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Overview of NER and its Future Business Direction
Presentation to Standing Committee on Minerals and Energy
Parliament09 May 2001
AgendaAgenda
• General remarks on regulation• NER Vision and Mission• ESI Developments
– What the NER is going to focus on in future?
• NER Business Plan and Process– Focus Areas
• Implications for the NER• Conclusion
• General remarks on regulation• NER Vision and Mission• ESI Developments
– What the NER is going to focus on in future?
• NER Business Plan and Process– Focus Areas
• Implications for the NER• Conclusion
Areas of Regulation: GeneralAreas of Regulation: General
• Prices & tariffs• Standards of service and quality of
supply• Health, environmental and safety
standards• Social & national objectives
– e.g. electrification, energy conservation, regional and industrial development
• Prices & tariffs• Standards of service and quality of
supply• Health, environmental and safety
standards• Social & national objectives
– e.g. electrification, energy conservation, regional and industrial development
Complex institutional frameworkComplex institutional framework
PRIVATEFINANCIALMARKETS
UTILITY
PUBLICFINANCE
DEVELOPMENT AGENCIES
PARLIAMENT AND GOVERNMENT(HIGHEST OFFICE)
GOVERNMENTMINISTRIES
CONSUMERS
FUEL SUPPLIERS SCI. & TECH.INSTITUTIONS
REGULATOR
SADC
SAPP
EQUIPMENT SUPPLIERS &EXPERTS / CONSULTANTS
TRADE UNIONS
Why regulate the South African ESI?Why regulate the South African ESI?
Monopolies Protect customers
Single buyer
Protect customersEnsure order in generation competition
Wholesale competition
Protect customersEnsure order in generation competition
Retail competition
Protect customersEnsure order in generation & retail competition
History of Regulation in RSAHistory of Regulation in RSA
• First regulators established in 1890’s• ECB set up by the 1922 Electricity Act
– Few powers over municipalities
• Legislation updated by the 1987 Electricity Act
• Following NELF process, NER established in 1995 as national regulator by amendment to the 1987 Act in 1994/95.
• First regulators established in 1890’s• ECB set up by the 1922 Electricity Act
– Few powers over municipalities
• Legislation updated by the 1987 Electricity Act
• Following NELF process, NER established in 1995 as national regulator by amendment to the 1987 Act in 1994/95.
NER Organisation StructureNER Organisation Structure
G e n era l Co u nse l O fficeB o a rd S ec re ta ria t
In fo Re sou rces& M a n ag e m e nt
R e se a rch & P o licy A n a lys is
In te rna tion a l Re g u la to ryIn it ia t ives
R e sea rch &D e ve lo p m e nt
L icen ses
C u s to m erS e rv ices
E le c trif ica tio n &R u ra l D e ve lo pm e nt
L ice ns in g ,C o m p lia n ce & C u s tom e r S e rv ices
E co no m ic R e g u la tion
IR P
M a rke t S u rve illa n ce
M a rke t O p era tion& M o n ito ring
F in an ce & A d m in
C o rp ora te C o m m u n ica tion
H R M a n a g em e nt& De ve lo p m e nt
C o rpo ra teS e rv ices
C E O
N E R B o a rd
G e n era l Co u nse l O fficeB o a rd S ec re ta ria t
In fo Re sou rces& M a n ag e m e nt
R e se a rch & P o licy A n a lys is
In te rna tion a l Re g u la to ryIn it ia t ives
R e sea rch &D e ve lo p m e nt
L icen ses
C u s to m erS e rv ices
E le c trif ica tio n &R u ra l D e ve lo pm e nt
L ice ns in g ,C o m p lia n ce & C u s tom e r S e rv ices
E co no m ic R e g u la tion
IR P
M a rke t S u rve illa n ce
M a rke t O p era tion& M o n ito ring
F in an ce & A d m in
C o rp ora te C o m m u n ica tion
H R M a n a g em e nt& De ve lo p m e nt
C o rpo ra teS e rv ices
C E O
N E R B o a rd
Role of NERRole of NER
• Approve tariffs• Set and monitor quality of supply and
service standards• Arbitrate and mediate in disputes,
including expropriation matters• Mandate
– Powers in Electricity Act– White Paper on Energy Policy– Mandate from Minister of Minerals and
Energy
• Approve tariffs• Set and monitor quality of supply and
service standards• Arbitrate and mediate in disputes,
including expropriation matters• Mandate
– Powers in Electricity Act– White Paper on Energy Policy– Mandate from Minister of Minerals and
Energy
NER VisionNER Vision
To be a world class regulator To be a world class regulator providing leadership to the providing leadership to the
electricity supply industry in electricity supply industry in support of sustainable growth and support of sustainable growth and
developmentdevelopment
To be a world class regulator To be a world class regulator providing leadership to the providing leadership to the
electricity supply industry in electricity supply industry in support of sustainable growth and support of sustainable growth and
developmentdevelopment
NER MissionNER Mission
To regulate the electricity supply To regulate the electricity supply industry in accordance with industry in accordance with
government policy and law, so as government policy and law, so as to meet the needs of existing and to meet the needs of existing and future electricity stakeholders in future electricity stakeholders in
the most equitable, efficient, cost-the most equitable, efficient, cost-effective and sustainable mannereffective and sustainable manner
To regulate the electricity supply To regulate the electricity supply industry in accordance with industry in accordance with
government policy and law, so as government policy and law, so as to meet the needs of existing and to meet the needs of existing and future electricity stakeholders in future electricity stakeholders in
the most equitable, efficient, cost-the most equitable, efficient, cost-effective and sustainable mannereffective and sustainable manner
Value Added by NERValue Added by NER
• Assisting government with ESI policy development and legislation
• Investigations into the electricity distribution industry restructuring to accelerate rationalisation
• Approval of electricity price increases by suppliers (Eskom and municipalities)
• Allocation & management of Electrification Fund
• Assisting government with ESI policy development and legislation
• Investigations into the electricity distribution industry restructuring to accelerate rationalisation
• Approval of electricity price increases by suppliers (Eskom and municipalities)
• Allocation & management of Electrification Fund
Value Added by NER (contd.)Value Added by NER (contd.)
• Establishment of National Tariff System and move towards cost reflective tariffs
• Setting minimum standards of supply and service
• Dispute resolution (Customers/Suppliers)
• Data base and information resource• Facilitating off-grid electrification pilots
• Establishment of National Tariff System and move towards cost reflective tariffs
• Setting minimum standards of supply and service
• Dispute resolution (Customers/Suppliers)
• Data base and information resource• Facilitating off-grid electrification pilots
Corporate Governance Framework
Corporate Governance Framework
• CG Handbook in place• Board responsible for discharging
responsibilities of the NER• Management and staff support
Board in execution of responsibilities• Conduct of business of the Board in
line with CG Handbook• Board committees
• CG Handbook in place• Board responsible for discharging
responsibilities of the NER• Management and staff support
Board in execution of responsibilities• Conduct of business of the Board in
line with CG Handbook• Board committees
Board CommitteesBoard Committees• Policy Committee
– Contributing and responding to changes in the ESI• Finance Committee
– Safeguard NER assets and maintain adequate accounting records
• Audit Committee– Monitor financial position of the NER– Develop and maintain effective systems of internal
control• HR Committee
– Assist Board in discharging its responsibilities as employer
• Customer Services Committee– Assist Board with regard to quality and continuity of
services and supply• Pricing and Tariffs Committee
– Assist Board with approval of pricing and tariffs regimes and increases
• Policy Committee– Contributing and responding to changes in the ESI
• Finance Committee– Safeguard NER assets and maintain adequate
accounting records• Audit Committee
– Monitor financial position of the NER– Develop and maintain effective systems of internal
control• HR Committee
– Assist Board in discharging its responsibilities as employer
• Customer Services Committee– Assist Board with regard to quality and continuity of
services and supply• Pricing and Tariffs Committee
– Assist Board with approval of pricing and tariffs regimes and increases
ESI DevelopmentsESI Developments
• Government considering ‘Pro-competitive Reform Programme'– Implications for regulation
• Government also considering establishing other energy regulators– Gas– Liquid fuels
• Critical to decide on regulatory organisation for RSA now
• Government considering ‘Pro-competitive Reform Programme'– Implications for regulation
• Government also considering establishing other energy regulators– Gas– Liquid fuels
• Critical to decide on regulatory organisation for RSA now
Eskom Transmission
Eskom Generation
IPP
Imports
Customers
RED2RED1REDn
Special Customers
Internal Pool
Eskom Enterprises
Eskom Holdings
GenCo2GenCo1 GenCon
Eskom holdings
Eskom Enterprises
IPP
ImportsPower Exchange
RED2RED1 REDn Special Customers
State owned independent TRANSMISSION company (incl. SO)
Customers
GenCo2GenCo1 GenCon
Eskom holdings
Eskom Enterprises
Imports PowerExchange
RED2RED1 REDmSpecial
Customers
State owned independent TRANSMISSION company
Eskom Generation
Customers
How we went about developing our Business
Plan
How we went about developing our Business
Plan• Peer review of Internal Work
Programme• Prepared regulatory functions under
various ESI restructuring scenarios• Review of staffing requirements
followed• Also reviewed possible role in regulating
natural gas• Presentation today will focus on first
stage of ESI reform expected to occur during business planning period
• Peer review of Internal Work Programme
• Prepared regulatory functions under various ESI restructuring scenarios
• Review of staffing requirements followed
• Also reviewed possible role in regulating natural gas
• Presentation today will focus on first stage of ESI reform expected to occur during business planning period
Strategic Focus Areas for 2001/2002
Strategic Focus Areas for 2001/2002
• Generation Investment– Country level IRP– Licence new entrants– Economic regulation (PBR)
• Generation Operation – Monitor service adequacy and quality– Economic regulation (PBR)
• Transmission Investment– Review planning– Economic regulation (PBR)– Expropriation issues
• Generation Investment– Country level IRP– Licence new entrants– Economic regulation (PBR)
• Generation Operation – Monitor service adequacy and quality– Economic regulation (PBR)
• Transmission Investment– Review planning– Economic regulation (PBR)– Expropriation issues
Strategic Focus Areas for 2001/2002
Strategic Focus Areas for 2001/2002
• Transmission Operation– Wholesale tariffs– Reliability/quality of service– Continue to accept existing Eskom grid
code
• Wholesale Trading– Monitor internal pool– Monitor economic dispatch
• Systems Operation– Monitor Eskom internal pool operations– Move towards access rules (IRP)
• Transmission Operation– Wholesale tariffs– Reliability/quality of service– Continue to accept existing Eskom grid
code
• Wholesale Trading– Monitor internal pool– Monitor economic dispatch
• Systems Operation– Monitor Eskom internal pool operations– Move towards access rules (IRP)
Strategic Focus Areas for 2001/2002
Strategic Focus Areas for 2001/2002
• Distribution Retail– Adopt PWC recommended tariffs– Monitor and enforce existing supply and
quality standards– Enforce existing retail terms of service– PBR/price moratorium– Accept govt. designation of REDs and
licensees– Address additional revenue requirement for
electrification– Monitor REDs financial viability– Customer services
• Distribution Retail– Adopt PWC recommended tariffs– Monitor and enforce existing supply and
quality standards– Enforce existing retail terms of service– PBR/price moratorium– Accept govt. designation of REDs and
licensees– Address additional revenue requirement for
electrification– Monitor REDs financial viability– Customer services
Strategic Focus Areas for 2001/2002
Strategic Focus Areas for 2001/2002
• Special Customers– Accept government policy
• Electrification– Possible future role in
electrification– Off grid involvement– Where to allocate these costs in
tariffs
• Special Customers– Accept government policy
• Electrification– Possible future role in
electrification– Off grid involvement– Where to allocate these costs in
tariffs
Additional Staffing Requirements
Additional Staffing Requirements
• Review & benchmarking of NER showed grossly under resourced
• Increased responsibilities demand additional HR
• Not a ‘business as usual’ Business Plan
• Appropriate skills must be in place• Additional 33 staff needed for next
year but insufficient budget for this
• Review & benchmarking of NER showed grossly under resourced
• Increased responsibilities demand additional HR
• Not a ‘business as usual’ Business Plan
• Appropriate skills must be in place• Additional 33 staff needed for next
year but insufficient budget for this
BudgetBudget
• Budget for 2001= R30 million• Increase of 34% over 2000• Levy required for budget =
R0.0016 c/kWh• Cost to middle income customers
<1c/month
• Budget for 2001= R30 million• Increase of 34% over 2000• Levy required for budget =
R0.0016 c/kWh• Cost to middle income customers
<1c/month
ConclusionConclusion
• NER focusing on priorities for a changing ESI
• Lot of work done in putting in place Business Plan
• NER will focus its efforts on governments priorities for the sector
• Insufficient budget to skill up totally, but best effort will be made
• NER committed to serve ESI and its stakeholders, especially customers.
• NER focusing on priorities for a changing ESI
• Lot of work done in putting in place Business Plan
• NER will focus its efforts on governments priorities for the sector
• Insufficient budget to skill up totally, but best effort will be made
• NER committed to serve ESI and its stakeholders, especially customers.
Comments on Gas BillComments on Gas Bill
• NER supports process to establish framework for natural gas industry– Major potential new primary energy source
for power generation– Remote from the current energy sources and
supports the transmission system– Promotes regional growth and integration– Very useful demand side management tool
(can store gas, but not electricity)
• Supportive of the proposed new gas legislation
• NER supports process to establish framework for natural gas industry– Major potential new primary energy source
for power generation– Remote from the current energy sources and
supports the transmission system– Promotes regional growth and integration– Very useful demand side management tool
(can store gas, but not electricity)
• Supportive of the proposed new gas legislation
Comments on Gas BillComments on Gas Bill• NER supportive of establishing one
energy regulatory authority• Many benefits to doing this
– Many similar regulatory principles– Share regulatory experiences– Blurring of industries– Reduction of costs
• NER is prepared to form part of new authority
• Support whatever decision government makes
• NER supportive of establishing one energy regulatory authority
• Many benefits to doing this– Many similar regulatory principles– Share regulatory experiences– Blurring of industries– Reduction of costs
• NER is prepared to form part of new authority
• Support whatever decision government makes
