RESPONSE%20:

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RESPONSE ELECTRICITY REGULATION AMENDMENT BILL
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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

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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

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STAKEHOLDER INPUTS
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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 regulators
  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

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ELECTRICITY VALUE CHAIN
GENERATION
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Annexure
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DME RESPONSE
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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

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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.

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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

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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
• sociallydomestic end users suffer,
• macro- economically industry does not invest
• NERSA has limited powers to enforce regulatory
  framework over municipalities under the above
  circumstances.

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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.

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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 No municipal buy-in into REDS Risk of Constitutional challenge Persistent regulatory uncertainty as to enforcement
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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