Comments on the MYPD 3 application

Abstract

Eskom has submitted its proposals for pricing in the MYPD3 and NERSA has called for public submissions and comments. This report is made in response to that call. It follows two earlier reports submitted in respect of the MYPD 1 and 2 (Altman et al. 2008 and 2011). The report is organised as follows: first background to the MYPD3 is offered. Second, comments and recommendations are outlined reviewing the price path, municipal pricing, Eskom viability and potential impact on employment and the economy. It makes good sense to determine a long term price path. Eskom's MYPD3 submission proposes a five year determination. This would give more certainty. However, there is more generally uncertainty about what the target electricity price should be. Eskom itself seems to have shifted its goals in its submissions since 2008. The initial proposals for a 100% increase above the 14.2% given in 2008 had been understood as getting the price to where it needed to be in one shock move, and subsequent small above inflation increases thereafter. However, each application brings further shock increases. Certainty is needed for both consumers, for Eskom, and for investors in Eskom and IPPs. At the same time, rising energy prices should not unnecessarily squeeze the economy. Agriculture, mining and manufacturing in SA are energy intensive, and even with improved energy efficiency, no industry can bear continuous shock price increases over a short period of time. These price increases can encourage efficiency improvements and innovation, but in a slow economic environment will more likely dissuade investment and expansion. What is clear is that the current process is not giving certainty to the market, as was intended. There are still too many uncertainties in respect of who is responsible for the build programme going forward as well as a proposed market structure.