Energy Minister Dipuo Peters has reaffirmed that the Department of Energy (DoE) is considering changes to the electricity pricing policy (EPP), which could affect the methodology used by the regulator to determine power utility Eskom’s tariffs.

The current method used by the National Energy Regulator of South Africa (Nersa) is premised on rate-of-return methodology and based on the replacement cost of the assets. Nersa has adopted the depreciated replacement cost method for asset valuation.

Under the prevailing EPP the tariff is required to move towards the long run marginal cost (LRMC) within five years of its adoption.

But in a response to a Parliamentary question, Peters said the DoE was considering an approach that delayed the tariff increases. This could be achieved by allowing a lower return to the utility, which would result in Eskom moving towards the LRMC position in a period longer than five years.

But she also indicated that such a change would only be considered during the next tariff determination, for the period starting in 2013.

In other words, it was unlikely to affect increases that had already been approved by Nersa under the second multiyear price determination period, or MYPD2.

During that period three increases of around 25% a year had been approved for 2010/11, 2011/12 and 2012/13.

But many observers are arguing that there should be an even earlier intervention, with some suggesting that power price increases are undermining growth, employment and competitiveness.

These calls could intensify in light of the current economic uncertainties and given the fact that Eskom reported a profit of R12.8-billion in the six months to the end of September, from R9.5-billion in the comparable period a year earlier.

But the utility also stressed that its return on assets remained modest at 3.7%, while group debt had risen to R179-billion and would rise to over R300-billion over the coming five years as Eskom rolled out its R450-billion capital programme to add 17 000 MW of new capacity by 2017.

CEO Brian Dames recently stressed the need for regulatory stability given the group's reliance on debt funding and indicated that it had received no information related to possible changes to the pricing policy or the methodology used by Nersa.

Eskom was, thus, preparing its next tariff application on the basis of the current methodology. However, there was a process under way to refine the rules to be used and Eskom would submit its application for the period 2013/14 to 2015/16 during the course of 2012.