PRESENTATION TO PARLIAMENTARY PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY 14 NOVEMBER 2012 IPAP 2012/10

2 OUTLINE 1.Questions Posed by the Chairperson 2.Other Questions

3 Question 1: Do current legislative provisions (Energy Regulator Act 40 of 2004 and Electricity Regulation Act 4 of 2006) regulating municipal electricity prices ensure compliance to ensure fair or balanced electricity pricing regime? Yes, the current legislation does provide compliance to ensure a fair or balanced electricity pricing regimes Questions by the Chairperson 1

4 Question 2: What is the extent of municipalities deviating from the fair or balanced pricing regime and/or regulations as stipulated by NERSA? List the reasons for such deviation? In the current financial year 2012/13 – there were 18 municipalities that deviated from the NERSA approved guideline increase. The reasons that are commonly accepted by NERSA for higher than guideline increases include the following: a) Extensive repairs and maintenance programmes; b) Capital expenditure programmes; c) Need for additional funds due to the need to fill in critical vacancies (increased human resource costs); d) Municipalities facing serious financial challenges and municipalities placed under administration and e) Any other special electricity related project that a municipality undertakes such as Demand Side Management (DSM) initiatives. Questions by the Chairperson 2

5 Question 3: We are aware that there are a large number of municipalities not submitting and/or submitting incomplete/inaccurate electricity demand usage data to NERSA as mandated. What is the extent/ratio of municipalities failing to supply NERSA with the required electricity utilisation data? And in such cases of non-compliance, how does NERSA negotiate and agree upon a municipal tariff? a) There are about 40% of municipalities that fail to submit accurate and usable D- forms information to the Regulator b) Submission of D-forms is a requirement for all licensees for purposes of tariff/price regulation. Municipalities who fail to submit accurate and usable information will be limited to a guideline increase and to NERSA’s approved benchmarks. Questions by the Chairperson 3

6 Question 4: What is the extent of tariff disparities between municipalities? What is your view on this? Wouldn’t a uniform pricing policy be in the best interests of the country? a) Municipalities differ vastly in size, location and customer mix. It is for this reason that tariffs differ between municipalities. b) NERSA is currently looking at a project on tariff harmonization. Consultation paper on this will be published to all stakeholders for comment and discussion in due course. Questions by the Chairperson 4

7 Question 5:- How has the relationship between municipalities and Eskom impacted on the attainment of a fair and balanced pricing regime? Specifically within the context of direct Eskom supplied customers versus indirect, municipal supplied customers. We are led to believe that tariff inequality occurs both across municipalities and also within municipalities. With assertions of similar classed customers in the same location either being directly supplied by Eskom or indirectly supplied via the municipality. How is this possible? A lot of the discrepancy is due to historical factors since municipalities existed before the current constitution and contracts were, in some cases signed long ago. Therefore no comment can be made about these except some of the historical issues are quite complex as in the case of NCP. With regard to differences between municipalities each one has its own load mix and requirements so there are really no “one size fits all” solutions in the current approach. In addition history plays a role as in the different approaches taken by each municipality in tariff setting. It is going to be difficult to get a common approach but NERSA has a project to attempt to address this issue. Questions by the Chairperson 5

8 Question 6:- What type of regulatory structure would ensure municipalities followed pricing practices prescribed by the Electricity Regulation Act of 2006? It is not a change in structure that is required but perhaps a change in understanding which NERSA is working on. For example in 2011 an effort was made by NERSA to speak to all the Mayoral Committees around the country to explain the requirements and enter dialog with them. Their main Acts the Municipal Finance and Management Act (MFMA) and the Municipal Services Act (MSA) are both devoid of any mention of the Energy Regulator and the tariff approval process since they were drafted before the Acts which established NERSA existed. In fact they ascribe to the Minister the ability to set regulations with regard to tariffs. So perhaps if these Acts were to be updated to reflect the will of parliament as expressed in the Acts which established NERSA it might prevent legal challenges in the future from customers within the Municipal Boundaries. Questions by the Chairperson 6

9 Honourable Member Mr Oriani-Ambrosini raised the issue of the industry structure. This is a policy issue and needs to be raised with government. It is not a new issue and not a simple one. Department of Energy has investigated this in the past. Their current actions are most probably based upon those investigations. By current actions is meant: The 30% IPP policy of government The current ISMO bill process The Renewable energy procurement program The recent ministerial determinations on required generation. Other Questions 1

10 Honourable Member Mr McIntosh raised issues around contestable customers. This is a question which currently has no simple answer in that it is : A constitutional issue A technical issue A municipal finance issue The best solution is for the municipality to agree with Eskom and the customer on an approach on the basis that the customer will provide employment for its residents. Other Questions 2

11 THANK YOU