NERSA Parliament Treasury

Municipal Tariff Determinations: updates

PMG 30 July 2013.
Summary:
The Portfolio Committee on Energy received briefings from the National Energy Regulator of South Africa (NERSA), the South Africa Local Government Association (SALGA) and the National Treasury on the process and considerations that led to the determination of municipal electricity tariffs. Stakeholder consultations were held during the tariff determination, involving National Treasury, municipalities, and electricity consumers. NERSA would take a number of factors in account, such as weighted average increase in the benchmark municipal cost structure, including bulk purchase cost from Eskom, salaries and wages, repairs and maintenance, capital charges, Eskom increases, inflation and National Treasury guidelines, and this year, NERSA had approved a percentage guideline increase of 7.0%.

Those municipalities wishing to deviate from that guideline had to make a specific application, with motivation, and public hearings would be held. If NERSA approved the applications, the funds must be ring-fenced to ensure that they were strictly utilised for the identified purposes. Municipalities had to report on how the funds were used and NERSA did inspections. 19 municipalities had s far submitted applications, and their requests and outcomes were summarised. Six had applied for a review, although NERSA said that part of their problem in determining tariffs was the inaccuracy of information submitted by the municipalities. NERSA aimed to reach pricing decisions that would result in a good balance between sustainability of utilities and affordability for the consumers. Members were concerned about poor information submitted to NERSA, asked how it monitored ring-fencing of funds, how it did inspections and ensured that funds were properly spent. They asked how government would address the R35 billion backlog in electricity distribution infrastructure, cautioning that the tariff could not deal with this, asked abut funding time of use metering systems, and pointed out that National Treasury could probably assist in getting better information. They requested clarification that the municipalities’ increases were not in addition to Eskom’s, asked for more detail on the formula, questioned whether some municipalities were not obtaining double-benefits by being involved also in other programmes, and asked when electronic monitoring might be introduced.

SALGA was in agreement with NERSA’s attempts to cater for the difference between municipalities, where they wished to deviate from the guidelines, and the public hearings. However, SALGA suggested that NERSA should classify municipalities into comparable groups, based on their underlying operating circumstances such as consumer mix and customer numbers, and ensure that all municipalities with medium to large scale industrial customers introduced energy and demand tariffs that were time and seasonally differentiated. SALGA said that the effect of the tariff increase was that municipalities would see a slight reduction in their electricity income, but most municipalities welcomed the decision as more affordable tariffs would be charged to end users. There were, however, concerns whether Eskom was able to operate a sustainable network with its reduced increase, and requested further investigation on this. Municipalities faced challenges in complying with the tariff application process, but SALGA was assisting them. Better collaboration between SALGA, NERSA, Department of Energy, National Treasury and other stakeholders was still needed, to address the overall challenges experienced by municipalities, and there was also a need for better coordination between the finance and electricity divisions at municipalities. Training was required to address constraints.

National Treasury highlighted the role of local government in service delivery, and said that it was helping municipalities with costing. Because the norms and standards under the Municipal Fiscal Powers and Functions Act (No 12 of 2007) were not yet applied, surcharges (included under “Other Costs”) still formed part of tariffs approved by regulators. It was noted that standardised annual report frameworks were operating, but data still needed improvement and National Treasury was contemplating legislating for standardised norms. The aspects of, and linkages within local government fiscal frameworks and service delivery were explained, with specific reference to the impact of surpluses and deficits, and it was noted that one of the biggest problems was that municipalities often reduced their spending on repairs and renewal, with the gaps between community needs and real service delivery being another. Electricity was the largest component of service charges, but electricity revenue was declining, due to high bulk increases, which could lead to electricity becoming unaffordable, and there were questions around the sustainability of measures that municipalities had put in place to try to absorb losses, as well as concerns that revenue was not being properly managed. Some of the National Treasury initiatives on revenue management and modelling were outlined. Members asked whether anything was done to monitor maintenance, who would develop a policy framework, why municipalities were struggling to get their forms submitted. One Member felt that there were three interlocking problems, requiring a holistic examination, of problematic institutional structures, no incentives and inefficient electricity pricing, coupled with non-sustainable underspending.

The South African National Energy Development Institute (SANEDI) gave a presentation on its Working for Energy Programme, mandated by the Department of Energy, which was initiated to demonstrate the application of renewable energy to address energy poverty, especially in rural areas. It was an essential element of the job-creation drive of the government, was linked to the Expanded Public Works Programme (EPWP), and targeted at the youth, women, and people with disabilities. It focused on research into the availability and sustainability of renewable energy resources, including conversion of biomass to energy initiatives, biomass to bioenergy, waste to energy, development of mini-grid hybrid and smart grid systems from renewable resources, mini-hydro systems, and small scale solar powered electricity generation. Energy-saving initiatives were also being explored, including energy management planning, thermal efficiency, materials for poor or rural households, sustainable feedstock provisions, and alternative fuel sources for low cost housing. Although no funding had been allocated for the current year, the previous year’s activities were described. The reach was national, but with many in Eastern Cape. Flaws had been notified, but attempts made to correct them. Partnerships were used, and more were contemplated. Challenges included the lack of budget, limited regional presence, the high costs of intervention into low economies of scale, and difficulty in getting high technology interventions for rural areas. A request had been made to the Department for more certainty on funding. Members agreed that whilst the programme appeared to be useful, they needed more detail not only on this specific programme, but others that SANEDI undertook. They commended the focus on hospitals, questioned links to the Department of Agriculture’s programmes and the Council for Scientific and Industrial Research, and commented that they saw this as more of a social transformation programme.

The presentations can be downloaded below:

PPC working for Energy project SANEDI 130730sanedi

PPC Municipal Electricity Tariffs 130730nersa

PPC NERSA Municipal Determination on Finances 130730treasury

PPC Update on the 2012-2014 NERSA Municipal Tariffs 130730salga

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