SALGA SUBMISSION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON MINERALS AND ENERGY ON THE ELECTRICITY REGULATION AMENDMENT BILL(B20 – 2006)

1. INTRODUCTION

SALGA welcomes the Electricity Reticulation Amendment Bill and supports the initiative to reform the electricity regulatory environment for alignment with the ongoing Electricity Distribution Industry Restructuring. The Bill presents an opportunity to use Electricity Reticulation as a tool to address the plight of poor communities whilst meeting the objectives of the White Paper on Renewable Energy by opening the grid for independent power procedures. A detailed analysis of the Bill reveals some issues of concern to organized local government which we would like to raise to avoid any negative impact on the municipal environment.

2. CONSTITUTIONAL IMPERITIVES AND IMPLICATIONS

Section 156 of the constitution bestows both executive and legislative authority upon municipalities in respect of, and the right to administer the local government matters listed in scheduled 4 B and 5 B of the constitution. The constitution in section 155(a) further provides that the exercise of authority is however subject to reticulation by national and provincial government through exercise of its executive and legislative authority.

In the exercise of the constitutional obligation to service communities; municipalities have largely fulfilled the electricity reticulation responsibility. This exercise of its constitutional responsibility entails the distribution of electricity to all users within its jurisdiction, as such the electricity reticulation function as a whole has been performed by local authorities (municipalities).

3. THE ER AMENDMENT BILL

OBJECT

The introduction of the amendment bill is an attempt by national government to exercise its authority in terms of section 155(7) of the constitution by introducing legislation to regulate the “reticulation of electricity” by municipalities.

4. DEFINITION

The introduction of certain definitions in the bill are clearly and an attempt to regulate or provide authoritative direction to the reticulation of electricity, but rather an attempt to limit the exercise of this function. To substantiate this claim a closer look at the definitions of “reticulation”, “community”, domestic end user” and “light industrial or commercial customer” reveals that a municipality’s constitutionally conferred function in respect of electricity reticulation is restricted to persons who are “domestic end users” and excluding the class of customers who consume more than 5000 mega watt hours of electricity per annum. This restriction encroaches upon the functional and constitutional integrity of municipalities and is inconsistent with the constitution. In the premise it is our submission that the definitions of “community”, “domestic end user” and “light industrial and commercial customer” should be deleted and the definition of reticulation should read:

“Means trading with or distribution of electricity by a municipality within its area of jurisdiction and includes services associated herewith”

It is our view that the definitions of “community”, domestic end user” and “light industrial or commercial customer” not only deviate from the definition of reticulation as addressed in the bill, it also brings about confusion and endorse some of the current practices such as ring fencing of key customers making it difficult to cross subsidize poor households and rural communities.

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’ will be regulated differently at least as suggested by this bill. 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 customer’s long-term relationships and profitability.

It is our conclusion on this matter that, this bill should further enable municipalities to exercise their constitutional rights of providing electricity in areas of their jurisdiction. 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. The definition should not be restrictive, and thus we recommend that the definition of community be defined to include every thing within the area of jurisdiction of the municipalities.

5. POWERS AND DUTIES OF MUNICIPALITIES

SALGA note and appreciates the recognition in Clause 28(1) of a municipality’s “executive authority over and the duty to administer the reticulation of electricity within its areas of jurisdiction and it is our view that this provision is progressive and confirms the constitutional imperatives and will go a long way in protecting the role of municipalities in electricity reticulation. Furthermore the empowerment of the Minister, in consultation with NERSA, to prescribe "norms and standards" for the setting and structuring of tariffs, rates and charges in Clause 31(1) (b) is a positive development towards common standards and tariffs rationalization.

However, the obligation placed on municipalities by clause 28(2) (f) could be a challenge for some municipalities. This clause is too broad and it is not clear what is meant by “within its available resources” and similarly there is no indication whether these “resources” would be provided to municipalities. It does not say what must happen if the municipality does not have these `available resources’. Will these resources be provided to municipalities by national government through the equitable share?

SALGA is of the view that municipalities can not afford to adopt a general approach on the provision of the Free Basic Service to all domestic customers and calls for priority to be given to poor or indigent households in the provision of Free Basic Services. It is our submission that instead of making legislative provision in this manner, municipalities should be encouraged and supported to develop and maintain indigent policies as required by the Municipal Systems Act

6. REVOCATION OF AUTHORITATIVE AND INTERVENTION

Section 139 of the constitution provides for a process of provincial intervention in local government “when a municipality cannot or does not fulfill an executive obligation in terms of the constitution or legislative“ The reticulation of electricity being a constitutional executive function for municipalities, as regulated by this Amendment Bill, the non fulfillment of that functions will give rise to the Section 139 process. Section 154 (1) of the constitution also 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. SALGA is of the view that there is no need for this Amendment Bill to make provision for a separate and clearly different process.

It is our submission that clauses 38, 39 and 40 are inconsistent with section 139 of the constitution and as such should be deleted. Save to say that a municipality will be subject to a section 139 process should it fail to fulfill the executive electricity reticulation.

7. CONCLUSION

This Bill formally introduces the issue of dual regulation which other regulatory initiatives have consistently failed to explicitly deal with, and SALGA welcomes this move. It is SALGA’s view that this Bill should clearly recognize the dual regulation of the industry at the National Level and local level by the Municipality. It must be noted that this is a common practice in other countries as it provide a certain level of management and accountability to the sphere of government which is closer to end users.

It is SALGA’s view that this bill should empower municipalities to intervene when the RED fails to deliver on the Service Delivery Agreement signed with the Municipality. This bill, in its current form makes this exercise fairly difficult for municipalities and it must be changed to empower municipalities. It is our conclusion on this matter that the service delivery agreements will only make sense if they provide municipalities with some “regulatory 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 provider

END