National Energy Regulator (NERSA)

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National Energy Regulator (NERSA)
Annual Report 2006/2007
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CONTENT

• Structure of the Energy Regulator and the
  secretariat
• Vision, Mission, Values and Regulatory Principles
• Strategic Objectives (2006/07)
• Performance Against Objectives
• Learning and Growth
• Internal Business Processes
• Customer
• Financial
• Conclusion

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STRUCTURE OF THE ENERGY REGULATOR AND
SECRETARIAT/STAFF

• 9 Regulator Members
• 5 part-time Members
• 4 full-time Members
• Appointed by Minister of Minerals and Energy
• Chairperson Deputy Chairperson part-time
• Full-time Regulator Members
• Chief Executive Officer
• 3 Regulator Members primarily responsible for
  each of electricity, piped-gas and petroleum
  pipelines regulation
• 4 Divisions each with a number of departments
• Headed by Executive Managers
• 5 Specialised Support Units
• Headed by Senior Managers
• Executive Managers and Senior Managers report
  directly to CEO
• Total staff complement 143

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VISION
To be a world-class leader in energy regulation
MISSION
To regulate the energy industry in accordance
with government laws and policies, standards and
international best practices in support of
sustainable development
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VALUES AND REGULATORY PRINCIPLES
VALUES REGULATORY PRINCIPLES
Passion Rule of Law
Spirit of Partnership Transparency
Excellence Neutrality
Innovation Predictability and Consistency
Integrity Independence
Accountability Accountability
Professionalism
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STRATEGIC OBJECTIVES (2006/07)

• To effectively and efficiently regulate the
  current electricity industry
• To develop an appropriate regulatory framework
  for the reforming electricity industry
• To promote and advise on appropriate legislation
  to regulate the future electricity industry
• To establish appropriate processes, procedures
  and systems to implement the Gas Act
• To establish appropriate processes, procedures
  and systems to implement the Petroleum Pipelines
  Act
• To effectively and efficiently monitor and
  administer the Sasol Regulatory Agreement
• To licence existing and new activities in the
  piped-gas and petroleum pipeline industries

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STRATEGIC OBJECTIVES (2006/07) (Cont)

• To facilitate access to the petroleum pipeline
  infrastructure
• To develop and implement appropriate pricing and
  tariff approaches for the piped-gas and petroleum
  pipeline industries
• To promote investment in the energy sector
• To promote BEE and competition in the energy
  sector and to develop memoranda of understanding
  with government departments and other regulatory
  authorities with overlapping/concurrent
  jurisdiction
• To effectively contribute to the socio-economic
  development programmes of government.
• To develop regulatory rules and practices for
  efficient and effective regulation of the energy
  sector

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PERFORMANCE AGAINST OBJECTIVES

• Of the 404 planned activities, 76 (19) were
  removed by the Energy Regulator before the end of
  the 2006/07 Financial Year (mainly during its
  mid-term review of the 2006/07 Business Plan and
  Budget held on 30 November 2006)
• Of the remaining 328 activities, 78 were
  executed as planned
• Key factors impacting on execution
• External factors such as the EDI/ESI
  restructuring process and the late publication of
  the Regulations
• High staff turnover
• Late approval of the budget for regulating the
  piped-gas and petroleum pipeline industries
• Re-prioritisation of activities

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LEARNING AND GROWTH

• Highlights
• Approved revised NERSA structure
• Regulator Members attended the World Forum on
  Energy Regulation III
• Regulator Members visited FERC New York State
  Public Utility Commission and Canadian National
  Energy Board
• Approved Learnership Policy
• Lowlights
• Resignation of 50 employees
• Objectives
• Attracting, developing and retaining the
  requisite skills and competencies

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LEARNING AND GROWTH (Cont.)
Measure Target Initiative
Development of a NERSA training and development plan based on staff members Personal Development Plans Conducting skills audit and development of a competency framework Approval of the Learnership policy To develop and have highly skilled staff members and retain them Fulfillment of the regulatory mandate of NERSA with the required skills Provision of local and international training and development for staff members Commencement of the skills audit and development of a competency framework Development of courses in preparation for the implementation of the learnership policy
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LEARNING AND GROWTH (Staff Analysis Race)
Level African Coloured Asian White Total
Top Management 2 (50) 2 (50) 4
Senior Management 4 (80) 1 (20) 5
Professional Middle Management 24 (77) 7 (23) 31
Skilled and Technical 44 (88) 1 (2) 1 (2) 4 (8) 50
Semi-skilled / Unskilled 19 (90) 2 (10) 21
Total 93 (84) 1 (1) 2 (2) 15 (13) 111
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LEARNING AND GROWTH (Staff Analysis Gender)
Level Male Female Total
Top Management 3 (75) 1 (25) 4
Senior Management 4 (80) 1 (20) 5
Professional and Middle Management 16 (52) 15 (48) 31
Skilled and Technical 28 (56) 22 (44) 50
Semi-skilled / Unskilled 4 (19) 17 (81) 21
Total 55 (50) 56 (50) 111
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INTERNAL BUSINESS PROCESSES (Cont.)
Measure Target Initiative
To ensure licensees comply with regulatory requirements via effective and efficient setting, monitoring and enforcement of license requirements To quantify and put mechanisms in place to minimise the huge maintenance backlog Completed Independent Technical Audits on 11 of the largest electricity distributors in South Africa
To develop and implement methodologies for determination of required revenues and tariff structures that take consideration of changes in the industry and customer needs Establish Regulatory Accounts with emphasis on the separation between regulated and unregulated businesses for the energy industry in line with international best practices Assessment of the effectiveness of the Energy Regulator and its Subcommittees To provide consistency, predictability and stability Enable an efficient collection of data sources so that the Energy Regulator makes informed decisions Ensure that information collection is common to all regulated businesses Avoid regulatory burden on all affected license holders First Consultation paper on the 2009-2012 MYPD Development of a Regulatory Accounts Manual that addresses common administrative procedures and instructions Development of industry specific Regulatory Accounts Manuals for electricity, piped-gas and petroleum pipelines
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INTERNAL BUSINESS PROCESSES (Cont.)
Measure Target Initiative
Number of rules regarding the regulation of the piped-gas and petroleum pipeline industries developed To develop rules relating to the regulation of the piped-gas and petroleum pipeline industries Development of two rules relating to licence applications and inspections for both hydrocarbon industries
Number of piped-gas and petroleum pipeline licences issued To develop a licensing framework for piped-gas and petroleum pipelines 9 piped-gas licences were issued 44 petroleum pipeline licences were issued
Compliance measure for all the licence conditions issued To develop a compliance mechanism for petroleum storage, loading and pipelines Completion of a draft compliance framework
Analyse pricing data from 2004 up to 2006 To determine compliance with the pricing provisions of the Mozambique Pipeline Agreement Draft report on compliance with pricing provisions of the Mozambique Pipeline Agreement
To effectively contribute to the socio-economic development programmes of government ASGISA, Universal access, Development Nodes Identify areas of contribution Target regulation that is pro-developments through developmental tariff Target regulation that is pro-poor through lifeline tariffs and free basic electricity tariff Identify areas to direct regulatory interventions by supporting ASGISA DME programmes and policies Universal access initiatives and adopt regulatory processes that complement government programmes
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INTERNAL BUSINESS PROCESSES (Cont.)
Measure Target Initiative
Development of procedures and processes in support of the Energy Regulator Assessment of the effectiveness of the Energy Regulator and its Subcommittees Development of financial planning and management through policies, procedures, systems and processes Development of human resources policies, policies, procedures, systems and processes Development collection of data from regulated entities in line with NERSA policies, procedures, systems and processes Full compliance by internal staff members and the Energy Regulator Compliance with the National Energy Regulator Act, PFMA and Treasury Regulations requirements and Good Corporate Governance Practices Compliance with DME requirements Implementation of budget and monitoring procedures Implementation of procurement monitoring procedures Review and implementation of recruitment, leave and payroll policies, procedures, systems and processes Procurement for the development of ICT and Disaster Recovery and Business Continuity plans Review of Lincensing Information System for collection of data within the energy industry
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CUSTOMER

• Highlights
• NERSA started regulating electricity on 17 July
  2006
• Submission to the PPC on the viability of
  establishing the National RED
• Commented on draft Regulations of the Gas Act and
  Petroleum Pipelines Act
• First NERSA Annual Report submitted to the
  Minister of Minerals and Energy
• Chairperson and CEO attended the Ministers SOEs
  Lekgotla
• Objectives
• To establish effective and efficient pricing
  mechanisms that balance the interests of
  customers, suppliers and the sustainability of
  the energy industry
• To develop, improve and sustain the good image of
  NERSA

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CUSTOMER (Cont.)
Measure Target Initiative
To develop and implement methodologies for determination of required revenues and tariff structures that take consideration of changes in the industry and customer needs Development of a draft tariff methodology for hydrocarbon industries Consistency in the setting of tariffs amongst municipalities (Electricity) Consultation paper developed and work shopped with stakeholders (Hydrocarbons) Through a consultative process, provided a guideline percentage increase of 5.9 (Electricity)
Public awareness campaigns Communicate socio-economic benefits of regulatory initiatives Media relations programme Dialogue with key stakeholders Publish reports on the performance of NERSA and licensees Internal communication programme Sound relationship with all stakeholders in the regulatory environment Facilitate information sharing and networking Internal staff members and the Energy Regulator Stakeholders and Customers Compliance with the PFMA requirements Stakeholder engagement Customer relations, Customer Education and Customer Communication Forums Complaints resolution International Coordination and Partnerships Resale of electricity
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INTERNAL BUSINESS PROCESSES

• Highlights
• Finalised and submitted the Western Cape Power
  Outages Report
• Approved the MethCap licence application for a
  co-generation plant
• First Consultation paper on the 2009-2012 MYPD
• Developed rules regarding the processing of
  hydrocarbon licence applications
• Awarded 9 piped-gas licences
• Awarded 44 petroleum pipeline licences
• Energy Regulator adopted the Operations Model
• Completed and implemented the hydrocarbons
  Licence Application System
• Lowlights
• Municipal tariff applications not finalised as
  envisaged
• Delays in awarding licences for piped-gas
  distribution and trading

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FINANCIAL

• Highlights
• Published proposed levies for 2007/08 for
  piped-gas and petroleum pipelines
• Piped-gas and petroleum pipeline levies for
  2006/07 approved
• Received unqualified Audit Report from AG
• Approved revised ring-fencing methodology
• Improved budget management and reporting
  processes
• Lowlights
• Delayed approval of the budgets for piped-gas and
  petroleum pipelines industries regulation
• Challenges relating to collection of petroleum
  pipelines levies
• Under spending of the NERSA budget due to
  cash-flow concerns (Surplus of R81.2m)
• Defrauding of NERSA through the payroll

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FINANCIAL (Budget Variance Analysis (Combined))
Budget Actual
Income
Levies R 163.4 million R 165.3 million
Other Income - R 0.3 million
Finance Income - R 2.0 million
Total Income R 163.4 million R 167.6 million

Expenditure Actual as a of total operating expenditure
Employee Costs R 56.0 million R 41 million 47,5
Other Operating Costs R 49 million R 29.3 million 33,9
Fees for Services R 27.4 million R 10.0 million 11,6
Regulator Members R 5.6 million R 6.1 million 7,1
Total Operating Expenditure R 138 million R 86.4 million Actual as a of total expenditure
Capex R 6.5 million R 4.4 million 4,8
Total Expenditure R 144.5 million R 90.8 million
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FINANCIAL (Budget Variance Analysis per industry)
Electricity Electricity Piped-Gas Piped-Gas Petroleum Pipeline Petroleum Pipeline
Budget Actual Budget Actual Budget Actual
Income
Levies R 86.2 million R 85.8 million R 39.3 million R 39.2 million R 37.9 million R 40.3 million
Other Income/Finance Income - R 2 million - R 0.2 million - R 0.1 million
Recoupment from Piped-Gas and Petroleum Pipeline R21.1 million R21.1 million - - - -
Expenditure
Recoupment to Electricity - - R 10.5 million R 10.5 million R 10.5 million R 10.5 million
Operating Expenditure R 89.1 million R 54.8 million R 25.1 million R 14.8 million R23.8 million R16.8 million
Surplus from Operations R 18.2 million R 54.1 million R 3.7 million R 14.1 million R 3.6 million R13.1 million
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FINANCIAL (Cont.)

• Balance Sheet Items
• Land and building has a carrying value of R21.7m
• Capital expenditure Computer hardware
  accessories (16) Office equipment(40)
  Computer software and licenses (19) and
  Building (35)
• Total assets have increased from R49,2m to
  R134,3m
• The main increase in assets is reflected in
  accounts receivable and cash and cash
  equivalents
• Accounts receivable increased by R41,8m
• Cash and cash equivalents increased to R63,2m
  from R22,7m
• commitments for operating expenditure R20,5m
• (Main reasons Petroleum pipeline levies and
  curtailment of expenditure

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CONCLUSION

• NERSA is now successfully regulating the three
  industries having taken over electricity
  regulation from NER during the year under review
• Staff levels have stabilised although there are
  still challenges of recruiting and retaining
  specialised skills and the disabled
• The Energy Regulator is consolidating the
  development of regulatory rules, methodologies
  and procedures in the regulation of the three
  industries
• NERSA received an unqualified audit opinion from
  the Auditor-General and weaknesses are being
  addressed
• NERSA is establishing itself as an independent
  and credible Regulator among stakeholders through
  decisions that contribute to the orderly
  development of the regulated industries
• Collection of levies in the new industries being
  levied is improving and spending is stabilising

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THANK YOU