ELECTRICITY REGULATION BILL, AMENDMENTS: SUBMISSIONS AND HEARINGS.
SUBMISSION BY CENTLEC (PTY) LTD’ A MUNICIPAL ENTITY (ME) OF MANGAUNG LOCAL MUNICIPALITY (MLM).
PRESENTED IN CAPE TOWN SEPTEMBER 2006.
A WRITTEN SUBMISSION BY
CENTLEC (PTY) LTD, A MUNICIPAL ENTITY (ME) OF MANGAUNG LOCAL MUNICIPALITY (MLM)
ON THE ELECTRICITY REGULATION AMENDMENT BILL. PRESENTED IN CAPE TOWN (SEPTEMBER
2006).
1. INTRODUCTION
As CENTLEC we welcome the opportunity to
contribute our thoughts and suggestions concerning the Electricity Regulation
Bill. CENTLEC is happy to support the reforms inherent in the bill, though
CENTLEC is concerned about certain aspects of the bill, details thereof are
discussed latter on this submission. In our view the bill signals government's
determination in ensuring that the industry improves its efficiency and
effectiveness to meet not only the needs of the country's economy but also the
residential customer’s expectations by lowering electricity prices and their
demands. The bill will support and build on the electricity distribution reform
initiatives that commenced in 1997.
There is no doubt that the electricity
regulation framework as it stands today is inadequate for the effective
management of the electricity distribution industry today. The number of pieces
of legislations governing this sector confirms this conclusion. The reason for
this is that, these Acts/regulations were developed at different times, and
largely in isolation from each other. When read together, these statutes do not
provide a complete or logical legislative framework for meeting today's
electricity distribution needs. They cover different geographical areas and
have different—and sometime conflicting—goals. The Electricity Regulation Act,
of 2006; Under Schedule 1 has attempted to correct such glitches. The draft
bill in our view is a further attempt to clear similar mismatches especially in
the areas of roles and responsibilities amongst different players.
CENTLEC’s submission concerns itself
mainly with the definition(s), and their implications on the Municipalities,
Eskom and the Industry at large. Due to the inadequacy of the bill, many
discussions are raised in the submission though not raised by the bill but were
deemed crucial by ourselves. Our emphases are bolded to highlight the gist of
our submission.
2. INPUT NUMBER 1: Under Amendment of Section 1 of Act 4 of 2006.
On
the definitions of: (a) “community” (b) “domestic end user” & (c) “light
industrial or commercial customer”.
With the exception of the above mentioned
definitions, CENTLEC commends the bill on all other definitions as stated in
the bill especially the RETICULATION
definition. The bill has defined reticulation in a manner that spells out
municipal licensing rights, and that will go a long way in clearing the
confusion in as far as the legitimacy of the licensee is concerned.
However as CENTLEC we do NOT agree with the bill’s
definition of (a) “Community”, (b)
“domestic end user” and (c) “light industrial or commercial customer” all read
interchangeably. It is our view that the
three definitions do not only corrupt the meaning of reticulation as we
understand it, but are bound to give rise to unanticipated complexities.
From various English dictionaries and indeed
anthropological sources we understand “community” to mean the following:
A “Community” is
a social group of any size whose members reside in a specific locality, share
government, and often have a common cultural and historical heritage. Perhaps
the most appropriate definition of community in the context of the bill should
be the one from Collins internet-linked dictionary of sociology wherein
“community” is defined as: “any set of
social relationships operating within certain boundaries, locations or
territories.”
The term is also applied to non-residential
communities as indeed was applied by the bill when defining community to mean “domestic end user” and domestic end user
as “a person who consumes electricity for domestic purposes, a light
industrial or commercial customer and such other customers as the Minister may,
in consultation with the Minister for Provincial and Local Government and the
Minister of Finance, determine by notice in the Gazette”.
Now CENTLEC’s difficulty is the limitation on the
definition of “person”, be it legal or natural. In this case the limitation to
the legal persona is based on the following definition by the bill:
“light industrial or commercial customer means a service rendering, retailing,
manufacturing, mining or agricultural customer who purchases less than five
thousand mega watt hours ( 5000 MWh) of electricity per annum at a contiguous
site other than a public water pumping scheme or public traction substation”
In CENTLEC’s view the area
of jurisdiction comprises all land which municipalities control. This should be
interpreted to imply: The sale and distribution of electricity within every
part of the area of jurisdiction of any local authority should be under the
control of that authority. Irrespective of whether the end-user (natural or legal
person) use electricity for domestic purposes, public water pumping scheme or
public traction substation, etc.
Exclusion or failure to implicit inclusion of large
industrial customers in the definition of “community” will result in
residential customers not realizing the benefits of restructuring especially in
areas of price reduction and/or low cost/affordable electricity especially in
rural areas. There are a number of reasons why the residential
customers-especially rural-may not achieve the significant price reduction that
both industrial and commercial customers are and will continue to receive.
These reasons include the fact that cross-subsidization of the residential
customers from the large industrial and commercial customers may no longer be
available as large industrial customers commonly referred to as ‘Key Customers’
in other areas, will be regulated
differently at least as implied by the bill.
In addition,
residential customers will not have the scope to reduce usage through load
management to the same degree that industrial and commercial customers have
mainly because of “unavailability” of time of use metering mechanism. At this
stage its uneconomical for rollout of such sophisticated form of metering among
residential customers.
In our view it is almost impossible to eliminate
cross-subsidies while maintaining affordability, safety; reliability and indeed
rationalisation of tariffs by customer classes. The ideal state is having
residential customers being in the same tariff structure regardless of
location, thus effect cross-subsidy from urban to rural customers and Industry
to residential. Domestic prices-especially in rural South Africa, should be
subsidized by the so-called Key Customers. In our view subsidies are required
to meet the goal of universal access and affordable electricity supply to all
residents. It’s common knowledge that Key Customers are crucial for any
distributor due to the correlation that exists between key customers’ long-term
relationships and profitability. If indeed there is a strong hypothetical conviction
and such vehemence prevails: that cross-subsidies should NOT exist across
customer classes, then we propose that alternative ways of assisting (subsidy)
the low income consumers be found and that in the case of Free Basic
Electricity (FBE) be enhanced.
As CENTLEC we are in favour of a “market-based”
electricity distribution sector as we interpret it based on the bill-with special emphasis on those customers
that use 5 GWh and above of electricity per annum-but this should not be
done at the expense of the poor. Indeed markets should be a means to the
country’s well being. If that noble goal is not naturally achievable then the
people centred state should in fact intervene.
2. RECOMMENDATION 1
The community definition should not be restrictive,
and thus we recommend that the definition of community be defined to include
every thing and every person (natural or
legal) within the area of jurisdiction of the municipalities.
If the palpable term “COMMUNITY” referred to in
the “RETICULATION” by the bill is confusing or is not
sufficient/adequate/appropriate according to some stakeholders, then CENTLEC
strongly recommends that, the definition of “community” be replaced by “local
community” as it is sufficiently, adequately and appropriately defined by
the MSA.
“local
community” is defined in Section 1 of the Municipal Systems Act (MSA) as
follows:
“’local community’, in
relation to a municipality, means that body of persons comprising-
(a) the
residents of the municipality;
(b) the
ratepayers of the municipality;
(c) any civic organisations and
non-governmental, private sector or labour organisations or bodies which are
involved in local affairs within the municipality; and
(d) visitors
and other people residing outside the municipality who, because of their
presence in the municipality, make use of services or facilities provided by
the municipality, and includes, more specifically, the poor and other
disadvantaged sections of such body of persons”.
It is CENTLEC’s view that
this bill should be the main facilitator of ensuring that the entire
distribution industry is eventually transferred to REDs without exceptions of
Key/Large Industrial Customers, public water pumping scheme; public traction
substation and whoever and whatever.
On the latter we feel compelled to make a
justification for our position. Arguments can be made by some stakeholders with
regards to the so-called Key/large Industrial Customers, as indeed similar
arguments are raised in the blueprint. One, that a number of the large/key electricity customers
in South Africa are currently supplied under contracts that contain specially
negotiated terms, and to the best of our knowledge the majority of those
contracts (+/- 98%) are with Eskom under Key Sales and Customer Services (KSACS). Secondly, that since the bill will
facilitate the ‘exit’ of Eskom in the “community” -as narrowly defined by the
bill- and that such a move will result in distributors having greater
purchasing power and being able to obtain better prices.
Our view is the opposite and
is aligned to counter arguments also raised in the blueprint. That removal of
Key/Large Industrial Customers in the domain of the “community” (eventually the
REDs), might result in the REDs struggling to survive. And, because the Electricity
Act states that anyone supplying electricity to customers that uses electricity
above 5GWh per annum should be licensed.
That implies that in the case of the bill all customers below 5GWh are
deemed as captive customers since they fall within the bill’ narrow definition
of a “community”. Hence the municipalities become the natural/automatic
licensees. And that any customer that uses above 5GWh of electricity per annum
becomes “contestable”. Now if our interpretation is correct, then we have the following
concerns:
In the same breath we will view special price
agreements argument with the same suspicion. In our view the concerns around
special price agreement have been satisfactorily dealt with by the blueprint.
Wherein the blueprint recommends that such agreements should be honoured by the
receiving entity.
In the event where our views are not favourably
accepted, due to the ‘significance’ that Industrial Customers have on the South
African economy. We move to acknowledge that to the business community
electricity is the commodity that should be managed, but to residential
customers electricity is a basic need. Therefore separation on how these two
customers are viewed, and regulated might necessitate “dual” regulatory framework,
the implications thereof notwithstanding.
We however recommend that an agency (public entity) be created and that
such an agency should become a wholly owned subsidiary of the EDIH, albeit on a
temporary basis. Such a notion is in line with the blueprint recommendation on
the ownership of the REDs until they are fully established, operational and
sustainable.
The agency should amongst others be tasked with the following
responsibilities:
(i)
Rural Electrification in
order to accelerate universal access to energy
(ii)
Wholesale electricity supply
including international trading, retail marketing of a electricity product to
key customers i.e. end-use customers with a consumption of 100 GWh per annum or
more and/or from 5GWh and above; and Demand Side Management strategy
formulation and implementation
(iii)
Research and Development with
special emphasis on environmentally friendly renewal energy sources.
(iv)
Interventions where capacity
is lacking with the intention to capacitate ‘weaker’ municipalities.
The agency in essence will be
the transfer of Eskom’s KSACS (mainly
personnel, related assets; intellectual property etc.) from Eskom to the
independent entity with separate management, books; personnel; signage;
building etc. At that point KSACS will cease to exist and such a
move will effectively deal with the potential conflict of interests on the part
of Eskom.
3. RECOMMENDATION 2:
Norms and Standards Section 31.
CENTLEC is of a view that the norms and
standards should form part of the bill and eventually the ACT as the addendum.
And should amongst others include the following regulated surpluses i.e.
limitation of surpluses from electricity accounts for rates relief, regulated
minimum required expenditure on maintenance and capital; Board of directors
etc.
4. INPUT NUMBER 2:
Section 40, Intervention
Section 154 (1) of the constitution compels the
national government and provincial governments by legislative and other
measures to “support and strengthen capacity of municipalities to manage their
own affairs, to exercise their powers and perform their functions” rather than
taking the function away if a municipality lacks capacity.
5. RECOMMENDATION 3: Section 40, Intervention.
CENTLEC recommends that, this section be removed
since it is covered by the constitution as explicitly stated above. Any thing
to the contrary will be unconstitutional.
6. RECOMMENDATION 4: TARRIF SETTING.
Both this bill and other regulatory initiatives have
consistently failed to explicitly deal with the ambiguity in roles between the municipalities
and NERSA when it comes to tariff settings. EDI reform proposals (the bill
included) assume a single national energy regulator and leave very little scope
for local government to regulate electricity tariffs. This national approach to economic regulations is not
inappropriate, given our country’s economic and development challenges, and
indeed need not undermine the potential for local government to exert an
appropriate level of executive control over the industry. The challenge though is that the same tariff
setting authority is constantly assigned to both municipalities and NERSA.
Lawmakers need to find a solution to this constitutional imperative which has
assigned this role to the municipalities at least to the best of our knowledge.
The blueprint does propose that, the municipalities
on an individual or collective basis should establish service delivery
agreements with the electricity service providers operating within their area –
be it the RED or Solar Home System providers.
In reality though, municipalities will effectively have no power to
terminate agreements with REDs, since RED boundaries will be established by
national government. Such service
delivery agreements will only make sense if they provide municipalities with
some “teeth” such as those covered under section 40 (Intervention) of the bill,
but currently assigned to another sphere of government instead of local
government in the case of external service providers.
7. CLOSING REMARKS
We believe that the bill should unravel a
lot of confusion that surrounds issues that we raised above and many others.
Yet relevant issues such as staff transfer, electrification etc are not
reflected in the bill. We are also of the opinion that issues involved in
reshaping retail as we have it today
are obscured if the bill is surprisingly silent on them. Hence our view is that
the important issues involved in reshaping the electricity distribution
industry are NOT properly captured by this bill. In that context the bill is inadequate in addressing
the needs of the industry as a whole, hence the call for comprehensive
amendments.
Inadequacy of the bill would tend to
defeat its purpose, which is to establish forthwith a comprehensive framework
for the restructuring of the electricity distribution industry, and to make
certain other changes in law, necessary or appropriate to effect/accelerate the
restructuring. Therefore as CENTLEC we view this bill as an emergency one,
necessary for the immediate preservation of the electricity service in South
Africa (SA). A service in our view that is essential to the health and
well-being of all residents of SA, to public safety, and to orderly and
sustainable economic development.
Pula!!!
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