BUSINESS UNIT SOUTH AFRICA (BUSA)

02 October 2006

 

Draft BUSA Comments on the Electricity Regulation Amendment Bill (B20-2006)

 

1.         Introduction

 

The general tone of the Bill is one of improving the service provided by municipalities to consumers. This is to be welcomed. However, there is no reference to large industries that obtain their supply from municipalities – the emphasis being on domestic users and small commercial and industrial users. Regrettably there is no mention either of regional electricity distributors (REDS) to bring about economies of scale. It must be questioned if this will be a temporary situation pending the establishment of REDS, which is encapsulated in the national energy policy, and which was the subject of recent debate at the Parliamentary Portfolio Committee.

 

The establishment of Regional Electricity Distributors (REDS) was proposed in the White Paper on Energy (1998). The reasons for this were, and still are:

 

·                     The fragmented distribution of electricity by ESKOM and approximately 187 licensed local authorities means that customers are treated differently and unfairly, as manifested by over 1 000 differentiated tariffs, with little relation to the cost of providing the service.

 

·                     The poor financial situation of most municipalities means that they are unable to carry out their constitutional obligation to provide electricity to all people. This results in poor maintenance of distribution networks that not only hampers the electrification process, but also increases the likelihood of outages in existing networks.

 

·                     Historical disparities in skill and expertise between metropolitan and rural municipalities have resulted in a situation where it is very difficult to attract the requisite expertise to rural municipalities.

 

·                     The economies of scale are not exploited resulting in an imbalance in customer types and numbers nationally. This in turn results in unsustainable electricity distribution.

 

·                     It also means that, due to the various capacities of municipalities, and in accordance with Government policy, the provision of services to the indigent is sub optimal.

 

·                     Dual regulation is unworkable – the only workable option is for the NERSA to regulate the entire industry.

 

While the Bill aims to improve service, it is doubtful, given the current financial


problems that many face, and the lack of resources and skills it will probably not achieve this aim.

 

Detailed comment on the clauses follows.

 

2.                   Section 1 of Act 4 of 2006 – Definitions

 

Clauses 1(b) and 1(c)

 

It must be questioned why domestic users and light industrial and commercial users are placed into the same category. Clause 9(5) refers to different types and categories of domestic users and provides for differentiation between these users. The removal of light industrial and commercial users from this definition would reduce the number of sub-categories and the result would be less cumbersome. Perhaps a category based on consumption could be considered instead. This would also make it easier to identify which end users would qualify for basic free services as contemplated in Clause 28(1)(f).  In addition, the definition of “domestic end user” is undesirable and will perforce lead to uncertainties – customer categories should not be at the discretion of the Minister.

 

Clause 1(e)

 

The proposed definition of “reticulation” is unworkable as two suppliers have to work on the same electrical system.

 

3.                   Section 28 of Act 4 of 2006 – Reticulation

 

Clause 28(1)(f)

 

The issue of providing basic free service, or a minimum cost service within the available resources of the municipality could result in inequities across municipalities given that more than 90 local authorities have electricity revenues of less than R500 000 per annum, and would be unable to provide such services.

 

Notwithstanding affordability, a system providing a differentiated pricing structure for electricity for sub groups of a category can lead to undeserving individuals benefiting. This requires great vigilance on the part of the supplier to ensure that only those who truly qualify get access to the concession. Strict parameters for the application of a differentiated pricing structure will have to be introduced and probably monitored by the Regulator.

 

Clause 28(1)(j)

 

This clause refers to customers or domestic end users. Surely domestic end users should be categorized as customers?

 

Clause 28(6)

 

This clause provides for the cessation of services currently being provided by someone other than the municipality at the time the Act comes into effect, unless a service agreement has been entered into between the provider and the municipality. It does not give any time frames. Service agreement negotiations can be prolonged, and it is suggested that a time frame be included in this provision.

 

Section 32 of Act 3 of 2006- key Performance Indicators

 

Clause 32(2)

 

Concern must be expressed at the proposal that key performance indicators can vary from municipality to municipality. Consistency is important for a number of reasons, not the least being that energy is a driver for development, and development will tend to go where the better service and quality is to be found. This would mean that those municipalities where the key performance indicators are less stringent than others may loose important investment in their area, the knock on effect being that poverty alleviation and job creation will become more challenging.

 

Clause 38 of Act 4 of 2006 – Request to comply

 

Clause 38(2).

 

Should a municipality fail to comply with the legislation, the Regulator must request the municipality to do so. However, no provision is made to censure the municipality if it ignores the request. It is assumed that by informing the Minister or the relevant MEC of the municipality’s failure, the Regulator has taken corrective action. However, there must be some obligation on the part of the Minister or MEC to ensure that the municipality does comply, or to make alternative arrangements so that consumers are not prejudiced. This is particularly important in the case of business consumers who suffer negative consequences when their power supply is erratic and of inferior quality.

 

In conclusion BUSA would urge that the restructuring be finalised as a matter of urgency.  BUSA would also like to take this opportunity to lend its support to the submission made by the Chamber of Mines, a member of BUSA.

 

 

 

D414a/06