Eskom waits for comment on tariffs

050910 Electricity pylons carry power from Cape Town's Koeberg nuclear power plant July 17, 2009. South Africa will need 20 gigawatts (GW) of new power generation capacity by 2020 and would require double that amount a decade later to meet rising demand, the country's power utility said September 7, 2009. Picture taken July 17, 2009. REUTERS/Mike Hutchings (SOUTH AFRICA ENERGY BUSINESS)

050910 Electricity pylons carry power from Cape Town's Koeberg nuclear power plant July 17, 2009. South Africa will need 20 gigawatts (GW) of new power generation capacity by 2020 and would require double that amount a decade later to meet rising demand, the country's power utility said September 7, 2009. Picture taken July 17, 2009. REUTERS/Mike Hutchings (SOUTH AFRICA ENERGY BUSINESS)

Published Jun 25, 2012

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Eskom had submitted a draft application for the third multi-year price determination (MYPD3) of tariffs to the National Treasury and the SA Local Government Association for comment, it said on Friday.

Although the draft application was not yet a public document, Eskom spokeswoman Hilary Joffe said the primary energy costs, other day-to-day running costs and an allowance to service the debt accumulated for new build projects would steer the direction of tariffs.

The price of coal rose out of control in the previous financial year, contributing to a 33 percent increase in Eskom’s primary energy costs.

The use of independent power producers had increased by 154 percent, making it the second-largest contributor to increased electricity production costs.

In the MYPD3, the cost of independent producers would be taken into consideration, Joffe said. In its integrated annual report, Eskom said it was targeting a tariff of 97.51c a kilowatt-hour by 2016/17, an increase of 47c from the 50.3c a kilowatt-hour in 2011/12.

“That is an estimate of a cost-reflective tariff but it included only the new build. We hadn’t factored any implementation of the Integrated Resource Plan and other costs,” Joffe said.

She said the cost-reflective tariff that Eskom proposed in the draft application would cover primary energy costs, human resources and other day-to-day costs.

“The regulator will look at primary energy costs and other costs as well as our return on assets to cover our interest on debt,” Joffe said.

Eskom’s cost to service a debt that would rise to R350 billion in a few years, would increase considerably in the next five years and was estimated at R23.5bn a year.

The regulator would allow a return on assets that would be able to cover this cost.

Joffe said the regulator had indicated in 2010 when it granted Eskom a 25.5 percent average increase for MYPD2, that the utility could have another 25 percent increase for the next two years.

But Joffe said Eskom was proposing not to go that route. It wanted a five-year determination for MYPD3 to ensure a predictable, longer-term price path for customers and investors.

“It’s up to the National Energy Regulator of SA to decide if they are happy with that. But we think it will bring long-term certainty.”

Joffe said a cost-reflective tariff did not mean there would be a spike in electricity prices. She said the cost savings that Eskom had achieved would build reductions into the tariffs. Also, the utility’s ambition to cut the cost of coal increases to single digits would be favourable for consumers.

The original plan by the Department of Energy was to reach a cost-reflective tariff by next year, but since it had not been reached, the draft MYPD3 application proposed a time line.

Municipalities and the Treasury have 40 days to comment.

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