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Eskom must be clear on prices

Oct 15 2012 16:35 Sapa

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Johannesburg - Eskom's application for new electricity increases should reflect its costs and be transparent, the Energy Intensive Users' Group (EIUG) said on Monday.

"Currently, tension exists with affordability of electricity to customers at one end, and the need for cost-reflective pricing that supports a viable and funded electricity sector on the other," said EIUG chairperson Mike Rossouw.

Eskom is compiling its third Multi-Year Price Determination (MYPD3) application for review and approval by the National Energy Regulator of SA (Nersa). The application covers the period 2013 to 2018.

Economist Mike Schussler was quoted by the Mail & Guardian as saying that electricity prices in South Africa were set to rise by over 200% in the next five years.

Schussler said from 2005 to date, electricity prices had increased 91%, while inflation had risen only 35%.

Said Rossouw: "These increases will continue to hit all consumers in the pocket and will, furthermore, undermine the viability and international competitiveness of commercial and industrial exporters."

The burden on commercial and industrial customers was further exacerbated by hidden cross-subsidies embedded within the current tariffs, he said.

Rossouw said Eskom's revenue and electricity price methodology was "if prudently applied, economically sound".

He said there was a need for greater transparency and accuracy in the cost making up Eskom's revenue requirement and the associated electricity pricing. Costs had to be benchmarked to ensure they were prudent.

He proposed that Eskom should manage operational costs and risks, and use optimal technology in generating new capacity.

Rossouw said an initial view communicated by Eskom in the mandatory consultation process signalled increases of between 14.5% and 19% a year for the five-year period.

"Such above-inflation increases to power prices would inevitably impede economic growth, job creation, particularly in the more energy intensive resources, manufacturing and production sectors," he said.
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