Central Energy Fund; Council for Nuclear Safety; Energy Regulator: briefing

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE

18 February 2000

PRESENTATIONS FROM CEF, COUNCIL FOR NUCLEAR SAFETY (CNS) AND NATIONAL ELECTRICITY REGULATOR (NER)

Documents handed out:

1. National Electricity Regulator (NER) Presentation to Parliamentary Portfolio Committee (attached to end of minutes)

2. Transformation at the Council for Nuclear Safety (CNS); Presentation to the Portfolio Committee on Minerals and Energy.

3. Progress in the CEF Group; Report to Portfolio Committee.

SUMMARY

National Electricity Regulator (NER)

Some of the highlights of NER's presentation included their explanation of the transition. NER suffered a setback when it was discovered that there had been a mismanagement of funds at the managerial level. They now have a new chairperson and CEO. In addition they created a new mission, vision and corporate strategy.

NER also promised that one of their priorities for 2000 and 2001 would include support for rural development. This includes:

• developing a framework for off-grid electrification
• managing the Electrification Fund under mandate from Minister
• allocation of funds to municipal suppliers
• bulk of funds earmarked for electrification

NER told the committee that some issues for the way forward include:

• achieve a common vision between DME, DPE, DoF, NER and Eskom
• remove transmission from Eskom into publicly owned "Trans-elec"
• monitor and adjust to create competitive electricity market
• REDs established, retail competition later

Council for Nuclear Safety (CNS)

Their presentation gave an overview of the funding and staffing of the CNS. The topics included affirmative action; employment equity; transformation policy; corporate culture; and financial resources.

Regarding Affirmative Action, CNS told the committee that they have made a great deal of progress but they acknowledge that there is still room for improvement especially in the areas of: diversity management; mentoring and communication and facilitation of interaction.

In order to improve employment equity, CNS has created several initiatives including: staff developmental bursary programme; employment equity survey and employment equity plan.

Finally, CNS looked at the costs associated with these transformations. The direct costs broke down as the following:

* Recruitment and Selection: R 200 000

* Bursars: 160 000

* Internal Training: 180 000

* Overseas Training: 142 000

* Assistance to Universities: 780 000

* Consultancy: 113 000

* Management- PIB: 163 000

TOTAL: 1 738 000

The indirect costs were estimated to be about R 2 525 000

Central Energy Fund (CEF)

CEF talked about the direction of their group. They told the committee that they are in line with the government policy which is established primarily in the White Paper on Energy Policy published in December 1998 and by direct interaction between Directors and the Minister of Minerals and Energy.

They also recognised elements of policy that have a direct bearing on CEF. These include:

• Restructuring of State assets in the oil industry
• Black Economic Empowerment
• Establishment of a natural gas industry
• More competition in and free market access to the oil industry
• Rural Development
• Regional Co-operation

 

Appendix 1:

NATIONAL ELECTRICITY REGULATOR (NER)

Presentation to Parliamentary Portfolio Committee (Minerals and Energy)
18 February 2000

Establishment of NER

• Regulatory authority over the electricity supply industry
• Established in terms of Electricity Act
• Chairperson, CEO, 7 board members Staff of 45
• Funded by levy on generation sales

 

Role of NER

• Approve tariffs
• Set and monitor quality of supply and service standards
• Mandate
• Powers in Electricity Act
• White Paper on Energy Policy
• Mandate from Minister of Minerals and Energy

Vision

To be a world class regulator providing leadership to the electricity supply industry in support of sustainable growth and development

Mission

To regulate the electricity supply industry in accordance with government policy and law, so as to meet the needs of existing and future electricity stakeholders in the most equitable, efficient, cost-effective and sustainable manner

Value Added by NER

Assisting government with ESI policy development and legislation

Investigations into the electricity distribution industry to accelerate rationalization

Approval of electricity price increases by suppliers

Managing the Electrification Fund

Value Added by NER

Establishment of National Tariff System and move towards cost reflective tariffs

Setting minimum standards of supply and service

Dispute resolution (Customers/Suppliers)

Data base and information resource

Allocation of electrification funds

Transition at NER

New beginning after set back

Separation of role of Chairperson and CEO

Corporate governance enhanced

Corporate Governance Handbook

Role clarity

New Mission, Vision and Corporate Strategy

Priorities for 2000 and 2001

Strategic issues

Introduction of integrated resource planning

Investigation into electricity market structure and regulatory framework

Regulation of independent power producers and co-generators

Development of wholesale electricity tariff

Priorities for 2000 and 2001

Strategic issues (contd.)

Regulatory framework for special deals

Regulatory framework for Regional Electricity Distributors

Implementation of 'Regulation of Electricity Supply Industry Bill'

Priorities for 2000 and 2001

Routine Regulatory Activities

Licensing framework

Tariff approvals

Handling disputes and customer complaints

Monitoring quality of service and supply

Maintaining database on information collected

Information resource to government

Priorities for 2000 and 2001

Support for Rural Development

Developing framework for off-grid electrification

Managing the Electrification Fund under mandate from Minister

Allocation of funds to municipal suppliers

Strong support for rural electrification

Bulk of funds earmarked for rural development

Integral part of rural development

Includes support for 'off-grid' electrification in rural areas

NER Budget

NER rebuilding to optimum size

Budget reflects full staff complement for first time

Budget last year included surplus income carried over

Levy of R0,0121 c/kWh

Increase of 45% over last year

Budget = R22.6 million for 2000

1998 White Paper on Energy Policy

Introduce competition to the industry, especially the generation sector

Give customers the right to choose their electricity supplier

Permit open, non-discriminatory access to the transmission system

Encourage private sector participation in the industry

Eskom will have to be restructured into separate generation and transmission companies

Government intends to separate power stations into a number of companies

Possible Future Market Structure

In line with White Paper and government policy

Need to find value in Eskom generation

 

Possible 'Pro-competitive Reform Programme' for generation and transmission

Restructure from vertically integrated structure into competitive wholesale market structure

Put in place appropriate regulatory and tariff environment capable of supporting future developments

Present situation

Drawbacks of single-buyer model with IPPs

No real competition: Eskom has market power

Monopoly: difficult to regulate

Expensive, stranded Power Purchase Agreements (PPA)

Non-optimal investments

Poor incentives for efficiency improvements

Temptation to (partly) privatise a monopoly

Bad for consumers

Bad for national and regional economic growth

Drivers for change

Maximise financial and economic returns to the state

Fiscal revenue, debt reduction

The need to demonstrate economic efficiency

Allocative efficiency, next investment in generation capacity

Driving operational costs down

Widened resource availability and technological change

Competitive imports from SAPP

Natural gas from Namibia and Mozambique and CCGTs

Information and computer technologies

Opportunity for black economic empowerment

International environmental concerns

Need for improved customer service and choice

But protect…

Electrification programme

Cross-subsidies for poor (but more transparent)

Internationally competitive electricity prices

Management, technical and R&D competencies in ESI

Security of supply

Potential for demand-side management and energy efficiency investments

National regulatory oversight and control

Globally competitive business for the African Renaissance

What not to do

DO NOT PRIVATISE OR SELL A STRATEGIC EQUITY STAKE BEFORE INTRODUCING COMPETITION!

Entrenched monopoly

Poor incentives for efficiency in either investments or operations

Higher prices

Difficult to regulate

Bad for consumers

Bad for the economy

Globally uncompetitive business

Bad for the African Renaissance

Way forward

Achieve common vision between DME, DPE, DoF, NER and Eskom

Remove Transmission from Eskom into publicly owned "Trans-elec"

System operation remains for time being with Transmission

Establish South African Power Exchange

Build on experience of Eskom pool

Wholesale generation bidding; also demand side bids

Put design and establishment of exchange out to tender

Parallel financial derivative private market

Establish Eskom Holdings

Cluster 4 or 5 groupings of power stations into subsidiary Genco's

Monitor and adjust to create competitive electricity market

Consider sale of part or whole of Genco's

Reform regulatory system

REDs established, retail competition later

Conclusion

NER will assist government in examining recommendations on market structure

Ensure competent regulator, with consistent regulatory framework, to give assurance to government when decision made

Work programme of NER focussed on government priorities