Electricity Regulation Bill [B29-2005]: hearings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
1 November 2005
ELECTRICITY REGULATION BILL [B29-2005]: HEARINGS

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Eskom Holdings Limited presentation
EDI presentation
NER Amendment recommendations
COSATU, NUM, NUMSA and SAMWU submission

SUMMARY
EDI Holdings, Eskom, the National Electricity Regulator and a trade union delegation presented submissions to the Committee on the proposed Electricity Regulation Bill. Respective positions on regulation were provided and various concerns with the pending legislation discussed. The allocation of powers between the Minister and the regulator was highlighted and reference made to existing relevant legislation. The envisaged role of the regulator was explained and views expressed on the impact of monopolies on the value chain. Recommendations on proposed amendments were forwarded to the Committee.

Members asked various questions including concerns with certain aspects of the Bill, the alignment with previous pieces of legislation, the problem of variable price mechanisms, reasons for excessive charges within certain municipalities, poor service delivery standards, the division of powers between the Minister and the regulator, adequate security of electricity supply and the provision of electricity to neighbouring African states.

MINUTES
EDI Holdings presentation
Ms P Nzimande (Chief Executive Officer) provided detail on the electricity supply industry within South Africa. Key issues pertaining to regulation were expressed and information disseminated on variable pricing within the municipal sector. Restructuring objectives and principles were explained with reference to previous legislation. EDI sought one independent regulator to oversee the industry. The Bill should be aligned with the Energy White Paper of 1998. Regional Electricity Distributors (REDs) had to operate in a sustainable way.

Discussion
Adv H Schmidt (DA) stated that EDI requested a single regulating entity and he asked for clarity on the concerns EDI had with the present Bill. EDI wanted the Bill to be aligned with the Energy White Paper.

Mr E Lucas (IFP) declared that inconsistent prices and industry monopoly remained a concern. He asked how the Bill would address these issues. Cheap electricity supply did not exist in reality.

The Chairperson sought clarity on the future of REDs and what steps would be taken to ensure sustainability.

Ms Nzimande replied that EDI wanted a single regulator to facilitate harmonised tariffs within South Africa. Chapter 4 of the Bill would split up the regulatory process to the detriment of efficacy. The Bill addressed most Energy White Paper objectives. The regulator should intervene to prevent monopolies on behalf of the interests of consumers. The regulator would ensure that REDs remained financially viable and thereby foster a continuation of service.

Ms N Mathibela (ANC) asked why certain municipalities charged excessive prices for electricity.

Prof I Mohamed (ANC) reminded Members of poor service standards and inadequate supply quality within Johannesburg. The billing process was problematic as most accounts were based on estimates of consumption as opposed to exact meter readings. Traffic lights on major roads within Johannesburg were often affected by disrupted electricity supply. He asked how the quality of supply could be improved.

Ms Nzimande stated that municipalities acted as the sole arbiters in determining prices and used different methods of calculation to Eskom. High prices were the ultimate result of such practices. Excessive distances within certain municipalities could also contribute to price increases. A standardised methodology was required to render stable prices in the best interests of consumers. REDs were created to address many of the problem areas raised by Members. An independent regulator was needed to monitor REDs and ensure that adequate standards were maintained. The regulator should be able to intervene where necessary. Attempts to improve service delivery had to be evaluated by an external arbiter to facilitate objectivity.

Eskom Holdings Limited presentation
Mr W Du Plessis (Eskom Council) provided detail on the objectives of regulation in accordance with the Eskom position. Clarity was proffered on the roles of various actors within the proposed system and the allocation of powers. The regulator should monitor the industry in an independent manner without undue interference from the Minister. The legislation should be implemented in a transparent manner. The impact of EDI restructuring was explained.

Discussion
Ms Mathibela asked whether Eskom agreed that the Minister had the right to appoint license holders. Reasons for disagreement should be outlined.

Prof Mohamed sought examples of the Minister’s powers that should have gone to the regulator. He asked why the regulator should only possess such powers.

Mr S Louw (ANC) asked whether security of electricity supply existed up to 2010 and whether Eskom was in a position to provide extra supplies to new residential areas and economic zones. He asked how much electricity Eskom supplied to African states.

Mr Du Plessis stated that the regulator was created to oversee the industry and ensure efficacy in electricity supply. The regulator was best able to prescribe criteria for the licenses required within the industry. Eskom was of the opinion that certain rights should go to the regulator rather than the Minister. Industry players should have leeway to negotiate contracts with business partners on a one-to-one basis. Co-operation was required between the Department of Labour and the regulator regarding health and safety issues. A co-operation agreement was the optimum arrangement. Existing national legislation was already in place to govern business ethics and practice and further stipulation within the Bill was unnecessary. Plans had been drawn up to address future capacity needs and new independent power producer investment was a possibility. Significant supplies of electricity were provided to neighbouring African states and buying and selling of electricity throughout the greater African region.

The Chairperson referred to the Eskom concern of excessive powers allocated to the regulator and asked what alternatives could be provided by Eskom to reduce these excesses. He asked which entity should be responsible for dealing with the format and content of agreements in lieu of the regulator.

Mr Du Plessis responded that a commercial relationship should prevail between Eskom and business partners based on negotiation to determine contractual obligations.

The Chairperson asked that key points be placed in a written form to assist in deliberation.

National Electricity Regulator presentation
Mr S Mokoena (Chief Executive Officer) placed the Bill within the existing legislative context and government policy. Energy policy implementation was explained and anecdotes recounted from the international experience. Regulatory objectives were outlined including the rationale for regulation. The presence of monopolies within the value chain undermined consumer interests. Certain proposed amendments to the Bill were presented. The value chain had to be regulated as a matter of urgency to avoid potential disaster.

The Chairperson asked Members to save questions until the next day’s meeting with NER when the Annual Report would be presented.

Trade Union delegation presentation
Mr D Elbrecht (National Union of Mineworkers Office Bearer) reflected on past and present developments within the industry with specific reference to key pieces of legislation. The Bill did not provide an endgame vision of industry restructuring. NEDLAC processes had been bypassed in the formulation of the Bill. The privatisation of key utilities would be continued and the Bill contradicted the White Paper on cross-subsidies. The Bill contradicted the principles of the developmental state model. The removal of cross-subsidies would likely result in job losses and reduce universal access to electricity supply. A cost-benefit analysis was required to guide the restructuring effort.

Mr S Kgara (COSATU Parliamentary Office) stated that the Eskom balance sheet was sound and further private investment was unnecessary. The presence of private utilities tended to undermine the expansion of supply. Eskom had the financial capacity to provide for additional electricity generation and its credit rating had recently improved. A recent drop in investment in private facilities within the developing world further weakened the call for continued privatisation. Inter-tariff cross-subsidies should remain to assist in maintaining reasonable pricing frameworks. The role of communities within regulatory practices should be encouraged and the voice of end-users had to be strengthened. Trade unions were opposed to the privatisation of state utilities.

The delegation provided recommendations on proposed amendments to the Bill.

The Chairperson stated that a response from the Department to all submissions would be received in due course.

The meeting was adjourned.