1. Topic: Possible Restructuring of the Electricity Distribution Industry
Joint Public Hearings between the Portfolio Committee on Energy and the Portfolio Committee on Cooperative Governance and Traditional Affairs
Topic: Possible Restructuring of the Electricity Distribution Industry
Presentation Date: Tuesday 31 July 2012
Presenter: Louise Muller
Institute of Municipal Finance Officers

2. Institute of Municipal Finance Officers
Agenda
IMFO
Context of the Presentation
Importance of Electricity Distribution to Local Government
Rationale for Restructuring
Some Concluding Remarks
Institute of Municipal Finance Officers

3. Institute of Municipal Finance Officers
The Institute
A professional body in local government finance that was established in 1929
In terms of the Old Companies Act, a Section 21 company, registered as an Association Not for Gain
A constructive role player in policy formulation processes in local government finance
Vision: To be “the” recognized professional body for the development and promotion of municipal finance officers and local government finance
Institute of Municipal Finance Officers

4. Context of Presentation
Most presentations heard would be from the Electricity Distribution perspective
Local Government needs to remain sustainable, viable and fulfill its mandate of the service delivery arm of government
The vision for local government should be towards more efficient and effective governance and service delivery
SDA’s with all service providers
Single point of contact for the customer
Institute of Municipal Finance Officers

5. Importance of Electricity Distribution (1)
A municipality has executive authority in respect of, and has the right to administer, the local government matters listed in Part B of Schedule 4 of the Constitution
Electricity Reticulation
Reticulation is defined by Section 1 of the Electricity Regulation Act 4 of 2006 as meaning “trading or distribution of electricity and includes services associated therewith.” Looking at the other definitions Trading means ‘the buying or selling of electricity as a commercial activity”, while distribution means “the conveyance of electricity through a distribution power system excluding trading”.
Institute of Municipal Finance Officers

6. Importance of Electricity Distribution (2)
Electricity is the lifeblood of finances in a well-organised municipality
Ito Constitution – a municipality may impose surcharges on fees for services provided by or on behalf of the municipality
Ito legislation & related court rulings – Electricity can be cut-off for non-payment therefore it serves as a means of debt collection
A municipality is rendered a service authority - “the power of a municipality to regulate the provision of a municipal service by a service provider”.
Avoid generalisations regarding service delivery
In many cases the municipality has no control over the service provider
A “one size fits all solution” should be avoided
Institute of Municipal Finance Officers

7. Rationale for Restructuring (1)
Is it size?
International research has shown there is no greater economy of scale above customers in a distribution utility
It is for universal access to electricity services?
Estimated 25% of households are still without access to electricity
Is it to compensate for skills loss?
Single public service / TASK will set salary levels
Restructuring to a larger entity is a cumbersome way of resolving salary issues – and affects prices of electricity
Is it for synergy of tariffs?
Tariffs are impacted by numerous different factors
Is it due to infrastructure backlogs?
The lack of economic return on some assets will perpetuate underinvestment
Institute of Municipal Finance Officers

8. Rationale for Restructuring (2)
Is it due to alternative energy sources?
Subsidies for alternative energy sources at this time are funded by electricity customers in most cases
Is it for the promotion of a market structure?
Electricity utilities support social and economic development - distinct from a market-based structure that is meant to promote economic efficiency and efficient allocation of resources
Institute of Municipal Finance Officers

9. Some Concluding Remarks (1)
Restructuring should:
Directly address the determining factor for the restructuring
Minimise any disruptions to local government and electricity services
Consider various options such as wires and retail split
Look at standardising electricity distribution by Eskom and municipalities
Recognise diversity and not impose a “one size fits all”
Ensure that all parties are willing or legislated parties
Institute of Municipal Finance Officers

10. Some Concluding Remarks (2)
Restructuring should:
Take into account the following:
No departure from Constitutional mandate of Local Government
The cost of legal compliance for a foregone conclusion or legislated outcome
The potential of a Service Utility or Multi-jurisdictional Service Utility for the provision of services
Transfer of assets at no cost
Labour legislation and the impact of section 178 of the Labour Relations Act
Customers remain with local government
Institute of Municipal Finance Officers

11. Thank You Thank you for the opportunity to present to you.
We would like to offer our services to assist
from a municipal finance perspective
if further restructuring
of the Electricity Industry is considered
Institute of Municipal Finance Officers