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RESPONSE : ELECTRICITY REGULATION AMENDMENT BILL

RESPONSE : ELECTRICITY REGULATION AMENDMENT BILL. Outline. BACKGROUND Why do we need this amendment bill? This is how this Bill facilitates EDI Restructuring STAKEHOLDER INPUTS What stakeholders have said Detailed stakeholder views/responses (Annexure) DME RESPONSE

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RESPONSE : ELECTRICITY REGULATION AMENDMENT BILL

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  1. RESPONSE : ELECTRICITY REGULATION AMENDMENT BILL

  2. Outline • BACKGROUND • Why do we need this amendment bill? • This is how this Bill facilitates EDI Restructuring • STAKEHOLDER INPUTS • What stakeholders have said • Detailed stakeholder views/responses (Annexure) • DME RESPONSE • Electricity value chain • Industry structure • Regulatory status quo • Consequences of unregulated “reticulation” • PROPOSED WAY FORWARD

  3. Why do we need the Amendment Bill? The Bill seeks to do the following: • Facilitate the economic regulation of the whole electricity value chain including municipalities • Regulate reticulation services in a manner which recognizes the role of municipalities. • Provide for the regulation of service providers by municipalities (SDA) and to harmonize this with the licensing framework • Provide uniformity in the treatment of end-users by licensing them • Lays a solid foundation towards the formation of REDs

  4. STAKEHOLDER INPUTS

  5. What stakeholders have said There are diverse views in relation to the needs of the stakeholders. • “Reticulation” means entire distribution value chain. • “Reticulation” is 380 volt distribution only • NERSA believes the entire industry needs to be licensed in a similar manner. • Licensing the reticulation part of industry impedes municipalities in the execution of their constitutional mandate • Municipalities are averse to the regulator’s intervention in the case of non-compliance and only s139 is applicable as a means to intervene • Intervention by s139 is not appropriate for reticulation • The detailed stakeholder responses are Tabulated below

  6. POWER STATIONS Industrial TRANSMISSION TRANSMISSION Transmission Transmission (765/220 kV) (765/220 kV) Lines Lines METRO/ RED Distribution Lines DISTRIBUTION (132/33 kV) Transmission Substations Domestic Distribution Substations Commercial RETICULATION HV (11 & 22kV) Reticulation LV (380 / 220V) Electrification Agriculture ELECTRICITY VALUE CHAIN GENERATION

  7. Annexure

  8. DME RESPONSE

  9. Industry structure • Current EDI structure is highly inefficient owing to fragmentation • Absence of economies of scale in respect of investing in assets, sharing of facilities, services, people development, etc. • Insufficient investment by municipalities in maintenance, system strengthening and skilled professionals and managers. The root cause of this underinvestment is poor municipal governance

  10. Regulatory status quo • NERSA regulates the complete value chain, with limited success at the distribution level. • Municipalities have executive authority over reticulation in terms of the Constitution. • However, the Constitution does not define reticulation which gives rise to various interpretations from stakeholders. • The above anomaly presents challenges in terms of regulating reticulation.

  11. Economic regulation of reticulation • Reticulation businesses are not ring-fenced to allow application of regulatory principles • Economies of scale are non-existent. • Economic regulation should promote efficiencies in the licensed entity. • Economic regulation should promote low electricity tariffs in an efficient industry. • Municipalities can still apply surcharges AFTER efficient tariffs have been charged for services

  12. Consequences of unregulated “reticulation” • There is a proliferation of different tariffs (approx 2000).This results in unequal treatment of domestic end users especially. • Municipal domestic tariffs are determined outside the current regulatory methodology that is applied for generation, transmission and distribution. • The setting of tariffs outside the regulatory framework has an adverse effect on end-users • socially:domestic end users suffer, • macro- economically: industry does not invest • NERSA has limited powers to enforce regulatory framework over municipalities under the above circumstances.

  13. This is how this Bill facilitates EDI Restructuring • The Bill intends to provide regulatory clarity in respect of the role of Municipalities in the envisaged REDs. • This is critical given the contestation by stakeholders as already expressed in the submissions • Without a resolved regulatory framework, EDI restructuring objectives cannot be fulfilled.

  14. This is how this Bill facilitates EDI Restructuring

  15. Proposed way forward

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