Electricity Regulation Bill: briefing

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
14 October 2005
ELECTRICITY REGULATION BILL: BRIEFING

Chairperson: Mr. E Mthethwa (ANC)

Documents handed out:
Electricity Regulation Bill [B29-2005 (Reintroduced)]
Overview of the Electricity Regulation Bill - Presentation by DME

SUMMARY
The Department of Minerals and Energy (DME) briefed the Committee on the Electricity Regulation Bill. The Bill aimed to establish a national regulatory framework for the electricity supply industry.

Members’ concerns centered on the removal of Section 76 matters from the original Bill; the monitoring of municipal reticulation performance; reticulation tariffs set by municipalities; the National Energy Regulator’s ability to address ongoing power outages at municipal level and the independence and funding of the regulator.

MINUTES
Department presentation
Mr. O Aphane, Chief Director, stated that the original Bill had been withdrawn because there was no parliamentary procedure to deal with mixed Bills, in that it contained both Section 75 and Section 76 issues. Subsequently, the Section 76 part had been removed and the Bill was reintroduced.

Mr. Aphane presented an overview of the Electricity Regulation Bill, in which he dealt with the purpose of the National Energy Regulator Act. This was to establish single regulator to regulate electricity, gas and petroleum pipelines. Other issues outlined included repeal of parts of the Electricity Act, 1987; the constitution of the energy regulator; remuneration and allowances; disqualification and requirements regarding appointment of energy regulators; vacation of office and termination of appointment as well as meetings and duties of the energy regulator. Factors such as decisions of the Energy Regulator, personnel and funds were also touched on.

The presentation then examined aspects of the Electricity Regulation Bill, which included a definition of the terms reticulation, community, commercial and light industrial customers, water pumping schemes and traction substations and other customers as determined by the Minister. The second part of the presentation dealt with the functions of the Regulator, licenses and registration, activities carried out under license and the Minister’s power to exempt any of these activities.

Under licensing and registration, the regulator was empowered to deal with applications, approval of tariffs for generation, transmission and distribution - excluding reticulation customers - and license conditions. The regulator was empowered to suspend or revoke or amend conditions of a license if the activity was no longer needed. The penalties for contravention of a license provided for by the Bill and its consequences were discussed. The reticulation services and duties of municipalities in setting tariffs were discussed. Only municipalities had rights to reticulate electricity, and the regulator was responsible for providing national norms and standards for reticulation services.

Other areas that the Bill covered were key performance indicators for municipalities, the regulator monitoring compliance by municipalities and municipalities’ obligation to provide information to the regulator. Compliance and non – compliance by municipalities was discussed and the penalties for failing to comply. In terms of resolution of disputes, the Bill detailed how the regulator could be requested by parties to mediate but it was not obliged to settle a dispute. However its decision would be binding on any party and the Minister would prescribe the procedures for mediation and settlement of disputes. Regarding inquiries and investigations the Bill made provision for the regulator to appoint a person to make inquiries and report back to the regulator and the regulator may refer the outcome of the investigation to the Attorney – General for consideration.

Under general provisions, agreements in contravention of this Act could be declared unenforceable between parties by a court of law. The regulator could after consultation make codes of conduct and practice by notice in the gazette relating to the licensee and customers. It also dealt with the powers of the Minister who had to consult with the regulator about the procurement of independent power producers.

Discussion

Mr. C Molefe (ANC) stated he needed clarity on sections being removed and why they had caused problems. Were all municipalities co-operating with the establishment of Regional Electricity Distributors (REDs)? Complaints would be lodged with the regulator. Would the regulator report to the Minister on this?

Mr. S Louw (ANC) wanted clarity on import and export licenses. What countries were affected and to which countries did SA export electricity? With regard to reticulation services, he wanted to know if allowing different municipalities to set up their own tariffs would not lead to overcharging of consumers if there was no control. He suggested that to prevent this a tariff structure should be set up to prevent municipalities going beyond this. He wanted to know what the criteria would be for municipalities to get a license, because enforcing these criteria would help in preventing power outages.

The Chairperson said one of the problems was the capacity of the National Electricity Regulator to impose sanctions. The regulator was seen as a toothless structure. What effect would a penalty of R2 million per day have on the bigger players in the industry who were able to pay this amount easily?

Mr. Aphane stated that the whole of Chapter 4 had been removed. The reason for it having been removed was because this Bill was reintroduced as a Section 75 Bill and those provisions which had been removed were those that related to Section 76 provisions of the Constitution.

There was still a problem with accession to the REDs and the Department had obtained legal advice that municipalities could not be forced to participate in them. It was an outstanding challenge. This Bill only dealt with regulatory issues. Restructuring issues would be dealt with by an Electricity Restructuring Bill which Cabinet had recently approved.

In terms of the complaints, once they had been received, the Minister would start a process. The Bill provided a new framework for customer forums in the spirit of the Promotion of Access to Information Act and the right to administrative justice. That was the envisaged way forward regarding complaints.

Regarding which countries were affected by the requirement to license the import and export of electricity; South Africa was interconnected with Mozambique, Zimbabwe and Botswana and they imported from us. SA required a license to import electricity from Mozambique’s Cahora Bassa scheme.

Government should provide for limits to tariffs and a range within which those tariffs were set. This was definitely a regulatory issue, and the distinction was that the municipalities would set the tariffs and the regulator would regulate how they set the tariffs and the limits. The question relating to City Power’s blackouts and the fact that only municipalities could reticulate had to be dealt with from a regulatory perspective. There were certain key performance criteria that would have to be complied with by municipalities. Constitutionally, municipalities had a mandate for reticulation. He added that the challenge Chapter 4 attempted to deal with was how to regulate that municipalities would provide the service.

It was very difficult to determine a penalty threshold but the DME believed that the set penalties were very significant. There was a school of thought that the penalties were excessive and if there were a continuous problem that it would result in a prolonged penalty. He also stressed that smaller customers might find this penalty excessive.

Professor I Mohamed (ANC) wanted to know what was the problem with the Section 76 matters, and if the Electricity Regulator could play a role with regard to the power blackouts in Johannesburg. He stated that there was originally one single regulator proposed for electricity and nuclear energy and wanted to know why nuclear energy had been excluded because he had felt it could not be included because of the special knowledge required about nuclear waste.

Mr. Molefe (ANC) asked whether ESKOM would be exonerated from their responsibility for indigent communities and would they not end up dumping some of their infrastructural problems on councils who were very poor?

The Chairperson questioned the promptness of responses to power outages. He also questioned the regulator’s independence, and its current powers to monitor performance and compliance. How could these powers be strengthened? How broad would the scope be for regulator funding?

Mr. Aphane responded that the exclusion of water pumping schemes related not to regulation but to defining them as being captive municipal clients. In terms of reticulation, it clearly stipulated who was a reticulation customer and most substations and water schemes would be excluded from being captive reticulation customers, otherwise they would be subject to the jurisdiction of municipalities. They needed to be treated in a special way and they were regulated by their respective sectors.

He stated that the reason for nuclear energy not being under the umbrella of the energy regulator was a specific focus on health and safety issues pertaining to nuclear energy and nuclear waste. The focus of the two regulators was different because the energy regulator focused on economic regulation while the nuclear regulator focused mainly on safety regulation.

The role that the regulator could play in relation to City Power’s problem was a significant challenge and it was important to provide the teeth that the regulator would need to address the problem. Electricity regulation should be able to cover problems relating to City Power’s problems.

He stated that a decision had been taken to align the electricity distribution industry with the constitutional framework. However, this did not mean it would be done at the expense of service delivery and poverty alleviation. The challenge was to allow for an exit by ESKOM from that sector at the same time as providing the skills base and the capacity at municipal level so that service delivery would not be adversely affected.

Regarding inquiries; there was a question regarding quick resolution of problems and the extent to which consumers encountered problems when they phoned toll free numbers. There was a need to distinguish between the inquiry and the investigation to try and find out why there was a problem with the substation. The obvious challenge was quick resolution and the sooner the problems were resolved, the better the service provided to the community would be.

On independent regulation; the Bill attempted to align with the new framework for Promotion of Access to Information and Administrative Justice and in that context, one of the major departures from the old Electricity Act was that the DME would not be represented on the board of the regulator. The Minister would not be involved in the resolution of disputes as before. However, there was recognition that the independence of the regulator would be a process which would not occur overnight.

In terms of generation, transmission and distribution the regulator had adequate powers to monitor performance and also to intervene. The challenge was how to do it in the municipal sector. The regulator was adequately empowered to monitor performance and to take certain corrective measures.

The funding of the regulator would consist of donations, license fees and interest on investments. The same funding network as in the past was being retained. The Money Bill, which was a National Treasury requirement, would deal with all the funding issues separately. Until the adoption of the Money Bill, Section 5(b) of the Electricity Act cannot be repealed.

The Chairperson asked the State Law Advisor, Mr O Kellner to provide more clarity on the removal of the Section 76 parts from the Bill.

Mr. Kellner responded that the Bill introduced originally was found by the Joint Tagging Mechanism (JTM) to be a mixed Bill and because there was no procedure for dealing with a mixed bill it was ruled out of order. This meant that the Bill had to be split into a Section 75 and a Section 76 component and they were now dealing with the Section 75 reintroduced Bill.

There was a precedent for mixed bills by which the Section 75 reintroduced bill went through all the stages and became an Act of Parliament. Before it was put into operation, the Section 76 part would be introduced as an amendment bill and would also eventually become an Act of Parliament. The two Acts would then be put into operation simultaneously.

The meeting was adjourned.