Tag Archive | Electricity Regulation Act

Major metros clarify picture on electricity tariffs

Metros confirm adherence to NERSA rules….

In an important meeting with the portfolio committee on trade and industry under the chairmanship of Bheki Radebe, South African Local Government Association (SALGA) gave its views on recent and forthcoming hikes on electricity tariffs and confirmed that  none of the major metros, constituting more than 80% of municipal electricity distribution, ever imposed tariffs that had not been approved by NERSA, the regulator.

Although it was acknowledged that there could be isolated cases of smaller municipalities not complying with this principle, Mthobeli Kolisa, executive director, municipal infrastructure services, SALGA, said there was an overlap between the provisions of the Electricity Regulation Act dealing specifically with tariffs charged by its licensees and the Municipal Finance Management Act dealing generally with municipal tariffs but any problems and most conflicts were overlooked in the national interest.

NERSA’s word was final, he said.

Local government reports for three major cities

SALGA, with input also from representatives of the eThekwini, Ekurhuleni and Johannesburg Metros, briefed the committee on the breakdown of municipal electricity tariff charges.  When determining the municipal increases, in line with the NERSA guidelines, the municipalities would take into account the costs of bulk purchases, repairs and maintenance, salaries, interest charges and other cost, and then would have to justify their requests for increases to NERSA, Kolisa said for SALGA.

eThekwini municipality said that electricity purchases made up the largest percentage of the budget of the metro.   For a municipality whose electricity purchases constituted 64% of its budget, Eskom would charge a percentage increase of 13.5%.    This would contribute 8.6% to the total average increase of 11%, which was a direct pass-through cost for the municipality.

They said that even if the municipal cost did not go up, the increase would still be 8.6% to the end customer, as a direct result of Eskom’s increase.   As a result of the municipal cost increases, a further 2.4% was added onto the total increase for the year, as a result of the increases in salaries and wages, repairs and maintenance amongst other cost items.

Sticking to the rules, they say

City of Ekurhuleni said that when Eskom was running short on generation capacity, which happened during the winter months of June, July and August, there was a strong signal during peak hours and although it might cause customers to complain, municipalities would not work against the national objective.

They said that an analysis of the Eskom “Megaflex” tariff indicated that energy was 90% of the cost in Ekurhuleni and demand constituted 10%, with the mark-up at zero (as Eskom was the baseline tariff for a municipality). The Tshwane tariff, on the other hand, indicated that energy was 62% of the cost, demand at 38% and mark-up at 9% which was known to be the case..Should Eskom run the lot?

Should Eskom run the lot?

Kolisa commented, in response to a question whether Eskom should distribute all electricity, that cutting municipalities out of the distribution lines and the equation generally would not be feasible.   It was still necessary for them to distribute electricity.

They only, and only they, had the infrastructure in place in their areas, he said, and the suggestion of separate re-distribution zones, or REDS, was an issue of the past.

However, municipalities and metros, said SALGA, faced a generalised critical shortage of skills in the engineering sector and were unable to attract and retain specialist skills, particularly since they also faced competition from private industries.    The idea of “adopt a municipality” inviting participation by industry was now being promoted to re-gain some of the lost territory.

City of Johannesburg explained that Eskom tariffs to municipalities included a 4,17 c/kWh (cents per kilowatt hour) cross subsidy towards Eskom’s residential customers, and a cross subsidy for electrification in Eskom supply areas (3,59 c/kWh) and said that the general idea of one rate or one tariff would not fit all municipalities mainly because of their disparate size, different services and different demographics.

Hope that independents might make common tariffs possible

City of Johannesburg said the government initiative to establish the ISMO system where Eskom and municipal distributors would be treated as peers and all distributors would be purchasing from the ISMO at wholesale rates would make some form of tariff alignment possible.   But this was well into the future.

SALGA said that a tariff design plan was in process by the five main metros which took into consideration the principles of the cost of supply and this co-operation accounted for the current compliance.    Metropolitan distributors and a significant portion of the larger municipal distributors, it was said, were working towards detailed cost-of-supply analysis.

In conclusion, SALGA noted that it might be possible to set a uniform tariff structure but such a move to make it viable would require financing.  Generally, part of the problem, it was said, was that there was a strong need to move towards more advanced technology.

Inevitable coal question

In reference to the control of cost inputs in energy supply, SALGA said it was interesting to note that China relied on coal that it imported at very low cost and countries like South Africa were exporting to China at cheap prices to get their business. Local government could not regulate on such issues as coal exports, which were an issue for debate at Eskom and national level, but SALGA could see perfectly well what some of the problems were.

SALGA finally noted that education campaigns to promote energy efficiency were not as effective in the field as they might be and SALGA would work with the Department of Energy to try to correct this.

Posted in Finance, economic, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry, Uncategorized0 Comments

ISMO Bill: Eskom to keep the transmission grid

When asked by MPs what assets in the proposed Independent System Market Operator (ISMO) Bill were to be transferred to the operator’s name during the restructuring of South Africa’s energy system, Ompi Aphane, deputy director general of the department of energy (DOE), confirmed that the Bill was not referring to a transfer of South Africa’s transmission grid system but to minor office assets.   He said any such thoughts of splitting Eskom as the major electricity generator from its national supply grid were not being countenanced at this stage and any such moves “were a long way off”.

Aphane, in presenting DOE’s responses to the various submissions made in parliamentary public hearings on the Bill,  said that there had been a change of mind at DOE as a result of the submissions when it came to staff transfers.   These were now to be carried out strictly in terms of the Labour Relations Act.

The DDG summarized by saying that inputs on the Bill “had been very useful” and they would no doubt improve the quality of the Bill itself but he drew attention to the fact that a good deal of the hearings had been devoted erroneously to discussion on a finally re-organised energy supply system, “which was clearly not defined by the Bill nor its intention.”

However, Aphane said that in general terms the responsibilities of “keeping the lights on” was being taken away from Eskom given to ISMO with considerable numbers of staff transfers and transfer of expertise taking place as part of this process.

He said, “We have a very tight energy supply position in South Africa and in taking any direction with energy supply it is essential that we do not compromise this country’s supply/demand relationship which badly needs a balanced electricity supply system based upon carefully handled and integrated established base load plants and peak generation plants.”

In a survey of world situations, Aphane said that DOE had established that in some countries some very bad mistakes had been made in similar situations, including the United Kingdom, which had, as a result of poor handling, suffered greatly from little in the way of new infrastructure energy investment. It was critical, he said, that South Africa does not emulate such mistakes.

DOE said it had looked at ISMO structures established Norway, USA and in developing countries such as China, Turkey, Thailand and Brazil and it was interesting to note, he said, that Norway was generally regarded as having one of the best electricity market models – although very different from South Africa.

Nevertheless, Aphane said, there were certain parallels which South Africa could copy but he warned that any planning coming after the abortive REDs situation had been in a period when there was a high reserve margin. Now, with completely different and very tight restraints, it was to be realized that DOE would proceed into the area of free market operations with great caution. There was a different financial call upon Eskom and on government.

Aphane said it remained essential now to have control over pricing to the consumer especially in the light of Inter-Ministerial Committee report following the blackouts and massively increased electricity tariff structures; the call for energy efficiencies and new factors on climate change. The world was a different place to that when the REDs plan was mooted.

He commented that it had to be recognised that South Africa currently remained dominated by coal fired stations and such were difficult to introduce into a free market situation. Also, he said that the issues of cross-subsidies would probably always remain in some form or another.   He concluded that the “big ticket items” in DOE’s view that had emerged from the public hearings on the ISMO Bill were the perceived need  for independent transmission lines; that the concept of willing buyer-willing seller need to be addressed in the concept of the ISMO, as it was elsewhere in South African legislation, and the call for stakeholder representation on the ISMO board.

On the last point, DOE believed that the state must retain the prerogative of appointing board members in the light of the fact that it was the state that was exposed financially.

MP Lance Greyling, shadow minister of energy, called for a lot more planning and strategy on energy to rest with the ISMO board urgently. He disagreed that such a considerable number of the regulatory matters should remain to be sorted out under the ERA and would be preferably defined under the ISMO Bill at the soonest. Too much was being left to amendments to the ERA to come, way down the line, leaving a current vacuum, he said.

Posted in Electricity, Energy, Finance, economic, Mining, beneficiation, Public utilities, Trade & Industry, Uncategorized0 Comments

Hearings completed, debate starts on new ISMO Bill

With hearings over 4 days, the portfolio committee  of energy under Sisa Njikelana heard submissions on the Independent System and Market Operator (ISMO) Bill, legislation that brings to South Africa for the first time a regulatory system for the trading of electricity at a wholesale level and for integration of privately produced power into the national grid.

In addition, the department of energy has reported back to Parliament with its views on these submissions. This will be summated on this website shortly, after circulation of ParlyReport to private clients.

Department of Energy (DOE),  in their own submission during the hearings said that South Africa urgently needed new generation capacity but there had to be “rules of engagement and a level playing field” if the private sector was to be introduced. Consequently government had to ensure that the public still had the benefit of “minimalisation of inevitable tariff increases”.

The purpose of the ISMO Bill was to establish a centralised electricity buying department to separate such a process from Eskom who controlled 90% of the electricity output in SA, thus providing a form of independence from Eskom for independent power producers, DOE said in their introduction.

ISMO would be responsible for an “aggregated wholesale price”, leaving generation licences and allocation of megawatts supplied in terms of the integrated resources plan to be addressed under the Electricity Regulation Act.

In general, all submissions welcomed the introduction of such a Bill, the Energy Intensive User Group expressing concern in their comments as to who exactly was the ultimate owner of the national grid system and the fact that municipalities were included as distributors under ISMO jurisdiction.   The Bill was silent on ISMO rights, they noted, and how potential customers would be shared between Eskom and ISMO and is was important in their view that the Electricity Regulation Act be amended to reflect this since the new ISMO legislation would be rendered inoperable in many respects.

NERSA, the electricity regulator, had a number of critical comments to make, Richard Chauke of that organisation stating that “despatch”, or passing on of power generated is not provided for in the Bill as a licenced activity in terms of the Electricity Regulation Act (ERA), meaning that NERSA would have to commence trading activities on a temporary basis which was not a good plan.

Also, they stated, Eskom’s licence as an operator needed to be amended and separated to allow for independent power producers (IPPs).

NERSA responded to queries as to why the ERA had to be changed, stating in their reply that the ERA was the anchor legislation for the entire process and that matters should follow such a regime where major subjects such as this dealt should be dealt with in an over-arching industry act, particularly not the ISMO which was relevant to IPP supply.

NERSA again emphasised that as it was important in order to ensure equitable and fair despatch of IPP power; that considerable expertise within NERSA would have to be built up in NERSA in the coming months to ensure transparency and this might be achieved by hiring suitably qualified additional staff.

Posted in Electricity, Energy, Finance, economic, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

More hints that Gas Act amendments on the way

The National Energy Regulator of South Africa (NERSA), in a presentation to the portfolio committee on energy, unveiled its strategic plan for 2011/2  indicating its intention to ask cabinet for a review of the Gas Act through an amendment Bill. From remarks made during the meeting it is apparent that the draft has been prepared and finalised.

NERSA indicated that the primary purpose for calling for changes were to redefine many issues that had changed with the passage of time in the gas industry with the many different applications that had been introduced and that discussions with stakeholders had been held.

Other matters included the drafting of strategies involving gas as far as the integrated Resource Plan of 2010 was involved in its relation to energy and power needed in the total national context.

NERSA informed the committee that a key objective was the imposition of regulatory certainty “to create a conducive environment for attracting and ensuring orderly investment”.

In looking ahead, NERSA said that one of its main items of focus would be establishing and clarifying its own mandate insofar as the fixing of tariffs and its regulatory powers to do so was concerned and there were certain anomalies that had to be cleared up and systems improved.

NERSA said that one of the issues arising regularly and which had to be rationalised was the matter of regional pricing structures that arose in geographical areas because of different conditions and costs. The regulator wanted to consider maximum pricing and placing a cap to apply to certain tariffs.

NERSA undertook, it said, its mandate promised to Parliament last year that it would continue to monitor compliance within terms of licences granted, for example the monitoring of gas supplies from Mozambique. The NERSA spokesperson said that, as regulator, about five IPP licences, in line with government’s aim of having 30% of South Africa’s power generated by IPPs and the remaining 70% by Eskom, had been granted and a further twenty eight were about to be granted.

As a body, NERSA said it was responsible for the National Energy Regulator Act, its anchor legislation, the Electricity Regulation Act, the Gas Act and the Petroleum Pipelines Act . With these, it controlled levies through section 5B of the Electricity Act, the Gas Regulator Levies Act and the Petroleum Pipeline Levies Act.

Insofar as tariffs approved were concerned, these included the major increase for Transnet and various new tariffs for Engen, Chevron, Sasol and the Tarlton storage facilities, amongst others. Continued attention was to be given to pipeline bottlenecks in Durban.

The monitoring of possible shale gas supplies emerging from exploration in the Karoo was being monitored.

Most of the discussions between NERSA and parliamentarians as a result of the presentation surrounded Eskom, which supplies 90% of the electricity needs of South Africa.

Posted in Energy, Fuel,oil,renewables, Mining, beneficiation, Trade & Industry0 Comments


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