A tussle over municipalities’ role in electricity distribution has delayed the promulgation of the long-awaited Electricity Regulation Amendment Act, raising the risk that crucial reforms to create a more competitive electricity market could be delayed.
The municipalities have objected to a last-minute limitation imposed by the new act on the role they will play in distribution and reticulation.
Historically, they have been responsible for much of the distribution of electricity to households and businesses in their areas and have relied on this heavily to raise revenue.
However, analysts have warned of negative consequences for investment if the dispute cannot be resolved.
Grové Steyn, MD of Meridian Economics, warned that unless resolved, the matter could stall the new legislation “which sets out far-reaching reforms of SA’s electricity sector, including the establishment of a competitive electricity market”, as the Presidency described it.
That would send a signal to investors that SA was not serious about moving towards a competitive wholesale electricity market, said Sue Röhrs, expert in energy law from the law firm Power Law.
The new definition of “reticulation” that is at the centre of the dispute is a last-minute change that was not subjected to public participation and goes to the heart of the financial survival of municipalities.
The SA Local Government Association (Salga) and the department of electricity and energy have been given 90 days to present proposals that will accommodate municipalities and prevent court action.
“We are 30 days into the 90 days,” Salga head of energy and electricity generation Nhlanhla Ngidi told Business Day.
President Cyril Ramaphosa signed the Electricity Regulation Amendment Act into law on August 16, but it will come into effect only when the date of commencement has been promulgated in the Government Gazette.
The Presidency said in August the new legislation would open pathways to greater competition and reduced energy costs, as well as increasing investment in new generation capacity to achieve energy security. It also established the new independent transmission company as the custodian of the national grid.
However, after the president assented to the legislation, Salga petitioned him to relook at it, including the definition of “reticulation”.
President Cyril Ramaphosa signed the Electricity Regulation Amendment Act into law on August 16, but it will come into effect only when the date of commencement has been promulgated in the Government Gazette.
The Association of Municipal Electricity Utilities submitted a separate petition “due to the seriousness of the matter”, said association strategic adviser Vally Padayachee.
Other petitioners included the City of Cape Town and the City of Tshwane.
Ngidi said the new definition would reduce the constitutional powers of municipalities to distribute electricity to large power users with connections up to 132kV to only 11kV.
Merilynn du Plessis, attorney at Hahn & Hahn Attorneys, said municipalities were concerned that the amended definition would only allow them to “do the very last leg, which is below 11kV, being your lowest voltage”.
Under the new definition municipalities would also not be able to trade in electricity, which would open the reticulation market to other competitors.
Salga supported Eskom’s recent objection to applications to the National Energy Regulator of SA (Nersa) from four traders for licences to trade in electricity countrywide, Ngidi said.
Eskom argued its distribution licences granted it the exclusive right to trade electricity in its licensed distribution areas and announced it would take Nersa’s subsequent approval of the applications on judicial review.
Electricity sales are the biggest source of income for most municipalities and reducing them to network operators serving only small power users is expected to be devastating for their finances.
Steyn emphasised the importance of the promulgation of the act.
“We must get clarity on how the future electricity market will work. Without it investment will be inhibited.”
Inclusion of the new definition after the bill was passed in the National Assembly was a mistake, Steyn said.
Municipalities were dependent on their income from electricity sales, and it was never the intention to exclude them, he said.
“There must be a discussion about the way municipalities will function in the new dispensation. There are many problems in municipalities, but this is not the solution,” he said, adding promulgation must proceed without the contentious clause if possible.
SA Association for Independent Power Producers chair Brian Day said: “We need to get clarity on the distribution industry as a matter of urgency. It is more complex than transmission, and has become urgent for this and trading licences, payment delays by municipalities to Eskom and so on.”
It would be a tragedy if the promulgation of the act was further delayed due to the issue around municipalities, he said.
Chris Yelland, MD at EE Business Intelligence, said it was important to get the buy-in of major stakeholders such as municipalities for the new dispensation or they could become obstructive.
Yelland said while Eskom and municipalities might resist the market reform, there were powerful forces pushing for it, including the National Treasury, Kgosientsho Ramokgopa, the minister of electricity and energy, and Operation Vulindlela and the national energy crisis committee situated in the Presidency.
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