1. ELECTRICITY REGULATION AMENDMENT BILL
RESPONSE :
ELECTRICITY REGULATION AMENDMENT BILL `

2. Outline BACKGROUND Why do we need this amendment bill?
This is how this Bill facilitates EDI Restructuring
STAKEHOLDER INPUTS
What stakeholders have said
Detailed stakeholder views/responses (Annexure)
DME RESPONSE
Electricity value chain
Industry structure
Regulatory status quo
Consequences of unregulated “reticulation”
PROPOSED WAY FORWARD

3. Why do we need the Amendment 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 solid foundation towards the formation of REDs

4. STAKEHOLDER INPUTS

5. What stakeholders have said
There are diverse views in relation to the needs of the stakeholders.
“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
Municipalities 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 Tabulated below

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

7. Annexure

8. DME RESPONSE

9. Industry structure
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

10. Regulatory status quo
NERSA regulates the complete value chain, with limited success at the distribution level.
Municipalities have executive authority over reticulation in terms of the Constitution.
However, the Constitution does not define reticulation which gives rise to various interpretations from stakeholders.
The above anomaly presents challenges in terms of regulating reticulation.

11. Economic regulation of reticulation
Reticulation businesses are not ring-fenced to allow application of regulatory principles
Economies of scale are non-existent.
Economic regulation should promote efficiencies in the licensed entity.
Economic regulation should promote low electricity tariffs in an efficient industry.
Municipalities can still apply surcharges AFTER efficient tariffs have been charged for services

12. Consequences of unregulated “reticulation”
There is a proliferation of different tariffs (approx 2000).This results in unequal treatment of domestic end users especially.
Municipal domestic tariffs are determined outside the current regulatory methodology that is applied for generation, transmission and distribution.
The setting of tariffs outside the regulatory framework has an adverse effect on end-users
socially:domestic end users suffer,
macro- economically: industry does not invest
NERSA has limited powers to enforce regulatory framework over municipalities under the above circumstances.

13. This is how this Bill facilitates EDI Restructuring
The Bill intends to provide regulatory clarity in respect of the role of Municipalities in the envisaged REDs.
This is critical given the contestation by stakeholders as already expressed in the submissions
Without a resolved regulatory framework, EDI restructuring objectives cannot be fulfilled.

14. This is how this Bill facilitates EDI Restructuring
Scenario
Implication for formation of REDs
“Reticulation is tantamount to distribution and cannot be licensed”
R35 billion industry difficult to regulate.
Less appetite for munics to join the REDs.
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

15. Proposed way forward Scenario Implication
Provide for ring-fencing of distribution business
License all service providers.
Service delivery agreement (by municipality) made compatible with the license conditions (by NERSA)
Economic regulation principles easier to implement
NERSA has jurisdiction and can enforce compliance e.g. quality of supply and capital investment
Challenge of dual regulation addressed