Comment on Eskom's MYPD Application - 14 December 2009

THE FREE MARKET FOUNDATION of Southern Africa progress through freedom 14 December 2009 Comment on Eskom’s Revenue Application Multi-Year Price Determination – 2010/11 to 2012/13 (MYPD 2) The Free Market Foundation The Free Market Foundation is an independent non-profit public benefit organisation founded in 1975 to promote and foster an open society, the rule of law, personal liberty, and economic and press freedom as fundamental components of its advocacy of human rights and democracy based on classical liberal principles. It is financed by membership subscriptions, donations and sponsorships. Focus of this comment This comment focuses on the following specific aspects of the economics of price formation and selected items relating to the figures presented in Eskom’s application: • The crucial importance of consumer-led pricing in the co-ordination of supply and demand and avoidance of catastrophic price increases • Removal of barriers to entry into the electricity market as the most effective method of rapidly removing South Africa’s vulnerability to supply interruptions • Potential of competition and the efficient functioning of the grid to reduce cost, prices to consumers and the demands on Eskom • Cost and price reduction potential for replacing gas turbines with electricity produced by Independent Power Producers (IPPs) • Capital costs and depreciation • Demand Side Management (DSM) The crucial importance of ...