Costs, prices and efficiency. In the Dark.

I’ve blogged before that it’s more the cost of electricity and the efficiency of its generation that we should be concerned about rather than the price we ultimately pay. From a national perspective, we pay generation and transmission costs regardless of what the price on our bill is. The profit or loss comes out of our taxes after all.

Today there’s an interesting story that Joburg City Power marks up Eskom prices by 117% when calculating charges for their customers. Well, again, if City Power makes a profit it should in theory be reflected in lower other costs for Citizens.

It does make me wonder though, is this mark-up needed? If so, what is driving the additional costs? Inefficiencies, fraud, non-payment by some come to mind. So it’s still true that we should be looking critically at costs rather than superficially at prices charged.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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