The Energy Intensive User Group (EIUG) of Southern Africa is participating in public hearings this week to request NERSA not to allow Eskom’s application for increases.

Says Xolani Mbanga, CEO of EIUG, whose members account for approximately 40% of electrical energy consumed in South Africa, “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.”

He adds that the three RCA applications are a 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 purchase additional power on short-term contracts and from international utilities.

Xolani states, “consumers are being required to compensate Eskom for over-expenditure in purchasing additional power, as well as lost revenue through lost sales, and yet these customers were required to reduce their 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.”

EIUG says that notwithstanding this conclusion, it is recommending a few actions.  Firstly, NERSA must accurately determine the fixed costs associated with the lower sales and lower revenue to only allow those costs and disallow the variable costs. The costs associated with Eskom’s inability to plan and manage its operations in respect of its primary energy, such as use of expensive coal, transportation of coal in-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 IPP’s must be allowed in line with the Power Purchase Agreements that were submitted to NERSA.

Fourthly, the costs associated with IDM must be carefully scrutinised for the 2016/17 financial year as they should be drastically reduced under the excess capacity situation Eskom is experiencing. Only the manpower costs and the completion of projects already started should be allowed.  Finally, NERSA must review the capital expenditure budget of Eskom and verify that projects undertaken are the approved projects only.

EIUG emphasises that Eskom’s current business model is not sustainable and must be reviewed.