Enhancing Electricity Distribution: Technical Audits & Root Causes

1. PRESENTATION TO PARLIAMENTARY PORTFOLIO COMMITTEE ON MINERALS AND ENERGYPOWER OUTAGES IN THE ELECTRICITY DISTRIBUTION INDUSTRY SMUNDA MOKOENACHIEF EXECUTIVE OFFICERNATIONAL ELECTRICITY REGULATOR16 September 2005 1

2. PRESENTATION OUTLINE • Background • Resolutions From Maintenance Summit • Regulator’s Role and Constraints • Rationale for Independent Technical Audits • Technical Audit Programme • Common Problems • Root Causes • City Power Example • NER activities • Proposals 2

3. BACKGROUND • Minister, PPC, DME & NER received continuous complaints regarding power outages • Increased media reports regarding power outages • Internationally some major interruptions experienced • NER survey indicated deterioration in customer satisfaction and performance - 2003 • Problem acknowledged in 2003, and commitment given by municipal and Eskom distributors at maintenance summit to address backlog 3

4. RESOLUTIONS FROM MAINTENANCE SUMMIT • 12 resolutions • Municipal and Eskom Electricity Distributors • To adopt sound practices regarding maintenance and replacement, provide for budgets, performance analysis, skills development, etc. • Regulator • To benchmark, monitor and advise. • Department of Minerals and Energy • To motivate for/provide funding for eradication of the backlog from Fiscus funding 4

5. Regulator’s Traditional Role • Set standards • NRS 047 – Quality of service standard • NRS 048 – Quality of supply standard • Monitoring of compliance to license and standards • Compliance Monitoring Framework for Distribution • Consumer Advocacy and complaints mediation and arbitration • Enforcement of standards and License conditions • Present legislation gives limited powers • Findings of regulator must be reported to Police • Judicial process must take course – Fines are less than R1000 and hardly an incentive to comply • Proposed legislation (ERB) requires Regulator to report findings to Local Government, Provincial govt, National govt and regulator has no punitive sanction role for municipal distributors • Regulator cannot effectively regulate or impose fines 5

6. Rationale for Independent Technical Audits • Poor or non existent performance information to establish performance of networks at arms length • Information presented by utilities regarding turnaround in maintenance and refurbishment practices did not correlate with performance of the networks • NER needed to re-assure itself that commitments are being met at a network level • The use of independent specialists allow for targeted skills of professionals who have been extensively involved with Distribution • Board’s decision to make findings available to consumers: • Consistent with mandate • Consistent with best practice • Forces utilities not to mis-represent condition of utility to consumers • NER’s alternatives for punitive sanction is limited 6

7. TECHNICAL AUDIT PROGRAMME • NER Board approved technical audit programme • To assess at a high level the condition of substations and the network. • To determine the effectiveness of the maintenance plan development and execution. • To determine the effectiveness of the refurbishment and expansion plans development and execution. • To determine the effectiveness of operation of the networks. • City Power (completed), Ekurhuleni, City of Tshwane, City of Cape Town, Ethekwini, Emfuleni, Mangaung, Msunduzi, Rustenburg, Eskom Southern Region, Nelson Mandela • Finalised by April 2006, results will be made public • It is hoped that this independent audit initiative will assist stakeholders to get an appreciation of what needs to be done so that they can appropriately respond. 7

8. Common Problems Identified from prior investigations • Considerably aged networks – symptoms of underinvestment • Lack of maintenance and refurbishment over an extended period has resulted in a major backlog – deficiencies only show up after a number of years • Lack of expansion has resulted in networks being overloaded and capacity becoming increasingly unfirm – exacerbated by property boom 8

9. ROOT CAUSES • Lack of funding for Maintenance and Refurbishment • Lack of skills to identify requirements and implement improvements • Lack of credible information • All these issues can be addressed through obtaining commitment from decision makers in municipal electricity distributors and Eskom • Deterioration of performance is undeniable even at Eskom Distribution 9

10. CITY POWER EXAMPLE: NETWORK PERFORMANCE • Recent history of large number of large-scale interruptions (reported 121 ‘large’ interruptions for 2004, average duration is 3 hrs – refers mainly to MV (6,6kV to 22kV and HV >22kV failure) • Little information available prior to 2003 • Improving trend in low voltage interruptions from 2002-2003 • Deteriorating trend on medium-voltage network interruptions • Generally not meeting minimum NRS 048 standard • Voltage dips deteriorated from 2002 – 2003 (Doesn’t indicate whether internal or external disturbances) • 46% of faults are cable faults 10

11. CITY POWER EXAMPLE: AUDIT FINDINGS • Serious transformer leaks, even at some of the major infeed substations. • Insufficient maintenance standards for power equipment. • Insufficient maintenance of battery systems were evident • Inconclusive evidence that protection systems are being tested regularly. • Lack of credible paper trail and records • Non-adherence to works procedures • Insufficient upkeep of sites and substations • City Power have generally agreed with the findings • Since Audit City Power have submitted a maintenance and refurbishment plan aimed at accelerating progress in this regard that will be monitored. • Even with increased funding it will take up to 5 years to re-establish integrity of the networks. 11

12. NER ACTIVITIES re OUTAGES • Made provision in tariff increases for ringfenced maintenance • NER has requested that audit of maintenance expenditure and practices to be linked to tariff applications – ten largest municipalities • NER Board approved independent technical audit to ensure that utilities are meeting their management commitment • Compliance audits (36 audits annually) • Maintenance backlog study that identified shortfall of R6,5 billion Rands. We believe that National Treasury has a role to play. • Benchmark study of maintenance and performance • Commitment to assist wherever NER can provide input but does not have mandate eg skills development 12

13. PROPOSALS • Skills shortage to be addressed urgently through appointments and training. • Problematic Distributors to accelerate their refurbishment and maintenance programme • Maintenance practices to become world-class • Municipalities to generate network performance information • Additional funding is required, possibly through the MIG or a higher tariff increase. 13

14. Thank you 14