Electricity Regulation Amendment Bill B20B-2006: Department briefing

Meeting report

ECONOMIC AFFAIRS SELECT COMMITTEE
23 January 2007
ELECTRICITY REGULATION AMENDMENT BILL B20B-2006: DEPARTMENT BRIEFING

Chairperson: Ms N Ntwanambi (ANC, WC)

Documents handed out:
Electricity Regulation Amendment Bill [B20B-2006]
Briefing on Electricity Regulation Amendment Bill and response to stakeholder concerns
Draft Committee Programme

SUMMARY
The Department of Minerals and Energy briefed the Committee on the Electricity Regulation Amendment Bill, B20B-2006, which had been passed by the Portfolio Committee and was now being introduced into the National Council of Provinces. It summarised the underlying structure, the electricity value processes, and the reasons why reticulation needed to be regulated. The history of the Bill was explained. The views of shareholders, in many cases quite divergent, were given and it was explained how the Department had attempted to meet their concerns. All stakeholders were agreed that there needed to be regulation.

The Bill presented now facilitated the economic regulation of the whole electricity value chain, clarified that reticulation and distribution meant the same, recognised the role of the municipalities, provided for regulation of service providers and strengthened the role of the Energy Regulator. Questions by members addressed the links between this legislation and the proposed Regional Electricity Distributors. Clarity was given on the views of other Departments and the stakeholders. Other issues related to uniform tariffs and their impact upon municipalities, maintenance and upgrading by municipalities, monitoring of service delivery, capacity of licence holders and the future role of Eskom. The Bill would be scheduled for debate in the House at the end of March.

The Committee considered and made suggestions on the draft committee programme.

MINUTES
Briefing on Electricity Regulation Amendment Bill B20B-2006 by Department of Minerals and Energy (DME)
Mr Ompi Aphane, Chief Director: Electricity, reported that the Bill had been adopted by the Portfolio Committee on Minerals and Energy in November 2006, and was now being introduced into the National Council of Provinces following the Section 76 process. The provisions of this Bill had originally been included as Chapter 4 of the Electricity Regulation Bill (ERB). However, since ERB had contained both Section 75 and 76 provisions, Chapter 4 had been removed and the remainder of ERB was promulgated in July 2006. The Section 76 provisions were now presented in the current Bill. The first draft of this Bill had aimed to provide a holistic regulatory framework for electricity supply and distribution but at the public hearings a number of issues were raised by stakeholders. Hence the Bill as now presented encompassed a number of changes adopted by the Portfolio Committee to address those concerns.

Mr Aphane stated that the Bill focused on distribution in the 130 kilovolt (kV) to 240 volt (V) range, covering about ten million customers. The legislation was vital since the current electricity distribution industry (EDI) structures were inefficient, with few economies of scale, over 2000 tariffs, insufficient investment by municipalities in ageing infrastructure, poor municipal governance, and limited power to enforce the regulations granted to the National Energy Regulator of South Africa (NERSA). He explained that the Regional Electricity Distribution (RED) process was a separate ongoing structural issue; and this Bill dealt with the regulatory aspects only.

During the public hearings several concerns were raised. The separate definitions of “reticulation” and “distribution” were challenged. The attempt to distinguish between customers using under and over 500 megawatt hours (mWh) per annum was problematic since some consumers would have fallen outside the ambit of NERSA. The dual regulatory environment had caused concern since there would have been uncertainty as to who would regulate municipalities’ supplies. There were also concerns over exemptions for water pumping schemes and traction.

Mr Aphane summarised some of the stakeholders' views, indicating that they were very divergent. However, he stressed that all stakeholders were unanimous in supporting the need for some regulation. One view stated that reticulation should mean the entire distribution value chain, not limited by consumption. Another held that reticulation should be limited to 380 volts, which would encompass the domestic sector only. Some felt NERSA should license everything, but others felt that licensing the reticulation part of the industry would impede municipalities in carrying out their constitutional mandates. Some suggested that enforcement of municipal obligations did not rest with the Regulator, but was more appropriately dealt with under Section 139 processes. This, however, could cause problems in emergency situations, and was perhaps not appropriate for minor breaches.

The redraft of the Bill therefore attempted to address the definition of reticulation, how it should be licensed and how breaches should be dealt with. Each stakeholder submission was considered in the light of the implications for the industry and the end users, and Mr Apane tabled a summary of the implications. The Portfolio Committee amendments had resulted in the following changes:
a) there was now no distinction drawn between “reticulation” and “distribution” which effectively meant the same, and were defined
b) there was no separation of customers by consumption, so all references to 500mWh had been removed
c) All distributors, including municipalities, were now subject to the regulatory framework of licensing and must hold licences issued by NERSA
d) Norms and standards formed part of the licence conditions
e) Municipalities could choose to enter service agreements with service providers, in terms of the Municipal Systems Act
f) There was now conformity between the provisions of the legislation relating to municipalities and NERSA so that conflicts had been avoided. All distributors would be licensed through the Regulator and service providers were properly covered.

In summary, therefore, the Bill aimed to facilitate the economic regulation of the whole electricity value chain, including municipalities, to regulate reticulated services while recognising the role of the municipalities, to allow for service providers to be used, to provide uniformity in the treatment of end users through a licensing process and to set a solid foundation for the formation of the REDs.

Discussion
The Chairperson noted that the Committee would in all likelihood only be able to finalise the Bill in March and it would probably be scheduled for voting in the House on 28 or 29 March.

The Chairperson asked for an indication of the views of City of Cape Town (CCT).

Mr Aphane replied that CCT had participated in the hearings and were intent on getting their licence. A view was expressed that CCT perhaps did not need to be licensed at all since the provision of electricity services was part of its constitutional mandate, but the Department and NERSA held a contrary view and were happy that CCT had recognised the jurisdiction of NERSA. The Department believed that the Bill should clarify the jurisdiction in relation to distribution. He reiterated that the RED process was still in discussion at another forum.

The Chairperson asked what input had been given by other departments, such as Department of Public Enterprises (DPE).

Mr Aphane stated that DPE had shareholder jurisdiction over Eskom. Although no written input had been given, DPE accepted that Eskom, as a State Owned Enterprise (SOE) was currently responsible for generation and transmission, both of which needed to be strengthened. Eskom would be exiting the distribution process, subject to key performance indicators being in place, at a later stage. DPE was not opposed to the process, but needed to safeguard certain aspects of the Eskom transmission.

Ms M Temba (ANC, Mpumulanga)asked for some clarity on which stakeholders had taken part in the public hearings.

Mr Aphane stated that a full list would be available, together with their detailed comments. Briefly, however, the stakeholders had included businesses, municipal structures such as South African Local Government Association (SALGA), individual municipalities, Eskom, EDI Holdings, organised labour, through the unions, academic institutions, NERSA, and others.

Ms Temba asked if the Committee would have an opportunity to be briefed in more detail on the specific provisions of the Bill.

Mr Aphane confirmed that it would be useful for the Department to have an opportunity to brief the Committee on the Bill itself and invited the Committee to arrange a suitable date.

Mr N Hendricks (ANC, Western Cape) was concerned that there seemed to be over-emphasis on lack of maintenance by municipalities. In the Western Cape the problem in interruption of supply lay rather with Eskom, whose forward planning had been poor.

Mr Aphane stated that maintenance was only one of the factors causing difficulty; in fact the lack of proper regulation, both of infrastructure and economic aspects, was the main cause. Lack of management in any area contributed to the structure collapsing. Other critical aspects were skills development and economies of scale. He accepted that problems had also arisen with Eskom, but the new Bill did not distinguish between Eskom and other distributors, who would have to deal with consumers in the same way.

Mr Hendricks asked how the standardisation of tariffs would affect some of the municipalities who relied heavily on the income from electricity to run their operations.

Mr Aphane confirmed that tariff setting needed to be examined carefully. Insufficient tariffs meant that there was no money to put back into maintaining or upgrading the infrastructure, whereas overcharging would clearly not benefit the end users. Sustainability was a key factor in setting tariffs. The current situation would certainly not promote sustainability.

Mr D Gamede (ANC, Kwazulu Natal) wondered if some of the equipment was now past being maintained and rather needed to be replaced, particularly if regular maintenance had not been carried out over the years.

Mr Aphane confirmed that in many instances the lack of maintenance resulted in the need for serious refurbishment, and investment of a capital nature. “Maintenance” had been used by him as an example, as this was most often in the public domain and affected daily supplies.

Mr Gamede asked whether there really would be uniformity in tariffs. Mr Aphane confirmed that this would result.

Mr Gamede further asked what would be the situation in small towns where municipalities might be in charge of electricity to homes but Eskom in charge of street lighting, or whether it was the intention that municipalities should take over all responsibilities.

Mr Aphane stated that street lighting, being a low voltage activity, would fall under the jurisdiction of the licence holder. In the past, street lighting fell under one distributor and there was sometimes debate whether Eskom or the municipality was responsible. This situation would now be phased out.

Mr Gamede further noted that provision of electricity was a core function of municipalities and queried what checks would be carried out on delivery of service after granting of licences, and how much time might elapse before they could “take back” their licences.

Mr Aphane stated that part of this related to the structural process, but it was not quite as simple as “taking back” a licence. The distributors would be licensed in such a way that there was no adverse impact on their ability to give continued service to the end user. Ultimately, municipalities would be taking their place in the distribution chain, but this would not happen immediately. They might not have the technical capacity and this process also needed to be addressed. Eskom might have to provide a backstop over a period of time.

Mr T Setona (ANC, Free State) asked what would happen if a municipality was licensed but did not have capacity to deliver the services.

Mr Aphane replied that although the delivery was a municipal mandate, it was clear that certain municipalities did require assistance and in these cases Eskom would be willing to assist.

Mr D Mkono (ANC, Eastern Cape) asked for clarity whether commercial and domestic end users were now treated in the same way. He also asked whether consumption was still a factor for consideration.

Mr Aphane confirmed that there was no longer a separation of consumers, as the references to 500mWh had been removed. All supplies of under 132kV formed the distribution customer chain, which basically included all customers connected from a transmission substation. Absolute equality of treatment was not possible. Although the aim was that everybody received a reliable supply, domestic users, who were less susceptible to loss, took second place to commercial or industrial users in the event of supply disruptions.

Ms L Matlhoahela (ID, Northern Cape) asked how the Bill intended to ensure that municipalities would make sufficient investment into maintenance and continuation of supply.

Mr Aphane stated that the Bill provided for certain regulations to be put in place, including one that a certain percentage of income derived from the sector would need to be invested back into it. There was also provision that “normalisation” should also receive some investment, so that networks were standardised and fit for their purpose. Some infrastructure dated back 70 years and did not correlate to other infrastructure. The principal Act already allowed for regulations to be promulgated to ensure “quality of supply”.

The Chairperson thanked the presenters and noted that a further briefing would be arranged.

Consideration of Committee Programme
The Committee discussed the Committee Programme for the first session of 2007. It was decided that the briefings to the provinces be moved to 15 February. It was confirmed that the Chairperson would work on the details of the oversight visit to the Northern Cape and the overseas trip. A preference was expressed by several members for a trip to India.

The meeting adjourned.