1 ELECTRICITY REGULATION AMENDMENT BILL

2 BACKGROUND Industry structure Electricity value chain Consequences of unregulated “reticulation” History in brief on the Bill The Bill as presented to PPC STAKEHOLDER INPUTS What stakeholders have said Divergent views on reticulation CURRENT VERSION OF THE BILL The Bill as amended Purpose of the Bill Outline

3 Current EDI structure is highly inefficient owing to fragmentation –Absence of economies of scale in respect of investing in assets, sharing of facilities, services, people development, etc. Insufficient investment by municipalities in maintenance, system strengthening and skilled professionals and managers. The root cause of this underinvestment is poor municipal governance Industry structure

4 ELECTRICITY VALUE CHAIN Transmission Lines Transmission Substations TRANSMISSION (765/220 kV) Distribution Lines DISTRIBUTION (132/33 kV) Distribution Substations POWER STATIONS GENERATION RETICULATION HV (11 & 22kV) Reticulation LV (380 / 220V) Domestic Commercial Agriculture Electrification Industrial

5 Consequences of unregulated “reticulation” There is a proliferation of different tariffs (approx 2000).This results in unequal treatment of domestic end users. Municipalities do not invest. NERSA has limited powers to enforce regulatory framework over municipalities under the above circumstances.

6 History in brief on the Bill The Electricity Regulation Amendment Bill was initially presented to Parliament as chapter 4 of the Electricity Regulation Bill which was then removed for later consideration as section 76 Bill as per Parliament’s request. After the removal of chapter 4, the Electricity Regulation Bill was adopted by Parliament as section 75 Bill and later assented as an Act in July The Electricity Regulation Amendment Bill was reintroduced to Parliament during the last quarter of 2006, amending the Electricity Regulation Act with the intention of inserting the removed chapter regulating electricity reticulation services.

7 The Bill as presented to the PPC The original version of the Bill before taking into account stakeholders inputs emanated from the PPC public hearings provided for: The separation of electricity reticulation from distribution by defining reticulation as consumption under 500MWh per annum per customer; Not to license electricity reticulation but to regulate it through norms and standards set by the Minister; Discarding the existing licensing framework for “electricity reticulation” and providing for service a delivery agreement where the municipality is not a service provider; Exempting certain customers from being “reticulation” customers such as water pumping schemes and traction, irrespective of the consumption level.

8 STAKEHOLDER INPUTS

9 What stakeholders have said There are diverse views in relation to the needs of the stakeholders. Examples:  “Reticulation” means entire distribution value chain.  “Reticulation” is 380 volt distribution only  NERSA believes the entire industry needs to be licensed in a similar manner.  Licensing the reticulation part of industry impedes municipalities in the execution of their constitutional mandate  Some stakeholders are averse to the regulator’s intervention in the case of non-compliance and only s139 is applicable as a means to intervene  Intervention by s139 is not appropriate for reticulation The detailed stakeholder responses are available

10 Divergent views on reticulation ScenarioImplication for regulation and REDs formation “Reticulation is tantamount to distribution and cannot be licensed” R35 billion industry suffers weak regulation and 10 million end-user’s interests compromised. Industry consolidation difficult. Tariffs remain fragmented Some municipalities, especially non-Metros, cannot execute mandates “Reticulation is 380V supply” No municipal buy-in into REDS Risk of Constitutional challenge Persistent regulatory uncertainty as to enforcement Define reticulation by separating wires from retail business No municipal buy-in into REDS Risk of Constitutional challenge Persistent regulatory uncertainty as to enforcement

11 Current version of the Bill with stakeholder inputs accepted by PPC

12 The Bill as amended After taking into account the stakeholder inputs presented before the PPC, the following amendments were made: The definition of reticulation was amended to mean distribution; There is no separation of customers in terms of consumption; All distributors including municipalities must hold a licence issued by the regulator to strengthen regulatory environment; Provisions of the Service Delivery Agreement must coincide with the licence conditions to harmonize dual regulatory framework; and Norms and standards will form part of the licence condition for all distributors.

13 Purpose of the Bill The Bill seeks to do the following: Facilitate the economic regulation of the whole electricity value chain including municipalities Regulate reticulation services in a manner which recognizes the role of municipalities. Provide for the regulation of service providers by municipalities (SDA) and to harmonize this with the licensing framework Provide uniformity in the treatment of end-users by licensing them Lays a foundation towards the formation of REDs

14 Thank you