• BEE winners and losers

    Creating real change and real jobs requires a new ideology, says Gerhard Papenfus.

  • Focus on governance

    Addressing risk well and timeously can be a source of growth, says Ian Mann.

  • Road to riches

    Taxpayers keep funding structures with big plans but who knows what efficacy, says Mandi Smallhorne.

See More

Eskom: Tariff hikes the only way

Jan 15 2013 13:05 Sapa

Eskom chief executive Brian Dames. Picture: Theana Greugem

Related Articles

Eskom must be sustainable - CEO

Eskom faces price hike protests

Deadline today for Eskom hike objections

Electricity prices chasing jobs away

SA firms join Eskom's R49m power drive

Civil society to challenge Eskom hikes


Cape Town - Economic models show it is better and fairer for tariffs - not taxes - to pay for electricity, the National Energy Regulator of SA (Nersa) heard on Tuesday. 

If electricity was sold at the "right price", it would be used more efficiently, so less would have to be invested in new generating capacity, Eskom CEO Brian Dames and chief financial officer Paul O'Flaherty said in a joint presentation at public hearings called by Nersa. 

The energy regulator is currently 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% 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 - more than doubling the price over five years.

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

In contrast to the MYPD1 and MYPD2, which both spanned three years, Eskom is now proposing a five-year determination for MYPD3 to ensure a predictable, longer-term price structure. 

The two executives told the Nersa hearings the application supported investment by independent power producers and by Eskom. 

An average annual increase of 13% was intended to meet Eskom's needs over five years, plus 3% to introduce new independent power producers - a total of 16% a year. 

The application was based on new capacity which Eskom was committed to build, up to the substantial completion of Kusile power station project. 

"We have included a long-term price path to implement new capacity beyond Kusile, but this is not included in our revenue requirement for the five years," they said. 

Including new capacity build beyond Kusile would raise this to 20% a year over MYPD3. 

A stable and secure supply of electricity was essential to support economic growth and development, now and into the future. 

Tariffs were the fairest and most efficient way to pay for electricity and ensure the industry invested in the infrastructure needed to deliver the electricity required. 

Prices had to cover the full cost of producing electricity from existing and new assets - ensuring Eskom and the electricity industry were financially sustainable. 

This had to be balanced with the impact of tariffs on the economy and poor households. Eskom had looked hard at its costs and committed to R30bn in savings in operating costs over the five years. 

Current electricity prices did not cover the full costs of supplying electricity, and the application continued the move to cost-reflective tariffs.

"We recognise the impact of tariff increases on the economy and households, especially small business and the poor."

The application sought the right balance for the country - a five year price path to smooth the impact and provide certainty.

Eskom's proposal simplified residential tariffs for Eskom customers and protected the poor with lower than average increases.

If approved by Nersa, the inclining block rate tariff (IBT) would be removed for the majority of customers and specifically for the poor.

Homelight 20A customers (a tariff for prepaid customers who used very little electricity) would be charged the same rate, irrespective of usage.

Homelight 60A customers (for prepaid customers with low to medium usage of electricity) would be charged at only two different block rates, instead of the current four block rates in IBT.

Homepower customers (high users of electricity) who received a monthly bill would pay a tariff with a fixed charge rate for networks, plus a single energy rate for energy.

Poor customers would continue to receive Free Basic Electricity (FBE) of 50kWh per household per month.

"We propose protection for the poor, through a tariff structure with transparent cross-subsidies.

"Economic policy should set out protection for specific economic sectors," they said.  

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.

nersa  |  eskom  |  electricity tariffs



Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Add your comment
Comment 0 characters remaining

Company Snapshot

We're talking about:


Johannesburg has been selected to host the Global Entrepreneurship Congress in 2017. "[The congress] will ensure that small business development remains firmly on the national agenda and the radar screen of all stakeholders, the Small Business Development minister said.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

People who fall victim to Ponzi scams are:

Previous results · Suggest a vote