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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)

Why Nersa cut Eskom price hike

By Louise Flanagan Time of article published Mar 2, 2013

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Johannesburg - Thembani Bukula, chairman of the National Energy Regulator of SA (Nersa) electricity sub-committee, explained why the regulator cut Eskom’s price hike from the requested 16 percent a year for five years to 8 percent a year.

* Returns: Eskom asked for returns of 7.9 percent. Nersa limited this to an average of about 3 percent. That reduces the returns to R137 billion instead of the R185bn Eskom wanted. Nersa said this provided enough to cover the debt and rebuild costs, but reduced Eskom’s retained earnings from the R46bn it wanted to about R10bn.

* Depreciation: The depreciation of Eskom’s assets was recalculated. Nersa said Eskom was inflating the value of the assets over the years, but Nersa said that because the assets had been re-evaluated they did not need to be inflated. This reduces the depreciation cost from the R184bn requested to about R139bn.

* Coal costs: Eskom based this on projections from a higher base than had been approved in the previous pricing decision (MYPD2), so Nersa recalculated this from the lower, approved base. Nersa also looked at the coal burn rate: Eskom had used 0.58, which Nersa said was higher than the 0.57 used in MYPD2; Nersa changed this to 0.56, which it called the “appropriate burn rate for the appropriate efficiencies if those stations are operated properly”.

* Energy saving: Solar water heaters and heat pumps are already funded by the Treasury, so Nersa removed these costs.

* Power buy-backs: Eskom pays big power users to turn off power when the grid is tight. Nersa cut this out. Nersa said there were about 4 000 megawatts of unplanned outages most days, but it was allowing Eskom enough revenue to clear up those outages, plus paying companies to shut down was in conflict with the national strategy of growing the economy.

* Staff costs: This was limited to inflation-linked increases and reduced costs of extra staff for new power stations.

* Savings: Eskom planned for R30bn in savings. Nersa is holding it to this.

“In a nutshell, that’s what reduces their total revenue of R1.087 trillion to about R906bn. In our view 8 percent is exactly what they require that will ensure that they still provide power, and they do it in a way that is efficient,” said Bukula.

He said the intention was to ensure that Eskom was efficient, effective and sustainable.

Eskom may appeal Nersa’s decision.

Saturday Star

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