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)

Cape Town - The government needs to assist the National Energy Regulator of SA (Nersa) in crafting an acceptable price path for electricity tariffs over the medium term, National Planning Commission member Anton Eberhard said on Wednesday.

“First, the current price determination system isn't working. Secondly, we don't have a track record over the last six years to back that, and we would have reasonable grounds to be sceptical of the future, (over) the next five years,” he told the Cape Town Press Club.

Eberhard, a professor and energy expert, said an acceptable price path was one where electricity prices remained internationally competitive, while ensuring Eskom could still cover efficient operation and management costs, plus its capital costs.

“Essentially, what we need to do is smooth the electricity price over time,” he said.

This implied there would be times when government would have to provide extra guarantees and even equity injections, and other times when it took returns out, perhaps into a dedicated capital development plan.

Government also had to implement aspects of electricity sector restructuring, as outlined in the Energy Policy White Paper, and embedded in the independent system and market operator bill before Parliament.

“We need an independent system and market operator that facilitates the procurement of independent power producers, against which Eskom costs could be benchmarked, as well as ensuring that Eskom power stations migrate to medium to long-term contracts at fixed prices.”

Eberhard said portions of these contracts could then be exposed to bids in an electricity market over time.

“Such a system will bring greater price and cost transparency to the system and will impose greater cost discipline in Eskom's financial management.”

Nersa is holding public hearings on Eskom's proposed revenue application multi-year price determination 2013/14, otherwise known as MYPD3.

Eskom has asked for a 16 percent increase in electricity prices each year for the next five years.

This would take the price of electricity from 61 cents a kilowatt hour in 2012/13 to 128 cents a kWh in 2017/18 Ä more than doubling the price over five years.

The current multi-year price determination, MYPD2, ends on March 31, 2013.

The proposed tariff increases have been met with fierce opposition from small businesses, unions, and individuals.

Eberhard said Eskom was only “half the story”, in that municipalities served just over half of electricity consumers directly.

He said Nersa was still unable to interrogate the costs of municipal supply or to apply economic regulation effectively, because it was using a crude benchmarking methodology.

There remained serious legal and constitutional questions around Nersa's authority in regulating municipalities, he said. - Sapa