Electricity distribution Constitutional challenge 1 September 2017 - PowerPoint PPT Presentation

Electricity distribution Constitutional challenge 1 September 2017

Presenta(on purpose • To provide overview of the Cons1tu1onal, structural and systemic challenges in terms of electricity distribu1on • To present recommenda1ons made • To facilitate discussion on how these challenges manifest at municipal level and other challenges that need to be addressed 2

Macro issue The Cons1tu1onal, legisla1ve and fiscal frameworks are carefully • designed to ensure that local government delivers sustainable services (both in terms of the actual provision of the services and financially) The current dispensa-on in the Electricity Distribu-on industry is • subversive of the exis-ng legal frameworks which directly undermines municipali1es’ ability to fulfil their cons1tu1onal mandate in the provision of services 3

Park There’s an invisible line running across municipali1es, where: • Municipali1es’ cons1tu1onal powers are subverted • the developmental role of local government is undermined • some communi1es are prejudiced rela1ve to others • municipal revenue collec1on is undermined 4

Park If you live on this side: - You pay a surcharge which contributes to the basket of non-trading services such as parks, libraries, pavements - You subsidise services for those For example living on the other side ALEXANDRIA - Your electricity is used as a TOWNSHIP credit control mechanism if you don’t pay your rates and taxes - Your electricity tariff is probably higher than on the other side Municipality 5

If you live on this side: - You don’t pay a surcharge and Park thus contribute less to non trading services - These services are subsidised for you - Your electricity can’t be cut if For example don’t pay your rates and taxes SANDTON - Your electricity tariff is likely to be lower than on the other side 6

Park Alex subsidises ALEXANDRIA SANDTON Sandton TOWNSHIP Municipality 7

Examples of collec(on rates Park Municipal collec1on rates Municipal collec1on rates for other services (water, for service charges, rates waste, rates, taxes etc ) in and taxes in the municipal Eskom supply areas are supply areas are around: around: 11% 80% 40% 94% 56% 94% Municipali1es cannot exercise credit control in Eskom supplied areas – thus collec1on rate is lower 8

Park Municipality Therefore in Eskom supply areas, municipali1es are deprived of their cons1tu1onal and legisla1ve powers in terms of electricity re1cula1on. Customers are also deprived of Execu1ve accountability 9

Meaning of Execu1ve Authority 1. The duty to develop and implement electricity services policy and by-laws and to regulate electricity distribu1on 2. The duty to plan for electricity distribu1on 3. The right to budget and set service fees and surcharges . 4. The duty to ensure access through infrastructure development 5. The right to manage electricity distribu1on and trading themselves and the right to appoint service providers other than the municipality. 10

Good governance and services through accountability Council Municipality 2 5 Accountability 6 triangle 1 3 Services provision Ci(zens / Service consumer Payment for services (or subsidised by ES) Provider 4

No accountability and no governance in Eskom supply areas Council • Eskom is a service provider and provides a service (electricity re1cula1on) that Municipality a municipality must provide • It does so as a public company (regulated by company legisla1on) without reference to the Municipal Systems Act • It does so without a service delivery agreement (as required by Sec1on 76(b) of the Municipal Systems Act) Accountability • It does so en(rely on the strength of a licences issued to it by NERSA triangle • Eskom argues that it is authorised by NERSA and thus is also an authority and not a provider on behalf of the municipali1es concerned Services provision Ci(zens / consumer ‘Authority’ and Payment for services (or subsidised by ES) provider

The result … Cons1tu1onal authority of municipali1es is undermined by Eskom • Cons1tu1onal In the absence of a contrac1ng and regulatory mechanism (SDA) between • authority not Eskom and municipali1es: recognised – Ø Municipali1es are unable to levy surcharges in Eskom supply areas No SDA Ø Municipali1es are unable to exercise credit control in Eskom supply areas Structural and Ø Lack of tariff parity between municipal supply areas and Eskom supply . systemic areas challenges – nega1vely impact Ø Conflicts over supply areas on revenue License issued by NERSA to Eskom to re1culate electricity is defec1ve as it • collec1on bypasses the execu1ve authority of municipali1es Without an SDA, Eskom’s service unlawfully encroaches upon the • cons(tu(onal powers of the municipality Increasing There are several structural and systemic issues arising from the current • debt dispensa1on These contribute to the escala1ng debt • 13

NERSA License Condi(on • Eskom re1culates electricity to its customers en1rely on the strength of the licence issued by NERSA • The licence issued to ESKOM does not require Eskom to provide the service in terms of a service delivery agreement • In the absence of an SDA as required by the Systems Act, the licence is uncons1tu1onal and defec1ve • NERSA is empowered by the Electricity Regula1on Act to issue an electricity distribu1on license with condi-ons • It is also empowered to amend condi1ons if necessary – the licence condi1ons need to include the requirement of an SDA 14

SDA would facilitate • Expenditure more fairly distributed over all consumers. • All consumers contribu1ng to all services rendered by a municipality. • Improved credit control of municipal services • Reduc1on of the massive billions of municipal debt • Reduc1on of the debt owed to Eskom • Greater financial sustainability for municipali1es and the electricity industry 15

Eskom has higher electricity users Although electricity distribu1on is cons1tu1onally a municipal competency, • Eskom s1ll plays a huge role in electricity distribu1on in South Africa. Eskom distributed 212 107 GWh or 66% of total electricity distributed to • customers in the 2011/12 financial year (NERSA, 2012) to 15% of the total customers Municipali1es only distributed 96 537 GWh or 30% of total electricity • distributed, even though they deliver to 85% of total customers Although Eskom serves fewer customers, the sta1s1cs indicate that Eskom • customers are rela1vely higher electricity users, driven mainly by the energy intensive mines and industries (NERSA, 2012). 16

This current dispensa(on is subversive of: the right of municipali1es to administer the trading and distribu1on of electricity • (electricity re1cula1on) within the Eskom supply area, municipality’s right to govern, on its own ini1a1ve, local government affairs of • its community; an object of local government, namely to ensure that provision of services to • communi1es a done in a sustainable manner; Municipal credit control ac1on in Eskom Areas of Electricity Supply • the implicit cons1tu1onal power of the municipali1es to charge fees for an • electricity service; and the municipality’s cons1tu1onally entrenched fiscal power to impose surcharges • on fees for electricity re1cula1on services rendered on behalf of the municipality.

Recommenda(on to PCC: On the Cons(tu(onal Challenge That the PCC notes that no resolu1on was found in terms of the • cons1tu1onal challenges whereby the execu1ve authority of municipali1es for electricity re1cula1on is not recognised That the PCC endorse the resolu1on of the IMTT that the High Court be • approached for a declaratory order to express itself on the two opposing views with regard to the cons1tu1onal challenges rela1ng to electricity re1cula1on. PCC PCC referred the maier back to the IMTT to resolve amongst Ministers and Deputy Ministers and to report back a solu1on by end of October 2017 18

Cons(tu(onal issue: lack of tariff parity Impact of lack of tariff parity • – Different tariffs undermine equity – The differences in pricing result in some enterprises having to absorb municipal costs, whilst others (where Eskom provides services) operate at an advantage – Impacts on the actual and poten1al economic development of each area – Compromises the cons1tu1onal object of local government to ensure that it provides services to its local community in a sustainable and equitable manner – Impairs economic development 19

Structural challenge: public ligh(ng The purpose of street ligh1ng is to contribute to the safety of the public • Public ligh1ng is part of the package of electricity re1cula1on services • However, Eskom in its areas of supply does not provide public ligh1ng • (installa1on) and maintains it is a municipal func1on Where municipali1es install streetlights, Eskom at 1mes delays the • energising of these streetlights, ci1ng reasons such as misalignment of specifica1ons, standards and capacity, which compromises public safety Where municipali1es install energy efficient ligh1ng (through the Energy • Efficiency Demand Side Management Grant) in Eskom areas, Eskom con1nues to charge a high flat rate tariff IMTT view: The maier of street and public ligh1ng needs to be further addressed in • the Technical Commiiee as the Department of Energy has specific aspects it wants to address. 20