Apart from providing for a new transmission system operator and competitive multi-market structure in the electricity supply industry, the newly published Electricity Regulation Amendment Bill also gives more clarity about energy regulator Nersa’s role and expands its mandate and some of its powers.
During his State of the Nation address on Thursday (February 10), President Cyril Ramaphosa described the current electricity supply crisis as “one of the greatest threats to economic and social progress.” He said there is a shortfall of around 4 000 megawatts (MW), even though Eskom has repeatedly put it at as much as 6 000 MW.
Ramaphosa cited various measures by government to add generation capacity to the grid and stated that Eskom is on track to complete the unbundling of its transmission business at the end of 2022.
“To regulate all of these reforms, cabinet yesterday [February 9] approved amendments to the Electricity Regulation Act for public comment,” he said.
It was published in the Government Gazette on the same day, kicking off a 30-day comment period.
What’s in the bill
The bill provides for the establishment of a transmission system operator and describes its functions while also describing the new market structure.
In addition, it makes several changes to the way Nersa operates.
This includes giving it powers to not only mediate, but to also provide binding decisions in disputes among licencees and between licencees and customers or end-users through arbitration.
Over and above issuing licences for generation, transmission, distribution, import, export and trading of electricity, it will also license system operator/s and reticulation.
If the bill is adopted as is, the minister of mineral resources and energy may ask Nersa to determine a tariff for the contemplated energy – or to set a maximum or guideline price – before issuing a determination for additional generation capacity, or thereafter but before procuring it.
Until now this has been totally in the hands of the department’s office for independent power producers.
The high level of tariffs agreed upon in the first number of bid rounds has been widely criticised, but Eskom is saddled with those tariffs for the duration of the 20-year power purchase agreement (PPA).
While some renegotiation has taken place, it has not yet brought significant relief and represents a major portion of the additional revenue Eskom is asking for in the tariff application for next year.
Nersa is expected to decide on the application in the next week or two.
If Nersa decides on a tariff, or guideline or maximum tariff, it must be implemented in the PPAs following the relevant procurement process.
With regard to the determination of electricity tariffs, the principle of allowable revenue based on the full cost of the service plus a reasonable return remains, but the margin requirement is now linked to risk with the qualification: “commensurate with the risk of the licensed activity”.
An additional pricing principle in the bill is that Nersa may have regard for the need to ensure security of supply and diversity of supply, and to promote renewable energy.
The bill further states that in determining tariffs, Nersa must take into account all planned projects in the Integrated Resource Plan and Transmission Development Plan insofar as it will impact the licensee’s cost during the tariff period.
In the case of direct supply agreements between a licensed generator and its customer, there is no need to get Nersa’s approval for the tariffs the parties have agreed upon.
The bill has scrapped the provision for a Nersa tribunal to deal with licensees that don’t comply with their licence conditions.
In the past Nersa has seemed reluctant to sit as a tribunal, and has been accused of failing to act against non-compliant licensees – especially municipalities.
The bill also expands on the conditions under which Nersa may apply to the high court for an order to suspend or revoke a licence.
In addition to the current wording that it may be done “if there is any ground justifying” such action, the bill now gives an example: “such as a failure to carry out the activities for which the licence was granted or material non-compliance with the conditions of the licence”.
Nersa late last year adopted three new principles for tariff setting in the electricity supply industry, namely:
- The unbundling of services such as generation, transmission and distribution;
- Differentiating between the cost of different services, such as the provision of baseload or variable demand; and
- The differentiation between the cost associated with each such service.
It plans to develop and finalise a methodology based on these principles by September.
Many critics have argued that the amendment of the Electricity Regulation Act and Pricing Policy must first be finalised before developing the methodology.
The Pricing Policy was published for comment on the same day as the amendment bill, also with a 30-day comment period starting on February 10.