RED1
SUBMISSION TO PORTFOLIO COMMITTEE ON MINERALS AND ENERGY ON THE ELECTRICITY
REGULATION AMENDMENT BILL [B20 – 2006]
INTRODUCTION
RED 1 is the
first regional electricity distributor to be established in South Africa and is
a municipal entity within the provisions of the Municipal Systems Act, 32 of
2000. RED1 is the service provider for
electricity distribution to the City of Cape Town (the City) with which it has
concluded a Service Delivery Agreement in terms of the Municipal Systems
Act. An Operating and Transitional Plan
for Transfer Agreement (OTPTA) has been concluded between the City and RED1 to
guide the transfer of assets and staff of the City’s electricity business and
Eskom Distribution (metro region) to RED1.
Negotiations are in hand to extend the service provision to other
municipalities in accordance with the Blueprint for the Restructuring of the
Electricity Distribution Industry adopted by Cabinet in 2001. The electricity distribution business
includes wires (132 kV and below i.e. downstream of the transmission system),
trading and other related services.
RED1 acknowledges
that electricity service providers should operate in a regulated environment
where service providers are subject to technical, economic, environmental and
social regulation to ensure fair, equitable and sustainable operations. Technical regulation deals with engineering
issues, such as quality of service and quality of supply (voltage, frequency,
reliability, etc.). Economic regulation
protects consumers and encourages service providers to improve efficiency of
service delivery. Environmental
regulation is through existing environmental legislation by the agencies
defined in that legislation. Social
regulation defines the level of assistance that a service provider is required
to give in terms of electrification and Free Basic Electricity and falls within
the jurisdiction of National Treasury and municipalities. Technical and economic regulation should be
exercised by the National Energy Regulator of South Africa (NERSA).
The experience of
RED1 is that there must be a clear differentiation in the roles of the various
regulatory bodies. For example,
currently, tariffs are approved by both the municipality and NERSA leading to a
potential conflict of objectives. The
municipality considers the impact of a basket of services and RED1’s experience
has been that the municipality minimises electricity charges. NERSA, however, looks to the sustainability
of the electricity business and, to enable greater investment in infrastructure
to address growth, refurbishment and upgrading, may want to approve a higher
tariff increase than proposed by the municipality.
The principles
that are dealt with in the Bill are closely coupled with the principles of EDI
restructuring. RED1 is of the view that
this Bill should have been tabled with a bill on the restructuring of the
electricity distribution industry. The
absence of that bill creates a policy vacuum that makes it difficult to comment
on the various provisions in this Bill as their implications for the industry
are not known.
DISCUSSION
Proposed
Regulatory Model
It is essential
that service providers should be subject to effective, consistent and
comprehensive economic regulation to ensure the protection of customers against
possible abuse of monopolistic powers and to ensure a viable and sustainable
industry.
The Constitution
gives municipalities the executive authority for electricity reticulation. The executive authority role of
municipalities can be exercised by entering into service delivery agreements
with service providers for the delivery of electricity services to end
users. RED1’s view is that the
distribution business of service providers should be licensed by NERSA. The Electricity Regulation Act would create
the framework for the delivery of the service through the publication of norms
and standards by the Minister of Minerals and Energy acting in conjunction with
NERSA.
The Electricity
Regulation Amendment Bill should be redrafted to give effect to this dual
regulatory framework.
Distribution
and Reticulation
The Bill defines
reticulation to include only customers using less than 5 000 MW.h p.a..
This will divide current distribution customers into subsets of reticulation
and distribution customers on the basis of an arbitrary annual consumption
level. This would have the following
consequences for the electricity service provider:
Resellers
Section 28 (4) of
the Bill implies that resellers of electricity, e.g. a body corporate of a
block of flats or sectional title development, who are involved in “trading”,
are required to enter into a service delivery agreement with the municipality. This would result in an enormous
administrative work load due to the number of such resellers for no perceived
advantage. Currently these resellers
are controlled by way of requirements set out in municipal electricity supply
by-laws. It is proposed that the conditions
under which reselling is permitted should be set out in national norms and
standards instead. The Bill should be
revised to take account of this.
SPECIFIC
RECOMMENDATIONS ON THE BILL
Definitions
The various
cross-references in the definitions make the definitions difficult to read and
apply. For example, the definition of
“reticulation” cross-refers to the definition of “community” which in turn
cross-refers to the definition of “domestic end user” which cross-refers to
“light industrial or commercial customer.”
This means that one cannot read the definition of “reticulation” without
reference to the other three definitions.
It is proposed
that the definitions of “community”; “domestic end user” and “light industrial
or commercial customer” be deleted and that the definition of “reticulation” be
amended to provide -
“’reticulation’ means trading with or distribution of
electricity by a municipality and includes services associated therewith.”
The effect of the
above will be to define reticulation so that it includes all trading and
distribution within a municipality’s area of jurisdiction and to remove the
limit that it only concerns distribution to customers who purchase less than
5 000 MW.h p.a..
Application of
Chapter 3 of the Act
A new section 7
provides that chapter 3 of the Act will not apply to reticulation. Chapter 3 of the Act deals with electricity
licences and registration. Currently,
distribution may only happen under licence issued by NERSA. RED1 is of the view that there is no reason
to change the status quo and that requiring a licence for distribution provides a necessary
regulatory framework. It is proposed,
however, that sections 15 and 16 of the Act should not apply to
reticulation. Instead a new section
should detail the conditions that may attach to a distribution licence.
These conditions must be consistent with the constitutional dispensation
which provides that local government has executive authority over reticulation
of electricity.
Transitional
Provisions
The Bill
makes no provision for transitional arrangements. These are necessary as the Bill provides no timeframe for when
the Minister must issue norms and standards and certain obligations on a
municipality are dependent on the issue of national norms and standards. The transitional provisions should also
provide for the possibility that there may be by-laws in place that will not
conform with national norms and standards and municipalities should be given a
reasonable opportunity to amend their by-laws to ensure compliance.
Other
provisions
Section 39 of the
Bill deals with a revocation of authorization.
This section only makes sense if it refers to local municipalities. It is our view that section 39 should be
deleted as the division of functions and powers between local and district
municipalities is already adequately regulated by sections 84 and 85 of the
Municipal Structures Act., 117 of 1998.
CONCLUSIONS
RED1 strongly
supports the initiative to clarify the regulatory environment but the present
approach is not practical or in line with international best practice.
RED1 accordingly
recommends that: