The Energy Intensive Users Group of Southern Africa (EIUG) has argued that any cost-recovery granted to Eskom in relation to three Regulatory Clearing Account (RCA) applications currently under review by the regulator be capped at R40.5-billion.

However, it also urged the National Energy Regulator of South Africa (Nersa) on Friday to refrain from granting any relief before determining whether the costs had been prudently and efficiently incurred.

In fact the EIUG, whose 30 mining and industrial company members collectively consume over 40% of the country’s electricity, warned that its member firms were not in a position to absorb any further price increases while remaining in business.

Through RCA submissions for 2014/15, 2015/16 and 2016/17, Eskom is seeking to recover nearly R67-billion in revenue and cost deviations against what was granted for the three years as part of the third multiyear price determination period (MYPD3), implemented over five years from April 2013 to the end of March this year.

Presenting at the Gauteng leg of public hearings into the applications, which took place in Soweto on Friday, Eskom acting CFO Calib Cassim reiterated the utility’s stance that the applications had been made in strict compliance with the RCA methodology and that Eskom accepted that the full amount could not be liquidated in a single year.

Should the full R66.6-billion be added to the tariff in a single year, it would result in an increase of more than 30%.

The largest portion, or R44-billion, of the amount sought by Eskom relates to revenue variances, which arose as a result of lower sales volumes in the three years than those determined in the MYPD3.

However, Eskom is also seeking to recover R7.4-billion in higher independent power producer costs, R9.4-billion in relation to international purchases, R3.4-billion in higher coal costs, R1.3-billion for diesel, R2.8-billion for other primary-energy costs and R1.4-billion of other expenses.

The EIUG said that its analysis showed that Eskom should only be seeking to recoup a maximum of R40.5-billion, as Eskom should only be compensated for the fixed costs portion of the revenue variance.

In addition, it noted that the reason provided for Eskom’s purchase of coal that was more expensive than that allowed for in the MYPD3 was the delayed commissioning of Medupi, as well as more expensive coal being sourced from other collieries.

“Both these reasons are within Eskom’s control and the increase should be limited to the maximum increase of 10%.”

The EIUG urged Nersa to conduct, where practical, efficiency and prudency tests on all material expenditure so that the utility could be held accountable for poor decisions and inefficiencies.

The organisation also called on Nersa, Eskom and the Department of Energy to provide greater price-path certainty to enable economic growth, development and job creation.

“This price certainty is critical to our members to plan for growth.”

Nersa’s hearings will conclude on Monday and the regulator will make a determination on June 21.