Experiences and views of the AMEU on the EDI and related issues

1. Portfolio Committee on Energy Experiences and views of the AMEU on the EDI and related issues Michael J Rhode 21 February 2012

2. Introduction to AMEU • Established 1915 • Membership • Councillor and Engineer representatives • Technical support to SALGA • Involved in EDI restructuring process from 1992 to 2011 • Supports RED model

3. Electricity distribution industry [EDI] • Overview • Municipal electricity distributors have existed since 1882 (Kimberley) – Eskom established 1922 • Number reduced to 187 licensed municipal distributors following the demarcation process in 2000 • Large variation in size (customers, income, expenditure, staffing) • Corresponding large differences in size and capacity of electricity network infrastructure • Well documented problems and deficiencies in the current industry, some of which the EDI restructuring process had been initiated to address

4. Electricity distribution industry [EDI]… • Municipal electricity distribution industry views • Infrastructure investment • R32 bn backlog often quoted includes Eskom and municipal distributors • Under investment by Munics • Supply Chain Management (SCM) • creates serious delays and problems in obtaining the correct equipment and materials to perform their function • Rules applied differently in different Munics • Electrification • DoE applies an inequitable treatment of funding to Eskom and municipalities (require top-up from capital budgets) • Tariff Issues • misunderstanding and disinformation on municipal tariffs and lack of clarity on authority and responsibility to set and approve tariffs. Municipalities believe it is their responsibility. • With the current approach whereby Eskom receives higher % increases, it will take, at the current rate, 6 years until the sales/purchases = 1.

5. Electricity distribution industry [EDI]… • Municipal electricity distribution industry views • Shortage of skilled staff • biggest impediment to adequate service delivery –average vacancy rate of 50% of established posts (EDIH) • Scarcity allowances in some Munics….facilitate poaching • Theft of electricity, illegal connections and non-ferrous metal theft • Figure of R 4.4 bn quoted by Minister • Theft of electricity removed from ERA • Regulations to Second Hands Goods Act not published • Bulk Eskom tariffs • municipalities are considered by Eskom as `re-distributors’ but pay retail tariffs for bulk electricity purchases compared to Eskom’s own distribution business that is charged wholesale tariffs

6. Electricity distribution industry [EDI]… • Municipal electricity distribution industry views • Municipal tariffs • municipalities are required to cover their own costs of distribution in their tariffs and with different customer mixes and economies of scale result in variations in municipal tariffs • Municipal revenue • DSM and EE initiatives result in decreased revenue which has to be recovered by increasing tariffs (as with Eskom) • Capital expenditure • Municipal distributors required to compete for limited pool of capital also required for provision of other municipal services • Electricity Regulation Second amendment • The halting of the Restructuring requires a new Energy White paper followed by a new ERA that speaks to a completely different EDI state • The Second Amendment should therefor be put on hold

7. Rehabilitation of the electricity infrastructure • Backlog maintenance and refurbishment • It is agreed that this is a serious issue • The level of R32 bn quoted EDIH • Backlogs in both Eskom and Municipalities • Municipal capital funding – • Network refurbishment is to be funded from capital budgets. These are extremely limited in most municipal environments where departments have to compete against each other to accommodate the increasing demands for new services and facilities. • Unfunded mandates remain a problem

8. Rehabilitation of the electricity infrastructure... • Municipal operating expenditure funding – • guideline increases on municipal tariff increases imposed by NERSA often limit the ability of municipalities to allow a minimum of 5% of operating expenditure to be devoted to network maintenance • ADAM funding • EDI Holdings had proposed the creation of central fund to assist in the reduction of the estimated backlog. Even if this funding were made available, municipal distributors would be challenged in addressing the issue due to • SCM issues and delays • Shortage of skilled staff

9. Issues for consideration • Revitalisation of the EDI • Clarification of roles • It is essential that the legal position of `Municipalities versus NERSA’ be finalised to determine where the authority for approval of tariffs reside • Restructuring by default • The halting of the proposed EDI restructuring process has created confusion and a vacuum in the industry . Clarity is sought on the way forward. • Policy on `struggling municipal distributors’ • Government need to take clear action on those municipalities who are struggling to maintain a viable electricity service.

10. Issues for consideration… • Revitalisation of the EDI… • Skilled resources • Municipal distributors should have more flexibility in order to attract, employ and retain skilled staff (e.g transformation restrictions, CMPD training etc). • A national scarce skills strategy should be legislated • Assistance to smaller municipalities • Financial and other assistance need to be provided to these municipalities that are not able to attract and retain skilled employees or train and retain new interns. More than lip service should be given to using skills that have retired or left municipal service for a number of reasons • Assistance should be given to recover revenue

11. Issues for consideration… • Revitalisation of the EDI… • Clarify areas of supply • Considerable political and customer resistance results from Eskom and municipalities distributing within the boundaries of individual municipalities. While this is related to the EDI restructuring debate, some municipalities are precipitating action to `claim’ their constitution rights. Government needs to facilitate this process as NERSA has chosen to stand on the sidelines. • Supply Chain Management • MFMA SCM regulations should be developed in order to facilitate effective service delivery by municipal distributors. • It is essential that the necessary equipment, materials and services be made available for the projects and decisions are NOT made by SCM officials.

12. Issues for consideration… • Rehabilitation of electricity infrastructure • These issues have been addressed in previous slides and can be summarized as: • Provide clarification: Municipal vs NERSA role in regulation municipal electricity distribution • Provide funding: This to be provided either though a central funding process (ADAM) or allowance for increased municipal capital and operating funding dedicated to this process • Provide skilled resources: Very little progress will be made until and unless these resources are made available to municipal distributors • Safety: Many municipalities pay lip service to OHSA issues and stringent interventions is required

13. Key Issues for consideration… • Infrastructure maintenance and refurbishment • Electrification funding • Theft of electricity and copper • Recruitment and retention of staff • Training of staff • Cross boundary supplies • Tariffs • Supply Chain Management processes • Revenue collection • License conditions

14. PC on EnergyParliament – 21 February 2012 Thank you