Electricity Regulation Bill

1
Electricity Regulation Bill

• Presentation to the Parliamentary Portfolio
• Committee
• 31 October 2005

The Association of Municipal Electricity
Undertakings (SA)
2
Electricity Regulation Bill

• The Bill would appear to set out to establish a
  national regulatory framework for the electricity
  supply industry while at the same time providing
  for the constitutional authority of local
  government over electricity reticulation. By
  doing so it has added a significant amount of
  confusion to the electricity regulatory
  environment.

3
Electricity Regulation Bill

• It will mean that a large percentage of the
  electricity customers in South Africa will not be
  subject to the NER power to licensed
  distributors, regulate electricity tariffs and
  determine quality of supply and service
  standards. This situation is reminiscent of the
  days prior to 1995 when the Electricity Control
  Board only had jurisdiction over electricity
  supply outside municipal areas of supply.

4
The following sections of the Bill are relevant.

• Definitions Chapter 1 The definitions of
  distribution, reticulation
• and trading are interpreted to mean that any
  municipality can distribute electricity within
  its area of jurisdiction. This would include
  areas currently supplied by Eskom who currently
  may hold a license to perform this function in
  those areas. This seems to create a duality that
  could lead to
• conflict.

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The following sections of the Bill are relevant.

• Must Eskom allow a municipality to take over
  reticulation within the municipal area of
  jurisdiction or will the Eskom licence preclude
  municipalities from distributing in those areas?
• Could this lead to a duplication of networks in
  an area or municipalities operating networks
  within Eskom areas with the attendant safety
  risks?

AMEU (SA)
6
Definitions

• The definition of reticulation refers to
  trading by a municipality and the distribution
  of electricity by a municipality to the community
  within its area of jurisdiction,,,,,,. A
  community is described as domestic
  consumers, commercial customers, light industrial
  customers while a light industrial or
  commercial customer means a manufacturing,
  mining or agricultural customer who purchases
  less than (5000) MWh of electricity per annum at
  a contiguous site that is not a water pumping
  scheme

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Definitions

• A question arises as to how a level of 5GWh per
  annum determines who is part of a particular
  community?
• Is it not possible that situations will arise
  where similar businesses fall either side of this
  arbitrary level?
• Who will be responsible for the customers
  consuming, on average, above this level of 5 GWh
  per
• annum?
• Is it possible they may be paying different
• tariffs to those below this limit?

8
Definitions

• It is assumed that the municipality will continue
  to service those above this limit, as long as
  they are situated within the municipal area of
  jurisdiction. The difference will be that it
  will require a license from NERSA.

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Oversight of electricity industry Chapter II

• Subsection 3.(2), In the light of the executive
  authority of municipalities in terms of the
  constitution, it would appear that municipalities
  would not be subject to oversight by the
  Regulator nor require a license to distribute
  electricity as The Constitution, which is
• the highest law of the land, gives them the right
  to do.
• Will regulations by norms and standards be
  sufficient?

10
Oversight of electricity industry Chapter II

• This is confirmed by section 7 of Chapter III
  which deals with electricity licenses and
  registration, where it is clearly stated that the
  requirements are not applicable to reticulation
  i.e. municipalities

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Reticulation Chapter IV

• AMEU was informed that this chapter has been
  removed from the Bill. If not, we have some
  comments around it.

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DISTRIBUTION Schedule IV

• Distribution and Reticulation
• Distribution refers to wires and retail and
  other related services downstream from
  Transmission ie below 132 kV
• Distribution may only be undertaken by
  Electricity Distributors which must be appointed
  / established as Service Delivery Mechanisms per
  Municipal
• Systems Act

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DISTRIBUTION Schedule IV

• Service Delivery Mechanisms may be internal or
  external
• Distribution is synonymous with Reticulation as
  per Schedule 4 Part B of the Constitution of
  South Africa
• Electricity Distribution falls within a dual
  regulatory framework. Rather than delineate the
  business, each under a separate regulatory
  regime,
• the proposal is to clearly delineate the scope
• of each regulatory regime. Dual regulation
• will remain.

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DISTRIBUTION Schedule IV

• If the business was to be delineated, it could be
  done based on
• Customer category (Tariff)
• Consumption
• Connection to network (LV / MV / HV)
• Of these, Consumer category or Connection would
  be the most stable although in either case a gap
  in the economic regulation of an important part
  of the business would be created.

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DISTRIBUTION Schedule IV

• Although the Bill should recognise the
  distinction between wires and retail and other
  services (potentially telecoms, etc) the bill
  should not distinguish between the two. This
  would result in the Service provider providing
  both retail and wires at this stage.

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Municipalities as Service Authorities

• Municipality is a service authority as
  contemplated in sections of the Municipal Systems
  Act
• Municipalities must fulfill their constitutional
  mandate by entering into Service Delivery
  Agreements with Electricity Distributors
• Electricity Distributors must be licensed by NER
  as per Schedule iii
• Regional Electricity Distributors (as defined in
  EDI Act) may be the only external Service
  Delivery Mechanisms

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Municipalities as Service Authorities

• The current Bill does not distinguish between a
  municipality as a service authority and a
  municipality as a service provider. The
  municipality as service authority has the
  obligation to regulate the service provider (even
  if it is the service provider) through the
  regulatory instrument of a Service Delivery
  Agreement. The Bill must provide for this.
• This would allow the NER to regulate the service
  provider but not the service authority even if
  the municipality serves both roles.

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Service Delivery Agreements

• SDAs must deal with
• Duration of appointment but may not exceed 25
  years
• The Obligations of the Service Provider relating
  to
• Services
• Quality of supply and service
• Accounting and financial management activities
• Annual tariff adjustments

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Service Delivery Agreements

• Customer interface
• Subsidized electrification
• Non-subsidized developments
• Reporting

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Service Delivery Agreements

• The Obligations of the Service Authority
• Municipal Surcharge
• Tariff Adjustment and Harmonization Plan
• Free Basic Electricity
• Electricity Service plans
• Participation in Municipal Forums if the
  Electricity Distributor services more than one
  municipality
• Annual performance review
• Monitoring

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Service Delivery Agreements

• SDAs may be regulated by the Minister
• The municipal regulatory instrument must be spelt
  out in the Bill as it defines the parameters of
  municipal regulation.
• Municipal Surcharge

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Municipal Surcharges
AMEU(SA)

• Surcharge may be charged on all sales by
  Electricity Distributors
• Surcharge must be collected by Electricity
  Distributors (or its agent) and must be paid to
  the municipality
• Surcharge may be regulated by Minister of Finance
  
• It may be more appropriate for this to be
  regulated through other legislation such as MFMA.
  It may also be appropriate for the surcharge not
  to attract VAT, although historically municipal
  surcharges would be VAT-able.

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Tariffs
AMEU(SA)

• Municipalities must adopt a tariff policy for
  electricity
• Tariff policy may be regulated by Minister
• NER must approve a national tariff framework
• Electricity Distributors must develop and adopt a
  3 yr tariff adjustment plan which must
• comply with NER national tariff framework
• consistent with municipal tariff policy
• must deal with tariff harmonization
• must deal annual increases

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Tariffs
AMEU(SA)

• The tariff process outline in the previous slide
  is not contentious except for what the role of
  the Municipality in setting tariffs should be.
• Subsidization between customer categories is
  dealt
• with by the municipality through the tariff
  policy.
• The setting of tariffs should be left to economic
  regulation and should be set by the Service
  Provider and approved by the NER.
• This makes particular sense where the Service
  Provider services more than one municipality, or
  when seen in a national context.

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Tariffs
AMEU(SA)

• Annual Electricity Tariffs must be
• set by Electricity Distributor
• in line with 3 yr tariff adjustment plan
• approved by NER

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Other Regulatory instruments
AMEU(SA)

• There may be further regulation through the
  following mechanisms
• Grid Codes for regulating the Service Provider
• Supply Contracts for regulating the consumer
• Regulations for regulating the community
• Historically, municipal by-laws have been used
  for all three of the above. Rather than standard
  by-laws for 284 municipalities, regulation
  through the Act may be more appropriate where the
  Service Provider services more than one
  municipality, or when seen in a national context.

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Green Energy
AMEU(SA)

• The Bill should allow for regulation of Service
  Providers which participate in
• the purchase of Green Energy
• Green re-generation
• Carbon trading
• Green Energy sales

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Conclusions
AMEU(SA)

• The proposed Electricity Regulation Bill has the
  following drawbacks
• It would appear to negate the many years of work
  to enable the EDI to be restructured into
  Regional Electricity Distributors REDs by
  firmly entrenching the constitutional rights of
  municipalities which has always been a hurdle in
  achieving Governments objectives for the
  industry.
• It effectively removes the benefits of economic
  regulation from a considerable number of
  electricity customers in South Africa by removing
  the necessity for municipalities to be licensed
  by the NERSA. The proliferation of tariffs will
  continue and be extended to those areas
  previously supplied by Eskom.

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Conclusions
AMEU(SA)

1. The Regulator will be charged with monitoring and
   regulating the performance of municipalities in
   complying with the proposed Act. It is difficult
   to see how NERSA will perform this task with the
   long and complicated procedure provided to ensure
   this compliance.

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Conclusions
AMEU(SA)

• Finally, AMEU does not believe that it was
  Governments intention to reduce the
  effectiveness and efficiency of NERSA in
  regulating the whole electricity supply industry,
  and in particular the electricity distribution
  industry, and would strongly request that the
  Bill in its current form be, for the lack of the
  better word, rejected and reworked.