Response to Public submissions on Electricity Regulation Bill: briefing by Department

MINERALS AND ENERGY PORTFOLIO COMMITTEE
3 November 2006
RESPONSE TO PUBLIC SUBMISSIONS ON ELECTRICITY REGULATION BILL: BRIEFING BY DEPARTMENT

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Electricity Regulation Amendment Bill [B20-2006]
Combined Stakeholder Comments
Department Response to Stakeholder Comments

SUMMARY
The Department of Minerals and Energy briefed the Committee on issues that had arisen during the pubic hearings on the Electricity Regulation Bill. Many concerns centred on the reticulation of electricity and whether the regulation by the national department did not constitute a breach of municipalities’ constitutional rights. The Department was adamant that the proposed legislation would meet constitutional muster and emphasised that in the interest of transformation and service delivery regulated reticulation was a necessity. The Committee voiced concerns related o the apparent lack of cohesion between municipalities and the South African Local Government Association as far as reticulation was concerned. The Department, the Committee and the National Union of Mineworkers agreed that transformation met with much resistance from certain quarters but that it should nevertheless be treated as a matter of urgency.

Minute
Department Presentation
Adv Sandile Nogxina, Director General of the Department of Minerals and Energy (DME), led the presentation and was accompanied by his Deputy Director General, Ms Nellie Magubane and Chief Director of Electricity, Mr Ompi Aphane. In his opening remarks he gave an overview of the DME’s response to the public hearings.

He reminded the Committee of what the rationale and the intention of Electricity Regulation Amendment Bill was. In addition to seeking to provide a framework for the setting of tariffs by municipalities the Bill also sought to empower the Minister so that he or she could prescribe key performance indicators for municipalities as far as the reticulation of services was concerned.

He said that many of the submissions had cited certain constitutional provisions which they thought had been contravened, but failed to cite other relevant sections. If they had cited these sections they would have reflected the whole picture of “what those who had founded the Constitution intended to achieve at the end of the day.”

He pointed out that Section 152 of the Constitution was most frequently cited. It provided that the objectives of local governments were to ensure the provision of service to communities in a sustainable manner. Section 156 stated that municipalities had the executive authority to administer the local government matters listed in part (b) of Schedule 4. These provisions underpinned the mandate of municipalities to reticulate electricity. Section 155(7) of the Constitution was the basis for national Government’s ‘interference’ in the exercise of the municipal mandate. It provided that the national and provincial governments had the legislative and executive authority to see to the effective performance of municipalities as far as their functions in Schedules 4 and 5 which included electricity and gas reticulation. National government thus had constitutional powers to regulate the manner in which municipalities exercised their constitutional rights. The DME thought it was important to draw a clear distinction between a national legislation that deprived the municipality of its executive authority on one which aimed to regulate the exercise of such authority. The DME’s view was that the proposed legislation sought to regulate rather than deprive.

He explained that the term ‘reticulation’ had its provenance in the Constitution itself. It had been used in the Local Government Transition Act of 1993 and the Constitution was adopted on 1996. Trying to establish what the authors of the Constitution had in mind when they referred to ‘electricity reticulation’ proved to be a challenge. Members had thus received varied opinions on what the definition of reticulation as contemplated in the Constitution should be. When there was no specific meaning that could be attached to a word it was often interpreted in a manner that would suite the circumstances of the person who was using it. By defining it in the BilI the DME hoped to avert a situation where there would be a contestation around the definition of the term. The dictionary defined it as ‘to form into a network or stringing of lines to form into a network’. One legal opinion actually ventured that it meant be both ‘the setting up of networks’ and the ‘supplying of electricity through these networks’. There were certain activities in the South African context which had come to be understood to mean ‘reticulation’ despite the fact that they meant different things to different people. One could manipulate the word depending on the context or the circumstances.

He continued saying that the DME had anticipated that the various stakeholders would ascribe varied meanings to the word. The original definition in the Bill sought to reach middle ground. The DME would review the definition in the light of the concerns that had been raised. Some contributors had even called for the scrapping of the definition. Scrapping the definition would however not solve the problem. The term would continue being used to serve the selfish interests of whoever wanted to manipulate the definition. The DME‘s responsibility was to regulate the orderly utilisation of the energy resources in South Africa.

The local government legislative regime already defined the service authority/ service provider relationship. The Bill was intended to leverage the definition and to enhance it in the context of the provision and regulation of electricity service. The DME intended to refine the definition of the service provider in a manner that would ensure appropriate regulation by the national regulator. No one could deny the need for regulation of the electricity industry. Taking their cue from this understanding the, DME intended to strengthen the hand of the regulator by entrenching the licensing regime as a principal regulatory instrument. The Constitution enjoins the national Government to regulate the manner in which the executive of the municipality exercised its function. This licensing regime would therefore be an instrument by which the national Government would regulate the manner in which municipalities exercised those powers. Accordingly the Bill would be amended to ensure that al the electricity services including reticulation would be duly licensed.

A number of stakeholders had raised concerns related to the issues around the restructuring of the electricity distribution industry. The Electricity Distribution Industry Restructuring Bill, drafting of which had already started, would deal specifically with this matter and would be tabled as a matter of urgency. The Bill would complete the suite of laws would ensure that the electricity industry was governed in an efficient and orderly manner.

Ms Magubane spoke to the electricity value chain detailing how electricity was generated, transmitted, distributed, and reticulated. She detailed the current industry structure, the regulatory status quo and the economic regulation of reticulation and explained the consequences of unregulated reticulation and how the Bill would facilitate the restructuring of the electricity distribution industry.

Mr Aphane said that the DME had captured all the comments that were made irrespective of whether they had been presented at Parliament or not. The DME provided a response to some of the ‘big ticket’ items which included the definitions of ‘reticulation’ and ‘domestic end users’ and the manner in which electricity should be regulated. Other comments that might have been made might have had consequential changes that the DME has already had to make rendering some of the comments irrelevant.

In conclusion Ms Magubane emphasised that the DME had to regulate reticulation or else there would be huge implications for consumers as well as the industry. The consequences of unregulated reticulation would result in a continuation in the many tariffs that were being levied at the moment. The DME firmly believed that it needed to deal with issues of economic regulation. If reticulation was not regulated problems as far as investments related to generation, transmission and distribution would follow. If the tariffs failed to ensure that one could do maintenance or invest in more infrastructure, problems such as black outs, faulty infrastructure etc. would continue. The tariff should support infrastructure as well as the industry so that more customers could be connected to the network. The regulation would also make sure that access to free basic electricity was properly regulated and provided.

Discussion
The Chairperson said that there was an argument which said that the involvement of national Government through the proposed legislation would prevent local governments from generating revenue from electricity. This had been raised consistently, and while he did not want to discuss the merits of the argument he felt that the concern should be considered.

Mr C Kekana (ANC) said that for the Committee to really understand what was meant by ‘reticulation’ Members needed to, in addition to the DME’s understanding of the word, also hear what disputing parties’ understanding of it was.

Ms Magubane explained that municipalities would still be able to levy surcharges on electricity services. There was no truth to the statement that the Bill would deprive municipalities of a source of revenue. The legislation sought only to regulate in order to make sure that tariffs were set in support of the industry. Municipalities would still have the right to levy a surcharge on that tariff. The DME was not convinced that the Bill would deprive municipalities of their constitutional rights. She added that ant tariff that was set had to be transparent.

Mr Aphane explained that a framework would be formulated around which tariffs etc would be set. Municipalities would be able to impose surcharges. From a revenue point of view municipalities should be neutral; in the envisaged Electricity Distribution Industry (EDI) restructuring, the DME made provision for municipalities to be able to continue getting the same surcharges from the services they rendered. Parallel to this there was a National Treasury process that regulated the way in which municipalities collected surcharges. The DME was cognisant of the impact economic regulation of the tariff would have on municipalities. This impact had been factored in by making sure that municipalities would still be able to generate revenue from the surcharges they collected. This would happen in a regulated fashion.

Adv Nogxina said that there was no issue around loss of revenue. The surcharge had nothing to do with the economic regulation of the sector but everything with how municipalities collected revenue. It was necessary to separate the issues and to make economic regulation totally independent from revenue collection. The DME felt that the Bill would not impact on revenue collection but would improve service delivery because it would protect the end users.

Mr Kekana noted that about 400 municipalities were members of the South African Local Government Association (SALGA). He wondered whether the definition of ‘reticulation’ had not been discussed within SALGA. SALGA came into being so that municipalities could discuss those matters that affected them so that they could have a common understanding and approach. It was important that municipalities and the DME saw eye go eye as far as the definition was concerned. He was curious as to whether the municipalities who were not satisfied were perhaps not members of SALGA.

His understanding was that municipalities provided services to all stakeholders within municipalities and therefore could not understand why the Chamber of Mines argued its case separately from its municipality.

The Chairperson felt it unfair of SALGA and the Chamber of Mines to expect the DME to interpret what they had told the members of the Committee during public hearings. SALGA and the Chamber of mines had explained what their position was.

Ms Magubane said that the Chamber of Mines was concerned about how the legislation would impact on the way the mining sector as a bulk receiver of electricity. Mining companies were usually like small villages on their own - inside their boundaries a number of structures needed to be supplied with electricity – the housing, shafts, equipment etc. The Chamber of Mines was thus asking that mines not be licensed because they were distributing for their own use i.e. within their own boundaries.

Mr S Louw (ANC) said that now that the DME had made the amendments there ought not to be much outcry. He was very concerned about the general quality of the electricity that was being supplied.

Adv Nogxina said that there would be an improvement in service delivery. One of the DME’s major concerns was that municipalities happened to fall outside the ambit of the regulator. It then became of question of who was responsible for ensuring that the interest of the consumer was protected. Electricity was not merely a commodity; it was a service that had to be rendered to the people of the country. If there was no instrument by which the quality of that service could be measured, the difficulties experienced at present would continue. Even if the reason for the blackouts were technical, the technical problems occurred because there was no maintenance of the infrastructure. If there was no regulation of the sector such situations would continue. This was why the DME wanted to extend the National Electricity Regulator of South Africa’s (NERSA) jurisdiction to the municipalities.

Ms Magubane added that the DME had already drafted the quality standards regulations. They had already been sent for public comment. They felt that it would be very important to regulate the service quality of the electricity. 2010 was around the corner and the DME wanted to start ensuring that service quality for electricity would be of world class standards.

Mr C Molefe (ANC) said that going forward there should be more engagement on the concerns municipalities had raised. It seemed as though one tier of Government was fighting against another tier of Government. The day before, a Gauteng municipality had vowed to fight its own battle around the transformation of the electricity industry. He agreed that there was confusion about how municipalities interacted within the South African Local Government Association (SALGA). There was no clarity as to whether there was a collective municipal position on the matter. He said it appeared as though there might be isolated pockets of municipalities who perhaps were very rich. It was necessary to determine who was saying what when it came to issues around transformation. One also had to consider what the municipalities’’ circumstances were.

It appeared as though government was attacking itself. He was not sure whether issues of politics played a role but he felt that perhaps a bosberaad would be necessary. Consultations had taken place around the matter and one would expect that SALGA, individual municipalities and the DME would at some point speak with one voice as far as the transformation agenda for South Africa as far as electricity was concerned. He said that the lack of consensus might be an indication that they interpreted the matter differently and that there was no national agenda for transforming the industry. The matter needed to be addressed if by the year 2014 everyone should have access to electricity and the playing field should have been levelled.

Mr Molefe also commented on the issues that had been raised around the constitutionality of the provisions around reticulation. He felt that if the DME was sure that should the matter be challenged in court they would be able to convincingly state their case they should go ahead and transform the industry. Some stakeholders would object to it if they felt that they would suffer financial losses. The transformation agenda had long been there. Listening to what the City of Cape Town was saying, for example, on began to wonder whether they were still dedicated to it or not. Some people claimed to want transformation. Upon closer investigation it was clear that they were in favour of it as long as it did not affect their pockets negatively. He felt that at some point there should be more informal engagement around the matter so that by the time the final draft was made they were speaking with one voice.

Adv Noqxina said that the DME sought five legal opinions on the matter. Legal opinion confirmed the DME’s interpretation that should there be any legal action it was on firm ground.

Hr felt that it was important to bear in mind that while the ‘abnormal’ status quo might not serve national interests, it served certain individual interests. Therefore one should expect some form of resistance from those interests that were best served by the current status quo. The number of different tariffs existing in South Africa was an indication that all the municipalities were not the same. Since they were different, their interests were also different. This was why even within that sector one did not find one voice.

Ms Magubane said that there had been engagement with the labour sector. The DME had looked at a number of issues that had been raised during the hearings and had engaged them quite robustly. Common grounds had been reached as far as certain issues were concerned.

At this point the Chairperson gave stakeholders present an opportunity to make comments.

Mr Derick Elbrechs (National Treasurer: National Union of Mineworkers [NUM]) said that the work the DME had done assisted NUM in seeing points of convergence in areas there were thought to be serious differences. He thought that after the engagements that had taken place since the last hearings and submissions, there was no reason why NUM cold not endorse the Bill.

NUM felt that it was imperative that the sector be transformed. They had been part of the process since 1994 and there had been a lot of resistance to transformation mainly for reasons of self interest. The Committee needed to ensure that the broader South African interests were addressed. NUM believed that while the EDI had been discussed it was of national importance that the Electricity Supply Industry (ESI) be discussed so that a more comprehensive strategy around broad regulations could be developed.

Mr Russel Baloyi (Manager: SALGA) said that his organisation was in agreement with the amendments the DME had made and felt that they needed to start talking about the six wall to wall rates.

The Chairperson said felt that the Committee had been right in halting the public hearing process due to the many diverse views it had revealed. He felt that the powers municipalities were afforded in the Constitution were not in any way affected as had been the case when the Bill first came before the Committee. The reticulation process constituted the essence of the Bill. There should be no tampering with the Constitution. Any suggestion that the Constitution should be amended would not be taken lightly and would be deliberated upon. It was important to consider what would be in the best interest of the nation so to ensure that everybody including those who were not in a position to defend themselves when legislation was passed were protected.

The Committee would meet on 7 November to deliberate the Bill.

The meeting was adjourned.