderate the rate of tariff increases.

The utility has also taken on board a suggestion that the horizon for transitioning towards cost-reflective tariffs be extended. Therefore, the utility will submit an application for a period longer than the three years currently sanctioned by Nersa.

During 2011/12, the utility’s average selling price rose to 50.3c/kWh from 40.3c/kWh, while operating costs rose to 41.3c/kWh from 32.8c/kWh in previous year.

Tariff increases have also underpinned a rise in the group’s revenue to R114.8-billion, from R91.1-billion, with sales growth increasing by a paltry 0.2% to 224 785 GWh last year.

The group reported profit for the year of R13.2-billion, up from R8.4-billion in 2010/11, and recorded capital expenditure of R58.8-billion. It expects to invest at a rate of R65-billion a year for the remainder of its currently approved build programme to 2018.

Dames says Eskom is still finalising a number of assumptions, including its expectations for primary energy inflation, as well as the cost associated with the introduction of renewable energy and conventional independent power producers (IPPs).

At present, its pays between 80c/kWh and 95c/kWh for electricity generated from IPPs and in 2011/12, its costs associated with buying power from IPPs rose 154% to R3.3-billion.

Finance director Paul O’Flaherty says the MYPD3 application will outline Eskom’s proposed transition to cost-reflective tariffs in a context of its R340-billion investment programme and rising debt profile.

Eskom’s borrowing will grow to over R350-billion over the coming few years and its yearly interest bill will rise to R23-billion, or R120-billion over a five-year period.

“From a credit-metric perspective with are not at investment grade – we are still on a journey to investment grade,” O’Flaherty warns, explaining that it is currently heavily dependent on the country’s sovereign rating to enable it to raise the capital it requires for its investment programme.

But Dames says the MYPD3 application will balance the need to improve the long-term financial viability of the group, as well as further 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.