1. Minerals & Energy Parliamentary Portfolio Committee
Electricity Pricing
Minerals & Energy Parliamentary Portfolio Committee
Thembani Bukula - Regulator Member: Electricity

2. Policies and Drivers White Paper on Energy Policy of 1998
Cost reflective electricity prices
Transparent subsidies
Access to affordable electricity services
National policies
Inflation targeting
6% growth
Future generation capacity requirements
Funding and financing of debt
Regulatory objectives
Economic efficiency
Reasonable returns
Stable and predictable regulatory framework

3. Price Regulation method
Rate of return (RoR) Methodology with incentives and penalties
R = Revenue allowed
E = Operating expenses
V = Asset base (property, plant and equipment)
d = Depreciation
w = Working Capital allowance (including Capital Work in Progress - CWIP)
R = Calculated RoR using Weighted Average Cost of Capital (WACC)
R = E + (V – d + w) x r

4. Target debt:equity rate (Eskom)
Key inputs
Allowed rate of return
11.76%
Finance Charges rate
8.0%
Effective Average Tax rate
20%
Dividends rate
Inflation rate
4.0%
Efficiency gains per year
2.0%
Target debt:equity rate (Eskom)
60.0%

5. Allowed revenues
2006/7
2007/8
2008/9
Allowed revenue
36 693
40 084
44 506
Percentage price increase
5.1 %
5.9 %
6.2 %
The above percentage increases are to be effected on 1 April each year;
The 2006/7 and 2007/8 percentage increases were effected as shown above.

6. Historic and Long-term Price path

7. Typical Price Curve/Path
Price curves under 4 scenarios
Typical Price Curve/Path

8. Typical Price Curve/Path
Price curves under 2 scenarios
Typical Price Curve/Path

9. 30 April 2007 Eskom application
Eskom has applied for:
An increase in the Primary Energy costs
The Acceleration Capital Expansion program
An increase on operating expenditure
The Accelerated Demand Side Management (DSM) program
Changes to the Multi-Year Price Determination (MYPD) rules
The effective date of the changes be 1 April 2008

10. Project Plan 30 April Stage 1 Stage 2 Stage 3 Stage 4
Application received from Eskom
Stage 1
Stage 2
Stage 3
Stage 4
Analysis and evaluation:
Primary energy
CAPEX
OPEX
DSM
18 July 2007
Price modeling and recommendations
Model various scenarios and select the best based on regulatory objectives
31 August 2007
Stakeholder consultation:
Publication of draft determination (7 – 21 September 2007)
Stakeholder workshop (26 September 2007) and update of draft
Approval by Regulator:
Approve first draft report
Publish for public hearings
Public hearings
Approve final report and determination
December 2007