SUBMISSION TO THE PORTFOLIO
COMMITTEE ON MINERALS AND ENERGY
CHAMBER OF MINES OF SUTH
AFRICA
B 20 – 2006
29 SEPTEMBER 2006
CHAMBER OF MINES COMMENT ON THE ELECTRICITY REGULATION
AMENDMENT BILL [B20 – 2006]
Introduction
The Chamber of Mines appreciates
this opportunity to submit its comment on the Electricity Regulation Amendment
Bill [B20 – 2006] as introduced in the National Assembly.
The Chamber of Mines represents 90%
of the South African mining industry.
Its membership comprises not only large mines, but also many small
operations, such as alluvial diamond diggings, sand and aggregate quarries and
clay brick producers.
While the provisions of the Amendment
Bill will impact on the small operations in particular, large operations will
also be affected.
General
comment
Cabinet has on several occasions
approved recommendations for the restructuring of the electricity distribution
industry into a number of financially viable regional distributors with certain
large industrial consumers having a choice of electricity supplier. Such recommendations were made by the
Electricity Restructuring Inter-Departmental Committee in 1997 and the
Electricity Distribution Industry Blueprint Report of 2001. The White Paper on Energy Policy of 1998
also stated that Government would consolidate the electricity distribution
industry into a number of regional distributors.
These recommendations and the policy
positions taken resulted because many municipalities were unable to provide
satisfactory electricity services at acceptable tariffs to consumers in their
jurisdictions. In addition some
municipalities were using income from electricity to subsidise other municipal
services.
The Chamber of Mines supported the
proposals for the restructuring of the electricity distribution industry into a
number of regional distributors because it saw this as a way to consolidate the
industry, rationalise tariffs and improve service provision.
The Electricity Regulation Amendment
Bill, however, entrenches the right of municipalities to supply consumers that
consume less than 5 000 MWh a year.
This erodes the official policy on the restructuring of the electricity
distribution industry as municipalities will have very little reason to
surrender their electricity undertakings to form regional electricity
distributors.
The Electricity Regulation Act, No 4
of 2006, and the Amendment Bill under consideration are also silent on the
right of certain industrial customers, i.e. those consuming more than 100 GWh a
year, to have a choice of supplier.
This was an important aspect of the Electricity Distribution Industry
Blueprint Report. The omission is
causing concern among industrial electricity consumers, especially in the
mining industry where a considerable number of operations consume more than 100
GWh a year.
The
uncertainty created by the apparent deviation from the official policy
positions outlined in the 1998 White Paper and the Blueprint Report is
detrimental to investment decision making and consequently retards economic
development.
It
is crucial that legislation is drafted in accordance with policy. When policies are no longer appropriate,
alternate policies should be developed in the accepted manner with stakeholder
consultation as set out in the White Paper on Energy Policy.
Regulation
The
Amendment Bill interprets the functions of municipalities as envisaged in the
Constitution, namely that “a municipality has executive authority in respect
of, and the right to administer … electricity and gas reticulation”, as
connoting that
municipalities
are not to be subject to licensing and regulation by the National Energy
Regulator. While
it provides for the monitoring of municipal reticulation by the Regulator, it
does not empower the Regulator to monitor this function.
Consequently municipal reticulation customers are in a much weaker
position vis-ŕ-vis their electricity supplier than the customers of other
suppliers. This is particularly true
for industrial and commercial customers that do not have a political voice.
It is accordingly strongly recommended that the Bill be amended to allow
for a greater measure of regulation of municipal electricity reticulation by
the National Energy Regulator.
It
is further recommended that a provision be included in section 28 of the
Amendment Bill requiring municipalities to establish mechanisms as envisaged in
Section 17 (1) (b) of the Local Government: Municipal Systems Act to provide
for the participation of reticulation customers in the governance of the
reticulation activities.
Tariffs
In terms of Section 15 of the
Electricity Regulation Act the Regulator may make any licence subject to
conditions relating to:
As a result the Regulator has a
large measure of control over the tariffs set by licensed electricity
distributors.
In contrast, municipalities are
required by the Amendment Bill to ensure affordable reticulation services
through the setting and structuring of tariffs within the national framework of
norms and standards contemplated in Section 31 of the Bill. Section 31 requires the Minister, acting in
consultation with the Regulator, to set national norms and standards for
reticulation services which may include norms and standards for the
setting and structuring of charges, rates and tariffs that relate to
reticulation services, or the use of distribution power systems used for
reticulation, which may include a national tariff framework to be
utilised by a municipality in determining such charges, rates or tariffs.
That means that the Regulator’s involvement in municipal reticulation
tariffs may be limited to consultation with the Minister.
The only other control over municipal reticulation tariffs is the
requirement of section 74 (1) of the Local Government: Municipal Systems Act
that municipalities adopt a tariff policy reflecting the principles contained
in Section 74 (2) of the Local Government: Municipal Systems Act. These principles include, amongst others, a provision
for surcharges on tariffs.
Accordingly it appears that the Amendment Bill, if enacted in its
current form, will afford municipalities a large measure of freedom in setting
reticulation tariffs and perpetuate the current use of income from electricity
reticulation to finance other activities.
It
is recommended that the Amendment Bill be reworded to the effect that:
1 The Minister must set
the norms and standards contemplated in Section 31 as recommended by the
Regulator; and
2 That such norms and
standards must include norms and standards for the setting and structuring
of charges, rates and tariffs that relate to reticulation services or the use
of distribution power systems used for reticulation.
Distribution
The Amendment Bill provides an
opportunity to rectify a problem created by the wording of the Electricity
Regulation Act.
In terms of the Electricity Regulation Act distribution is the
conveyance of electricity through a power system operating at or below 132 kV
and no person may, without a licence issued by the Regulator, operate any
distribution facility.
Mines convey electricity from receiving
substations to various points of use through systems that operate at voltages
below 132 kV. In terms of the Act they
will require licences from the Regulator to do so.
The licensing of distribution for own use will
impose an undue administrative burden on the consumers, as well as on the
Regulator, without adding any value for either party.
It is
accordingly recommended that a clause be inserted in the Amendment Bill to
amend Schedule 2 of the Act by the addition of the following clause:
“any
conveyance of electricity for private use at or below 132 kV”
Reticulation
Section 1 (e) of the Amendment Bill
defines reticulation as "trading
with or distributing electricity by a municipality to the community
within its area of jurisdiction and including services associated therewith." This means that the provision of electricity
to domestic end users is reticulation only when done by a municipality.
Consequently clauses 28 (4), (5) and
(6), as they appear in the Amendment Bill, are rendered meaningless.
It
is recommended that either the definition of reticulation or clauses 28 (4),
(5) and (6) be amended to rectify this incongruity.
Electricity
supply to tenants
Many mines supply electricity for
domestic use to houses, owned by the mines, in villages on mine
properties. In addition some mines
provide electricity to schools, hospitals and small businesses situated on
their properties.
In most cases the consumers are
charged a tariff sufficient to cover the cost of supply only.
It is understood that it is the
intent of the Amendment Bill to include these supplies in municipal electricity
reticulation.
The mines concerned mostly receive
electricity directly from Eskom.
Consequently there is no municipal involvement in the electricity supply
to the mines and the domestic supply on the mines. These supply systems are in
most cases integral parts of the electricity systems of the mines making it
impossible to separate them.
The Amendment Bill stipulates that any person, other than the municipality, who, at the commencement of the
resultant Act, provides reticulation services to domestic end users without a written
service delivery agreement must, within a period prescribed by the Minister,
enter into a written service delivery agreement with the municipality in
accordance with Section 30 of the Amendment Bill or cease to provide
reticulation services. Where a person
renders reticulation services to domestic end users in terms of a license
issued by the Regulator, that license automatically lapses at the commencement
of the resultant Act, and the person must also enter into a written service
delivery agreement with the municipality or cease to provide reticulation
services.
These provisions have the potential
to result in inadvertent contraventions of the resultant Act, or leave
consumers without a legitimate electricity supplier.
It
is recommended that a clause be inserted in the Amendment Bill that will deem
any person, other than municipalities, who is providing reticulation services,
to be deemed to have entered into a service delivery agreement for a
predetermined period to allow for the negotiation of a formal service delivery
agreement.
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