27 March 2013

1. MYPD3 Briefing Session – Portfolio Committee on Energy 27 March 2013

2. ESKOM MYPD3 Application in Summary

3. MYPD3 Decision in Summary

4. Approved Regulatory Asset Base • Adjustments to align with the MYPD2 phasing in of the RAB • Assets commissioning dates adjusted to cater for the delays • Depreciation rate not adjusted (Depreciation amount will change due to changes in asset base costs)

5. Actual Return Approved • The allowed returns were calculated to allow Eskom to meet its debt obligation – see next slide • These returns were also considered to allow for affordable and gradually increasing pricings and to avoid price spikes

6. Primary Energy • Coal Prices escalated at 10% over the MYPD3 period • Base price for 2013/14 adjusted to reflect actual history • IPP Commissioning dates and associated costs re-adjusted to reflect delays • Efficiencies on the burn rate and load factors • Renewable IPP adjusted to reflect revised dates • Electricity purchases & SBP procurement costs disallowed

7. Depreciation

8. Integrated Demand Management (IDM) • Operational DMP maintained • Supplemental limited to 800 MW • Power Buy Back allocation not approved • SWH & Heat pumps not approved • Compressed air, process optimisation removed or limited

9. Operating expenditure (excl Primary Energy) • Manpower costs were adjusted in line with inflation plus a salary negotiating margin (1.4%) • Additional staff compliment for new power plants included (Benchmarked @ 1.24/MW) • Debt arrears reduced from 0.6% from 0.5% • “Other costs” limited to increase by inflation • Double counted items removed

10. Capital Expenditure • Transmission adjustment based on detailed scope assessment and benchmarked costs/km or MVA. • Distribution capex was adjusted from Eskom unit cost of R2.18/km to R1.74/km over the MYPD3 period – projects not altered • Generation adjusted to remove excessive contingency fees and Owners Development Costs,

11. Weighted Average Cost of Capital • The current methodology prescribes the use of 25 years average to calculate the • real risk free rate • The 12 months average reflect the current market conditions

12. Eskom’s Financial sustainability Goals 2 Source: NERSA Rfd

13. Eskom’s Financial Sustainability: Cash Flow Source: NERSA Rfd

14. The Tariffs – issues considered and approved • Increase to Homelight 20A customers consuming up to 350 kWh/month limited to inflationary increase of 5.6 %. Above this consumption level customers will see an increase of 7.6 % • All residential customers will see an increase of 8 % p.a. • Eskom to ensure: • T-O-U off-peak to peak demand adjusted from a ration of 1:9 to 1:8 • Tariff cross-subsidies to be shown transparently • The use-of-system charges to be based on cost per voltage level for all large power customers • The reliability and service charge to be unbundled from the energy charge • The environmental levy to be included in the energy charge and not shown separately • Eskom to ensure alternate tariff options are made available to municipalities with a predominantly residential load mix

15. THANK YOU