1. National Electricity Regulator Parliamentary Portfolio Committee
(NER)
Annual Report
2004/2005
Presentation to
Parliamentary Portfolio Committee
(Minerals & Energy)
2 November 2005

2. PRESENTATION OUTLINE
Profile of the National Electricity Regulator (NER)
Strategic objectives
Highlights
Staff analysis
Financial performance
Conclusion

3. PROFILE OF THE NER
NER is the Regulatory authority over the electricity
supply industry
Established in terms of Electricity Act, No. 41 of
1987 (as amended)
The Board consists of Chairperson, CEO and 7
members
The Board of the NER is the accounting authority in
terms of the PFMA
Staff during reporting period: 115

4. PROFILE OF THE NER (cont.)
NER is listed as public entity in terms of schedule
3A of the Public Finance Management Act No. 1 of
1999 (as amended), (“PFMA”)
NER is funded through levies imposed on licensed
generators of electricity
The budget is submitted to the Minister for
Gazzetting and approval on an annual basis

5. PROFILE OF THE NER (cont.)
New CEO was appointed in May 2004
Major challenge: to steer NER from from an electricity regulator to an energy regulator
Minister extended term of current Board members
to prepare for establishment of Energy Regulator

6. PERFOMANCE AGAINST OBJECTIVES
1. Ensuring effective & efficient regulation
143 municipal tariffs received and considered
Evaluated & approved the Eskom tariff application
Developed cross-subsidisation framework
Independent audit of City Power
Approved IPP
NER commissioned an electricity industry risk asessment. One of the risks identified was a need for new generation capacity

7. PERFORMANCE AGAINST OBJECTIVES
Ensuring effective & efficient regulation (cont.)
NER Board approved a 4.1% increase to Eskom’s
average price at a nominal rate of return of 11% -
implemented on 1 January 2005
NER approved a general municipal tariff increase
guideline of 4.3% based on the Eskom price
increase, inflation and other cost drivers relevant
for municipal distributors – implementation July
2005

8. PERFORMANCE AGAINST OBJECTIVES (cont.)
Ensuring effective & efficient regulation (cont.)
A compliance monitoring framework was
developed and implemented for Distributors
The NER commissioned an independent audit of
City Power

9. PERFORMANCE AGAINST OBJECTIVES1
Ensuring NER prepared & able to effectively regulate the future industry
Participated in DME & EDI Holdings Working Groups
A framework for EDI technical regulation developed
Developed a web-based licensee information system to accommodate the new ESI structure
planned activities executed

10. PERFORMANCE AGAINST OBJECTIVES
2. Ensuring NER prepared & able to effectively regulate the future industry (cont.)
NER has developed a draft high-level view of the multi-year price path (MYPP) for generation, transmission and
distribution
Incentive Based Regulation (IBR) methodology has been
developed for Transmission
Published Second National Integrated Resource Plan (NIRP) to assist in decision-making with regard to the construction of new power stations in the future.

11. PERFORMANCE AGAINST OBJECTIVES
2. Ensuring NER prepared & able to effectively regulate the future industry (cont.)
NER also decided to engage external auditors to
audit the ten largest municipalities
The following projects were completed in
preparation for the first RED:
Draft licences
Guidelines for retail tariffs
Guidelines for wholesale tariffs
RED wholesale trading arrangements
framework
Cross-subsidy policy

12. PERFORMANCE AGAINST OBJECTIVES
3. Promoting appropriate procurement mechanisms & regulatory framework for Gx capacity
Developed, compiled & published the NIRP 2
Actively participated in DME led competitive bidding process for new Gx capacity
Developed a Cost Recovery Mechanism for costs associated with PPA between Eskom & IPP’s
NER also participated in the drafting of the Request for
Qualification on transmission connection and operating

13. PERFORMANCE AGAINST OBJECTIVES (cont.)
4. Developing & retaining requisite skills & competencies within NER
International co-operation and partnership resulted in training of NER staff at University of Florida (PURC)
Management attended a Supervisory effective
course
Received approval for NER/NARUC Regulatory
Partnership Programme
6 Staff members attended regulatory course in Norway

14. PERFORMANCE AGAINST OBJECTIVES (cont.)
5. Improving and sustaining the good image of the NER
Participated in the 2nd AFUR Annual Conference
and General Assembly
Participated in the 1st SAURA Executive Committee
Produced publications: Lighting Up SA, Electricity
Supply Statistics, NER Quarterly Journal

15. PERFORMANCE AGAINST OBJECTIVES (cont.)
6. Enhancing the integrity of the NER by improving internal management systems and procedures
Developed a systems and information technology standards
documents
Adhered to all legislative reporting requirements
Approved a Risk Assessment framework and strategy for
internal risk
Established an ORC: mitigating strategies & monitoring
strategies for internal risks
Establishment of an Internal Audit Unit
Development of a fraud policy and establishment of
a fraud hotline

16. PERFORMANCE AGAINST OBJECTIVES (cont.)
7. Effectively contributing to the socio-economic development programmes of government
66 CCF’s were established and 41 CCF’s were monitored
65 Customer education events were conducted
Actively contributed to development of Free Basic Electricity Policy
Actively participated in the Poverty Reduction Conference
through better regulation
Board approved Energy Efficiency and Demand Side
Management (EEDSM) Regulatory Policy

17. PERFORMANCE AGAINST OBJECTIVES (cont.)
8. Establishing a single energy regulator using NER as a building block
A project team on preparation for establishing ERSA
NER Ad Hoc Board to oversee NERSA creation
Developed a draft regulatory framework for piped-gas and
petroleum pipelines
Developed NERSA Strategic Plan and Business Plan
Developed & implemented a capacity building & training
programme
Developed a change management & communication strategy
NER commissioned a building enhancement project at the
cost of R 4 million in preparation of NERSA

18. PERFORMANCE AGAINST OBJECTIVES
61 % planned activities executed
Of the 65 strategic activities 51% on track
Of 40 operational activities 73% on track
Factors impacting on execution:
ESI/EDI restructuring externally driven
External participants’ slow response
Challenges in the effective management of projects
High turnover of experienced staff
1% planned activities executed

19. NER STAFF ANALYSIS (RACE)
Blacks
Whites
(%) No. of employees
(%) SA companies
Senior Mgt.
77%
44%
23%
56%
Professionals
81%
64%
19%
36%
Technicians
91%
51% 9%
49%
Clerks
94%
58% 6%
42%
TOTAL
85%
80%
15%
20%

20. NER STAFF ANALYSIS (GENDER)
Males
Females
(%) No. of employees
(%) SA companies
Senior Mgt.
53%
73%
37%
27%
Professionals
49%
45%
51%
55%
Technicians
52%
48%
Clerks
22%
31%
78%
69%
TOTAL
44%
60%
56%
40%

21. FINANCIAL PERFORMANCE
Brief background
Financial management and accounting of NER is
governed by:
PFMA,
Treasury Regulations and
Generally Accepted Accounting Principles
(GAAP)

22. FINANCIAL PERFORMANCE
2. Budget overview
Approved budget for 2004/05 was R 63 million
Actual expenditure was R 59 million
Surplus as at end of financial year was R 4 million.
The Minister approved the utilisation of the above
surplus funds for the establishment of NERSA

23. FINANCIAL PERFORMANCE
3. Budget variance analysis
INCOME RECEIVED (R’000)
BUDGET ACTUAL
Levies
Interest
Total
EXPENDITURE (R’000)
BUDGET ACTUAL
Employees Costs
Operating Costs
Fees For Services
Capex
Board Members
TOTAL

24. FINANCIAL PERFORMANCE
4. Expenditure analysis
Expenditure categories in relation to total actual
expenditure
Operating expenses =35%
Employee costs = 48%
Fees for services = 13%
Capex = 2%
Board Members fees = 2%

25. FINANCIAL PERFORMANCE
5. Audited Financial Statements (AFS)
NER received an unqualified audit opinion from the
Auditor General
The audit report raised the following matters of
emphasis:
Revaluation of Land and Building
Human Resources Management
Financial Management
Asset Management

26. FINANCIAL PERFORMANCE
6. Financial and asset management
Development of efficient and effective systems of internal
control is work in progress to implement corrective
measures.
Implementation of audit findings are being addressed and
monitored by the Operation Risk Committee chaired by the
CEO, and reported on to the Audit and Risk Committee
of the Board to ensure compliance
Internal controls on expenditure management have since
been developed and approved by the Board to comply with
section 51(1)(a)(i) of the PFMA

27. FINANCIAL PERFORMANCE
7. Operational results
Net surplus of the NER for the year ended 31 March 2005
was R 4,123 million
R 62 million was collected as levies indicating a 100%
collection rate of levies imposed, with Eskom
accounting for 98% of levies received
R 1,8 million was income received from interest
from call deposits
Expenditure incurred of R 59 million was within the
approved budget

28. FINANCIAL PERFORMANCE
7. Operational results (cont.)
Fees for services included technical consultancy costs
for projects to develop benchmark mechanisms in
regulatory standards
More than 50% of NER purchases are made through
BEE companies

29. FINANCIAL PERFORMANCE
7. Operational results (cont.)
Total assets have increased to R 44 million indicating an
increase of 12% compared to 2004
The ratio of current assets to the current liabilities is 479%
which indicates that NER is a viable entity as a going
concern.
Cash and cash equivalent of R 32 million consists of NER’s
main bank account and deposits held at Reserve Bank in
terms of Co-operation of Public Deposits (CPD)

30. FINANCIAL PERFORMANCE
7. Operational results (cont.)
Operating expenditure includes rental of R 845,979 under
operating leases for office equipment and the rest is made up
of variable costs and notional depreciation charges
53% of capex was spent on acquisition of computer hardware
and accessories, 30% for office equipment and 17% for
computer software and licenses.
Land and building is fully paid up and is now owned by NER
with a carrying value of R8,1 million as at 31 March 2002.

31. FINANCIAL PERFORMANCE
8. The NER financial performance
The NER financial performance can be summarized
as follows:
Income Statement
YEAR ENDED March March Variance R’ R’000
Levies (1 343)
Expenditure
Surplus (7 872)
Capital Expenditure (2 333)

32. CONCLUSION
The NER:
has met its strategic objectives as pointed out above
has laid a good foundation for NERSA
has set a good foundation for Multi-Year Price Determination
(MYPD) and Multi-Year Price Path (MYPP)
is managing the high staff turnover
has fully utilized the budgeted funds
has introduced a cash flow management risk strategy
is aiming at a clean audited financial report

33. CONCLUSION (cont.) The NER:
has established the Operational Risk Committee
(ORC)
has extended the mandate of Audit Committee to
cover risk related issues, is contributing towards
mitigating risks factors in conducting the NER
business

34. THANK YOU