| Work Detail |
Changes to the electricity sector in SA means local government structures can no longer depend on electricity sales as an automatic revenue stream
Municipalities from across Southern Africa gathered in Mbombela Municipality to discuss their role in the future liberated energy market of South Africa, which started with the formation of the National Transmission Company of South Africa (NTCSA).
Nersa has been undertaking various studies and audits of the work being done at municipalities in South Africa. These initiatives are flagging problems that will be exacerbated by changing regulations.
Welile Mkhize, Acting Executive Manager for Regulation at the National Energy Regulator of South Africa (Nersa), pointed out to the Association of Municipal Electricity Utilities at the AMEU Convention that Nersa audits show that municipalities have underspent on repairs and maintenance in recent years, “which often leads to infrastructure deterioration that constantly increases the cost of urgent repairs.”
“Substations blowing up, transformers needing to be replaced…”
Other issues South African municipalities face include the fact that rapid urbanisation is putting pressure on existing infrastructure, leading to illegal electricity connections.
“Some cities suffer up to R2 billion annually in losses. Half of this is non-technical losses which cannot be recovered.”
Mkhize emphasised that the losses can be quantified for prepaid meter customers, but the true extent is unknown for post-metered customers.
“There is no financial model to assist the municipality to understand the impact of different trends on the sustainability of the electricity trading service,” warned Mkhize.
“These include trends like the percentage of indigent customers, the tariff levels, the amount of embedded generation already installed, the impact of variating elements in terms of revenues and the sustainability of the business models.
“We believe such models should be developed as a valuable tool for long-term strategic decision-making for distributors.
Restructuring tariffs and services at municipalities
“Another issue is that metros face volumetric risk in relation to electricity revenue,” Mkhize continued.
Bundled tariffs currently mean that if customers reduce their overall spending, this influences the amount of money available for network fees.
“We need to unbundle and restructure the electricity trading services. We are in the process of addressing these issues,” said Mkhize.
High vacancy risks in municipalities (more than 35%) are a key obstacle to operational performance, which ultimately affects financial performance and service delivery. This is also an observation Nersa’s audits have flagged.
“Cities in South Africa account for more than 60% of SA’s GDP. Most growth and job creation will take place in the cities. Cities need a secure and reliable trading supply for water and electricity,” said Mkhize.
Also, the electricity sector is not the only one suffering because of the vacancy risk; Nersa sees water delivery becoming just as big a problem.
“The service of trading is in decline and is putting existing investments and jobs at risk in cities. It is therefore imperative that the EDI [electricity distribution industry] roadmap is developed,” said Mkhize.
He said Nersa is working with the National Treasury, Necom, the Department of Mineral Resources and Energy and other bodies to reform the trading business of the Metros, with assistance from the World Bank.
It is meant to enhance municipal business efficiency and the ability to reduce operating and overhead costs.
Nersa reviewing regulation and its role
“Reformed municipalities with clean balance sheets will be able to participate in revenue enhancement schemes such as wheeling and the market of the future,” said Mkhize.
The World Bank is introducing a programme to increase access to finance and sustainable grant funding to increase the level of investment in trading services at local level and it is hoped this will improve reliability and quality of services.
He said Nersa was also reviewing its compliance framework and would, in the future, “become increasingly intolerant to issues of non-compliance, especially in regard to license conditions.”
He advised that this has already taken off regarding the new distribution compliance framework recently approved around April. “This will enable the regulator to implement Section 18 of the ERA in full,” he stated.
“Section 18 talks about the regulator sitting as a tribunal, as well as issuing fines around compliance. We will look to implement that in full in the near future.
“Nersa will increasingly scrutinise costs during tariff applications to ensure inefficiencies are not being passed on to customers through tariffs.”
The regulator has introduced a cost-of-supply pricing methodology, and Mkhize said 102 municipalities did not provide these studies with their tariff applications in the introductory phase of the methodology this year.
“In future, this will not be tolerated. We need to ensure that all municipalities are implementing the new Nersa cost of supply framework, which we have communicated to you.”
In addition to all municipalities submitting their cost-of-supply studies, the Regulator also wants to see improved and more accurate data underpinning the studies.
Nersa auditing municipalities in South Africa
The regulator is auditing the financial and technical health of a sample of three municipalities, which will increase as pending becomes available. These audits include an assessment of governance processes.
While Nersa wants to see a move towards cost-reflective tariffs, Mkhize said they are keenly aware that South Africans think the tariff increases are too high. “This is something the regulator and the municipalities will have to manage, to move to cost-reflectivity in a manner that is sensitive to socio-economic circumstances in the country,” said Mkhize.
He said introducing the cost-of-supply will help the move towards a cost-reflective, unbundled tariff. The regulator is aware that where these tariffs are being unbundled, the introduced demand and capacity charges are causing an outcry (such as the recent introduction of the R200 fee at household level in Johannesburg).
“The issue is that these costs have always been charged, but they were bundled within the energy charge. Moving forward we need to unbundle our tariffs in order to recover all the costs the utility incurs to provide the service.
“This will ensure the sustainability of municipalities going forward.” |
