The Energy Intensive User Group (EIUG) of Southern Africa, whose members account for about 40% of the electrical energy consumed in the country, has warned that increases in electricity tariffs will exacerbate State-owned power utility Eskom’s “death spiral”.

The EIUG is participating in the National Energy Regulator of South Africa’s (Nersa’s) public hearings into Eskom’s applications to claw back nearly R67-billion using the Regulatory Clearing Account (RCA) mechanism.

The applications relate to three years of the third multiyear price determination period, which operated for a five-year period between April 1, 2013, and March 31, 2018.

“We have scrutinised Eskom’s application and are of the view that Nersa should not allow the recovery of costs. We believe that any further increase in tariff will only exacerbate Eskom’s death spiral,” EIUG CEO Xolani Mbanga avers.

He adds that the three RCA applications are the result of Eskom’s inability to complete and put into commercial operation the new power stations and its inferior maintenance on the existing generation fleet.

The demand for electricity during this period was far less than the installed capacity of Eskom and, had the generation fleet been optimally performing, there would have been no need to buy additional power on short-term contracts and from international utilities.

Mbanga further states that consumers are now being required to compensate Eskom for overexpenditure in buying additional power, as well as lost revenue through lost sales, and were still required to reduce consumption by at least 10% or face load-shedding or curtailment.

“From whichever angle or perspective this is considered, it is unfair to electricity consumers,” he says.

The EIUG has recommended that, firstly, Nersa should accurately determine the fixed costs associated with the lower sales and lower revenue and allow only those costs and disallow the variable costs. The organisation believes that costs associated with Eskom’s “inability to plan and manage its operations”, such as the use of expensive coal, the transport of coal between power stations and water treatment costs, should be disallowed.

Secondly, the costs related to price variations that are associated with foreign currencies, such as gas and oil and/or nuclear must be confirmed and only those costs that are prudent must be allowed.

Thirdly, only the contracted costs for the independent power producers should be allowed in accordance with the power purchase agreements that were submitted to Nersa.

Fourthly, the costs associated with integrated demand management have to be scrutinised for the 2016/17 financial year, as the EIUG is of the opinion that these should be drastically reduced under the excess capacity situation Eskom is experiencing.

“Only the manpower costs and [costs for] the completion of projects already started should be allowed,” the EIUG suggests.

The group also wants Nersa to review Eskom’s capital expenditure budget.