COMPLIANCE MONITORING REPORT OF LEKWA LOCAL

MUNICIPALITY

Monitoring Date: 21 August 2014

All enquiries and correspondence to be directed to the Head of Department unless indicated otherwise by means of a formal letter signed by the head of department: Electricity Licensing Compliance and Dispute Resolution. Tel: 012 401 4794 National Energy Regulator of South Africa Kulawula House 526 Madiba Street Arcadia Pretoria PO Box 40434 Arcadia 0007 Tel: +27 (0)12 401 4600 Fax: +27 (0) 12 401 4700 www.nersa.org.za

DISCLAIMER This is a final report considered a true reflection of the implementation of the CAP based on information and evidence obtained from both the licensee and site verification of plant condition conducted during the monitoring process.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY................................................................... 4

1. INTRODUCTION ........................................................................... 4

2. METHODOLOGY .......................................................................... 5

3. NERSA AND LEKWA LOCAL MUNICIPALITY DELEGATES ..... 6

4. GENERAL INFORMATION ON LEKWA LOCAL MUNICIPALITY 6

5. AUDIT FINDINGS ......................................................................... 6

6. LEKWA’S PERFORMANCE ON NERSA COMMUNICATION ..... 7 7 . PROGRESS ON THE IMPLEMENTATION OF THE CORRECTIVE ACTION PLAN .................................................................................. 8

8. PLANT CONDITION DURING AUDIT VS. MONITORING TIME 12

9. CONCLUSIONS .......................................................................... 18

10. RECOMMENDATIONS ............................................................. 18

11. NEXT STEP .............................................................................. 18

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EXECUTIVE SUMMARY The National Energy Regulator of South Africa (NERSA) conducted a compliance audit on Lekwa Local Municipality (‘the Licensee’) from 15-17 November 2011 to determine their level of compliance with the licence conditions. The objective was to determine the compliance of Lekwa Local Municipality with the legal, financial and technical conditions of the electricity distribution licence. After the audit, findings were recorded in a draft report and forwarded to the Licensee for management comments with regard to the correctness of the findings in order to make the report final. Lekwa was then requested to submit a corrective action plan to address the instances of non-compliance highlighted in the report. On 18 October 2012, NERSA received a corrective action plan (CAP) from Lekwa Local Municipality indicating which rectifying action they intended to do to correct the instances of non-compliance. There were some issues in the CAP that were not very clear and some of the non-compliances were not addressed. Further correspondence were send on 31 October 2012 and 2 November 2012 requesting the updated CAP. On 7 November the updated CAP was received and there were still outstanding issues. On 4 April 2014 a notice was issued to Lekwa Local Municipality to inform them that NERSA was planning to do a monitoring audit on 8 April 2014. No feedback was received from the Licensee and numerous telephone calls were made. The date of the monitoring audit was eventually set on 21 August 2014. The National Energy Regulator instituted a monitoring regime to ensure and enforce the implementation of the CAP. On 21 August 2014, the National Energy Regulator conducted a monitoring exercise to the implementation of the CAP at Lekwa Local Municipality. The monitoring exercise was conducted in order to determine progress made in the implementation of the CAP. The National Energy Regulator is of the view that addressing issues raised during an audit will help Lekwa Local Municipality to be a more efficient and effective licensee. This report depicts all the findings as per the audit and presents the status quo in terms of progress made at the time of the monitoring to address the non-compliances highlighted during the audit. During the monitoring exercise, NERSA conducted site inspections to verify progress made in the implementation of the CAP. It must be noted that minor progress was made to improve the network condition and business systems of the Lekwa Local Municipality. The areas of improvement are depicted in details in section seven of the report.

1. INTRODUCTION

1.1 Overview

The National Energy Regulator (NERSA) is required to monitor and assess whether the electricity suppliers comply with the conditions of their licences.

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The Energy Regulator approved a compliance monitoring framework for electricity distributors in 2011, which acts as a guide on how compliance audits and monitoring must be conducted. The framework is also supported by the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Chapter 4 (a) (vii), which states that ‘the Regulator must enforce performance and compliance; and take appropriate steps in the case of non-performance’. The National Energy Regulator conducts the compliance audits on licensed electricity distributors annually.

The National Energy Regulator regulates the energy industry in accordance with Government laws and policies, standards and international best practices in support of sustainable development. The organisation issues licences to electricity distributors and therefore requires audits to be conducted against key licence obligations. It is the National Energy Regulator’s mandate to monitor and enforce compliance with the licence conditions as per the Act. This monitoring process enforces and ensures improvement and sustainability of the licensees for the betterment of the Electricity Supply Industry (ESI), which will lead to improved quality of supply and service to customers.

1.2 Monitoring and Enforcement Objectives

The key objectives of the compliance monitoring and enforcement of the corrective action plans are to:

a) enforce implementation of the corrective action plan; b) help the licensee not to lose sight of critical matters that need to

be corrected; c) help the licensee to start doing self-monitoring in terms of their

performance against licence conditions; d) help the licensee to ensure that the quality of service and supply

does not decline; and e) inform the Energy Regulator of the progress made by the licensee

in the implementation of the corrective action plan. 2. METHODOLOGY

A corrective action plan template was developed and sent to the licensee to populate all the non-compliances highlighted during the audit, together with the intended corrective action plan (CAP) with target dates of implementation. This is to be used by the National Energy Regulator to monitor the progress made and to establish whether the timelines on the CAP were realistic and addressing the issues highlighted during the audit.

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The CAP was sent to the National Energy Regulator after being signed by the relevant officials of the Licensee. The National Energy Regulator agreed on the CAP and instigated a monitoring process which robustly monitors progress. Progress is checked against target dates and remedial actions are implemented on an ongoing basis. Proof and supporting documents are requested and presented to the National Energy Regulator’s officials during the monitoring process. Site verification was also done to compare the current plant condition against the plant condition during the audit.

3. NERSA AND LEKWA LOCAL MUNICIPALITY DELEGATES

NERSA was represented by the following officials:

Mr B van Heerden Financial Compliance Officer Ms P Radebe Dispute Resolution Officer Mr G Hopkins Compliance Monitoring Technician Mr T Manaka Compliance Monitoring Technician Lekwa Local Municipality was represented by: Mr H Pretorius Electricity Engineer Planning.

4. GENERAL INFORMATION ON LEKWA LOCAL MUNICIPALITY

Lekwa Local Municipality is a licensed electricity distributor, (License No NER/D/MP305) located in Mpumalanga. LLM supplies electricity to municipal area of Standerton.

There are two intake substations , one 132/33kV and one 88/33kV. The installed capacity is 130MVA while the maximum demand is 53MVA. LLM purchases bulk electricity from Eskom.

5. AUDIT FINDINGS

At the time of the audit, the following was highlighted to the Licensee as areas that need attention and improvement:

a) LLM does not supply electricity within the area of supply as prescribed

by schedule 1 of the electricity license (Legal Condition 5.1.1). Some geographical areas on the LLM’s license are not supplied by Lekwa. .

b) The LLM Electricity Department was not ring fenced with respect to income statement and balance sheet. No proof could be found that the electricity accounts of LLM are separated from other municipal services

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(e.g. water and sanitation). No asset register, income statement or balance sheet could be presented (Financial Licence Condition 5.2.1 & 5.2.2).

c) There was no evidence of an asset management policy. d) There was no evidence of an appointment of a Responsible Person in

adherence to the Occupational Health and Safety Act). e) There was no evidence of a Master plan with a list of strengthening and

refurbishment projects required on the network to provide for future growth

f) There was no customer education forum (Technical Condition 5.3.2). g) There were critical unfilled vacancies which should be addressed as a

matter of urgency. h) Although a maintenance plan was presented, the implementation of the

plan was not satisfactory due to financial and staff constraints as well as vehicles that were very old and should be replaced

i) No Quality of Supply meters were installed and no QoS system was implemented as required by NRS 048 standard

j) The general condition of the electricity network was acceptable but the CA and Sakhile substations needs to be replace as a matter of urgency as it were so old that parts were no longer available and it became a safety risk to operate. Both substations may fail at any time and there are no backup which means that ‘n great number of customers would be without electricity for a very long period

k) There were no fire prevention equipment available at any substation l) A master plan should be prepared to assist in future strengthening and

upgrading of the network m) Payments to Eskom was in arrears and no account was available to

prove the opposite

6. RECCOMMENDATIONS The following recommendations were made to the Licensee:

a) The areas being supplied should correspond to those in the electricity license. The Licensee should confirm their supply areas in writing to NERSA.

b) Management should provide a project plan to get approval from Council to replace Sakhile and AC substation as both substations were well beyond their useful life and parts were no longer available. Both substation were in an unacceptable condition and can fail at every moment.

c) The license must maintain separate electricity distribution business affair from the licensee’s other affairs.

d) Asset management policy and plans must be established.

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e) The implementation of the Occupational Health and Safety Act is critical and the appointment of a Responsible Person for electricity should be finalised.

f) NERSA should be contacted to assist with the establishment of a customer forum

g) The municipality should be familiar and implement minimum requirements of the NRS 047 and NRS 048 standards. A Quality of supply system should be established.

h) High priority positions need to be filled. i) Payments to bulk suppliers should be updated j) The fire prevention equipment should be replaced in all substations

7. PROGRESS ON THE IMPLEMENTATION OF THE CORRECTIVE ACTION PLAN

CORRECTIVE ACTION PLAN Municipality: Lekwa Local Municipality Date of Audit: 15-17 Nov 2011 Date of Corrective action plan: 17 Oct 2012

Non Compliances Corrective action planned Target date for completion

Condition during monitoring day

LLM do not supply electricity within area as prescribed.

Areas not supplied by LLM, is supplied by Eskom. All legal stands in urban area of Lekwa Demarcation area do have access to electricity supply, areas in rural areas is addressed under farm worker house electrification project. This need to be corrected through an application to NERSA for licence amendment so that an updated licence is issued to Lekwa.

Completed According to the representative of Lekwa Local Municipality, the Licence was corrected with the completion of the D forms. They were requested to send a application letter from the Municipal Manager to the Licence department of NERSA to amend the licence.

Electricity department not ring fenced

CFO to ensure ring fencing to comply with license conditions.

15 / 01 / 2013 The CFO or any representative from the finance department was not present at the meeting and was not available to give feedback on this matter. It is still outstanding.

No evidence of asset management policy

CFO to forward policy to NERSA as requested

26 / 10 / 2012 The CFO or any representative from the finance department

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was not present at the meeting and was not available to give feedback on this matter. It is still outstanding.

No evidence of appointment of responsible person

Appointment of responsible person to be forwarded to NERSA.

26 / 10 / 2012 The appointment of the Responsible Person was not finalized. It was mentioned that it is linked to the appointment of the Divisional Manager which was planned for 1 October 2014

No master plan on electrical network

Quotations to be invited for Master Plan on electricity network.

01 / 07 / 2013

This matter is still outstanding. The reason mentioned for non-compliance was a lack of funds.

No customer education forum

New consumers is been educated in safe and effective use of electricity during new connections to electricity network during farm worker house electrification project.

Ongoing process during electrification projects.

It was mentioned that Lekwa Local Municipality were doing the education during the IDP and INEP processes. They were invited to contact NERSA's Stakeholder Department to assist in the forming of a Customer Education Forum.

Unfilled vacancies A memorandum was send to Human resource manager requesting filling of vacant positions.

30 / 11 / 2012 A organogram was provided indicating that except for the Divisional Manager, all critical positions were filled. The vacant positions are Artisan Assistants which will be filled once the financial condition of the Licensee improves.

Compliance to maintenance plan

Comply to maintenance plan subject to availability of funds. Replacement of vehicles was requested in 2012 / 2013 budget.

30 / 06 / 2013 It was mentioned that only critical maintenance was done as a result of a lack of funds. The site visits confirm that very little maintenance were done and findings of 2011 were still not attended to. It was mentioned that

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the closing date for the tender for the replacement of vehicles was 13 August 2014 for replacement during 2014/2015 financial year.

No quality of supply meters installed.

Quotations to be invited. ( currently Council do have “Smart meters” installed at some factories to register consumption with limited technical support on reporting on quality.

09 / 11 / 2012 A quotation was requested from CTLAB consultants on 6 May 2014 but the process came to a halt caused by a lack of sufficient funds. The tender for "smart" metering closed on 22 August 2014. The non-payment rate of consumers are very high.

Eskom account in arrears

LLM in consultation with Eskom regarding the matter.

In Process 30 June 2013

The CFO or any representative from the finance department was not present at the meeting and was not available to give feedback on this matter. It is still outstanding.

Repair earthing of structures at Sub A, B and C

Repaired Completed Although it was mentioned that this matter was completed, it was found that the earth wires were still not replaced

Install safety signs at Substation doors

Quotations were invited and received from Chubb – CFO to sign application form for account with Chubb. Chubb to be placed on Council data base.

23 / 11 / 2012 It was mentioned that all safety signs were replaced but it was found that only some were replaced. The Licensee undertook to replace them as it were available. They will send photos to proof that it was installed.

Install fire extinguishers at electrical substations and electrical workshop

Quotations were invited and received from Chubb – CFO to sign application form for account with Chubb. Chubb to be placed on Council data base.

23 / 11 / 2012 The fire extinguishers were installed but the service date has expired and needs to be serviced.

Inspection and repair of minisubs and kiosk

Quotations to be invited for auditing of conditions of Minisubs and Kiosk

07 / 12 / 2012 It was reported that the inspection was done in-house but no

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records of outstanding work could be provided as proof

Inspection of wooden poles on overhead lines for replacement project

Quotations to be invited for inspection, testing and reporting of conditions of poles on overhead lines.

30 / 11 / 2012 This matter is still outstanding. It was mentioned that funds from INEP would be available for upgrading the rural network and the wooden poles would be done with these funds. A copy of the planned contributions of INEP was presented.

Pruning of trees under overhead electrical wires

Quotations invited for pruning of trees

14 / 12 / 2012 Some trees have been pruned but during site inspections more trees were noted which need pruning

Fencing of receiving sub Sakhile.

Quotations to be invited for fencing substation with palisade.

23 / 11 / 2012 Completed

Upgrading of Receiving sub Sakhile and CA Sub Standerton

Requested funds from INEP. Subject to availability of funds.

In process 30 June 2013

The Service provider for the upgrading of Sakhile substation will be appointed end of September 2014. The Service provider for the upgrade of CA substation was appointed and they were busy with upgrading. Both projects were funded by MIG funds.

Lekwa Local Municipality displayed a sluggish level of commitment during the monitoring exercise to address all the instances of non-compliance highlighted during the audit. This is evident from the fact that even the minor non-compliances are still not attended to. At the time of the monitoring exercise it was observed that most of the issues highlighted by the audit were not attended to. The old silica gel in the transformers, the earth wires that were still not attached and safety signs that were not installed at the time of the audit are examples that indicates Lekwa Local Municipality’s complacency with its situation. The table above depicts the

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progress made by the licensee to address the instances of non-compliance highlighted during the audit.

The table above indicates that Lekwa Local Municipality did very little to address the non-compliance. It was highlighted during the monitoring that the challenges faced by the municipality was the lack of funds as they owe the bulk supplier a huge sum of money from previous years’ commitments. Lekwa also displayed a low level of commitment to address the non-compliance highlighted, this is evident from the absence of any representative of the Finance Department at the meeting. The representative from Lekwa undertook to attend to the outstanding matters and send a report containing the list of outstanding issues as well as photos as proof that the work has been done. This was still outstanding two weeks after the monitoring audit despite an email reminder send on 25 August 2014. Photos of the replacement of the shifted mini-substation and the safety signs on the substations were received on 29 August 2014. A main concern is the fact that communication with Lekwa is very difficult. Telephones were not answered and email addresses were private email addresses which were not replied to. There is still a lot of work that Lekwa Local Municipality need to attend to in order to improve their level of compliance with their distribution licence conditions. The necessary funds should be made available to attend to the outstanding upgrades and maintenance of the network as a matter of urgency.

8. PLANT CONDITION DURING AUDIT VS. MONITORING TIME

The photos below depict the condition of the network equipment during the audit compared to the condition during the monitoring process.

Some loose earth wires during audit 2011 Wires still loose in 2014

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Stolen earths to be replaced in 2011 Stolen earths not replaced in 2014

There were no safety signs on the substation2011 No safety sign during site visits in 2014

Photos of the safety signs put up on 29 August after the monitoring visit by NERSA

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Although the wooden poles of the HV overhead lines were old, they were still functional and should be placed on a replacement project. This was still not done in 2014

Stolen earth wires on steel structures in substation B The earth was replaced but stolen again in 2014

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The condition of the mini substation were acceptable and some needed minor management intervention such as replacement of safety signs and removal of rust. This is still not done in 2014

Minisub 3-12 has shifted on its base 2011 Not done in 2014

The mini substation 3-12 was moved back to its original position after the monitoring visit (29 Aug 2014)

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LV overhead lines in an unacceptable condition as the trees in a very wide area pose a thread and need to be cut. It is recommended that the lines be replaced with underground cables as the area was very big. Not done in 2014.

The Sakhile substation was in a very bad condition. A new fence was erected The fence was cut and the area was used by vendors

Obsolete equipment in the Sakhile and CA substation upgrading still outstanding in 2014

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The substation is adjacent to houses and the The fence has been repaired and replaced by a new fence 2014 fence was cut and used as a walkthrough 2011

The breaker switches were past their useful life and Same breakers in 2014 were a danger to operators 2011

The stores was the only place in the electricity department The equipment were services but the service date has where the fire prevention equipment was serviced expired again 2014 and available as required by law. 2011

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Silica gel in 2011 Old silica gel and oil leaking transformers in 2014 9. CONCLUSIONS

Lekwa Local Municipality tried to address some of the non-compliance however there is still non-compliance that need to be attended to. The lack of paying attention to details at Lekwa Local Municipality has contributed to the slow pace of implementation of corrective action.

10. RECOMMENDATIONS

It is recommended that Lekwa Local Municipality increases its dedication and commitment to improve the level of compliance with its licence conditions. It is also crucial that the necessary funds be made available to attend to outstanding non-compliance issues and for the upgrade and maintenance of the network to prevent any further deterioration.

11. NEXT STEP

There are still instances of non-compliance that need to be addressed by the licensee. As a result, the Energy Regulator expects the licensee to implement the corrective action plan until all the instances of non-compliance have been fully addressed in order to improve the licensee’s level of compliance. The National Energy Regulator will continue to monitor the licensee’s implementation of the corrective action plan on an ongoing basis to ensure that all the findings are addressed. Once the remaining projects in the CAP have been concluded, the Licensee must send a closeout report to the National Energy Regulator. It is expected that the licensee will now implement a self-monitoring regime to ensure that the improved areas do not deteriorate back to a situation of non-compliance.

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Further monitoring exercises to be conducted by the Energy Regulator on the licensee will be communicated to the Licensee in due course.

All communication should be forwarded to the Head of Department unless indicated otherwise by means of a formal letter signed by the Head of Department: The Head of Department Licensing, Compliance and Dispute Resolution: Electricity National Energy Regulator of South Africa PO Box 40343 Arcadia 0007 Fax: +27 (0)12 401 4700

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