The Electricity Distribution Industry

Overview Introducing the EIUG The Issues facing EDI Process to achieve an effective EDI 25 July 2012

The Electricity Distribution Industry In July 2012, The Portfolio Committee on Energy and the Portfolio Committee on Cooperative Governance and Traditional Affairs called for comment on the restructuring of the EDI. Highlighted areas of concern Large maintenance backlogs & poor asset management A lack infrastructure investment Insufficient governance and compliance A lack of sufficient skills Poor financial management 25 July 2012

25 July 2012

The Consequence of EDI Failure Without intervention and support, the EDI will reach a tipping point in terms of its viability and ability to provide acceptable service delivery to its customers. 25 July 2012

The Core Problems 1 2 3 Resources Finance Governance and Process 4 3 5 6 7 25 July 2012

Resources The EDI lack both technical and managerial skills. Its is not possible to increase the width and breadth of its skills base in the short to medium term. We therefore need to leverage the limited skills available, in order to ensure the maximum benefit for all EDIs. 25 July 2012

Finances Financial management of the EDI can be broken down to: Revenue Management Local Authorities Surcharge/ Subsidies and Surcharges Process of approval Affordability/ Pricing Viability 25 July 2012

Finances: Revenue Management Electricity revenue is not only used to meet the costs of the electricity industry but also subsidises a number of other non-electricity related services. There are currently no commonly agreed cost-reflective and aligned tariff methodologies applied by all the municipalities. A high level of non-technical losses plague the industry resulting in reduced revenue and a resultant tariff distortion. Invoicing is often incorrect and there is poor debtor management. Metering suffers from a range of problems (faulty installations, inaccuracy, infrequent readings etc.). 25 July 2012

Municipal and NERSA Tariffs 25 July 2012

Municipal Margins 25 July 2012

Municipal Margins 25 July 2012

Finances: Local Authorities Surcharge/ Subsidies and Surcharges Process of Approval There is no commonly agreed framework for the implementation of surcharges by the municipalities. Surcharges are often administered to supplement revenue short-falls amplifying inconsistent management of finances. Eskom do not apply municipal surcharges on its customers, resulting in price distortions between distribution licensees while unduly increasing the burden on municipal customers. 25 July 2012

Finances: Affordability/ Pricing The absence of a consistently applied and enforced tariff methodology across the distribution industry results in inequitable tariffs. 25 July 2012

Finances: Viability The viability of a municipality from an electricity supply perspective is also dependent on their size, location and customer base. Some municipalities simply cannot generate enough revenue in order to attract skilled personnel, manage their infrastructure and grow the customer base. 25 July 2012

Governance & Processes There is confusion regarding the sphere of influence of the EDI. This relates to the role and powers of NERSA viz-a-viz the constitutional competencies of municipalities to reticulate electricity. The perception is that Municipalities often transgress or simply ignore NERSA rulings including: Funding earmarked for free basic electricity that is applied elsewhere Setting tariffs divergent to that of the regulator 25 July 2012

Governance & Processes A lack of monitoring, compliance and an enforcement regime makes it difficult to ensure quality of supply and quality of service standards are met and enforced. Standardised, best practice and easily implementable operations processes are required for the day to day operations of the EDI. 25 July 2012

The EIUG and the EDI The EIUG submits that addressing the critical issues in the EDI does not necessarily require the immediate restructuring of the industry as mentioned by the Portfolio Committee. The EIUG maintains that many of the most critical issues can be resolved within the prevailing industry structure. 25 July 2012

Approach to an effective EDI 4 Alignment by all stakeholders regarding the nature, scale and consequences of EDI issues. 5 Recognition of the existing structures and the strategic importance of the EDI to municipalities. 6 Solutions won’t come from restructuring of the EDI but will be centered around agreed upon and implemented options that support effective service delivery. 7 That solution functions within the policy, legislation and regulation of Government policy, 1 2 3 4 5 6 7 25 July 2012

The Process to Ensuring EDI Viability The EIUG suggests that there are a number of distinct consecutive work-streams that be identified to develop the precise mechanisms and details regarding the CoE, frameworks, timing and implementation of the solution. The workstreams are: Stakeholder Alignment and Preparation Preparation Implementation: Stabilisation & Evaluation Capacitation 25 July 2012

The Process to Ensuring EDI Viability Following this will begin the design of the Frameworks and their implementation across the EDI. The Frameworks will need to address the following key areas: Revenue Assets Operations Governance Capacity Building 25 July 2012

Conclusions There is no foreseeable benefit in simply restructuring the EDI, it is more effective to try and focus on a few key areas which are likely to have the biggest impact. We cannot afford another stalled Programme on EDI or EDI will fail EDI Improvement is a multi facetted issue that requires leadership from: Government Regulator Distributors 25 July 2012

Thank You 25 July 2012