1 NERSA ANNUAL REPORT 2013/14 Parliamentary Portfolio Committee on Energy Chairperson and Chief Executive Officer 15 October 2014

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NERSA ANNUAL REPORT 2013/14

Parliamentary Portfolio Committee on EnergyChairperson and Chief Executive Officer

15 October 2014

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PRESENTATION OUTLINE (1)

A. IntroductionB. MandateC. Key HighlightsD. Strategic Plan (2012/13 – 2016/17)

I. Strategic Outcome Oriented GoalsII. Link to key policy priorities from Government III. Strategic ObjectivesIV. Programmes

E. Performance Against Predetermined ObjectivesI. Performance Against Predetermined ObjectivesII. Programme Performance

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PRESENTATION OUTLINE (2)F. Achievements

I. Electricity Industry RegulationII. Piped-Gas Industry RegulationIII. Petroleum Pipelines Industry RegulationIV. Cross-Cutting RegulatoryV. Organisational

G. Financial PerformanceI. Financial PerformanceII. Key Capital ProjectsIII. Audit and Risk CommitteeIV. Checks and Balances in Supply Chain Management

H. Audit Outcomes

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PRESENTATION OUTLINE (3)I. Staff AnalysisJ. International ActivitiesK. Conclusion

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A. INTRODUCTION

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INTRODUCTION (1)• The National Energy Regulator (NERSA), a Schedule 3A

Public Finance Management Act, 1999 (Act No. 1 of 1999) Public Entity, was established on 1 October 2005 in terms of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) to regulate the:o Electricity industry (Electricity Regulation Act, 2006 (Act No. 4 of

2006))o Piped-Gas industry (Gas Act, 2001 (Act No. 48 of 2001))o Petroleum Pipelines industry (Petroleum Pipelines Act, 2003 (Act

No. 60 of 2003))• In executing its mandate NERSA endeavours to balance the

conflicting interest of both licensed entities and end users

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INTRODUCTION (2)• Entity created by statute• Independent regulator• Functionally reporting to the Minister of Energy• Funded through levies

o Section 5B of the Electricity Act, 1987 (Act No. 41 of 1987) - “net kilowatt-hour generated” is used to determine the relative percentage contribution of each generation licensee to the levy

o Gas Regulator Levies Act, 2002 (Act No. 75 of 2002) - “gigajoules entered into the system” to determine the relative percentage contribution of each pipeline licensee to the levy

o Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004) - “litres entered in the system” to determine the relative percentage contribution of each owner of petroleum to the levy

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B. MANDATE

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MANDATE

The mandate of NERSA, as contained in relevant legislation, is summarised as follows: • Issuing of licences and setting pertinent conditions • Setting and/or approving tariffs and prices • Monitoring and enforcing compliance with licence conditions• Dispute resolution including mediation, arbitration and the handling of

complaints • Gathering, storing and disseminating industry information • Setting of rules, guidelines and codes for the regulation of the three

industries • Determination of conditions of supply and applicable standards• Registration of import and production activities

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C. KEY HIGHLIGHTS

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KEY HIGHLIGHTS

Some of the key highlights for 2013/14 are: • Received a clean audit from the Auditor-General• Achieved 90% of Annual Performance Targets• Reported a net surplus of R16 216 874-R4 314 850• No irregular expenditure not condoned• Reduced vacancy rate to 5%

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D. STRATEGIC PLAN (2012/13 – 2016/17)

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I. STRATEGIC OUTCOME ORIENTED GOALS (1)

• Cascaded from the mandate and reflecting the key policy priorities of government.

• These underscore NERSA’s role in facilitating the achievement of the national socio-economic and socio-political development agenda.

• The strategic outcome oriented goals are, within the limits of NERSA’s mandate:1. To facilitate Security of Supply in order to support sustainable socio-

economic development in South Africa;

2. To facilitate investment in and access to infrastructure in the energy industry to support sustainable socio-economic development in South Africa;

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I. STRATEGIC OUTCOME ORIENTED GOALS (2)

3. To promote competitive and efficient functioning as well as orderly development of the energy industry in order to sustain socio-economic development in South Africa;

4. To facilitate affordability of and accessibility to the energy to balance economic interests of all stakeholders in support of socio-economic development of South Africa and a better life for all; and

5. To position and establish NERSA as a credible and reliable regulator in order to create regulatory certainty.

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II. LINK TO KEY POLICY PRIORITIES FROM GOVERNMENT (1)

• The strategic outcome oriented goals of NERSA are linked to the following National outcomes: 2. A long and healthy life for all South Africans;

4. Decent employment through inclusive economic growth;

6. An efficient, competitive and responsive economic infrastructure network;

8. Sustainable human settlements and improved quality of household life;

10. Environmental assets and natural resources that are well protected and continually enhanced; and

12. An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship.

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OUTCOME 2: A LONG AND HEALTHY LIFE FOR ALL SOUTH AFRICANS

• NERSA contributes through: o Taking affordability into consideration when setting and/or approving

tariffs and prices; o Determining inclining block tariffs and free basic electricity tariffs to

protect the low income electricity consumers; o Facilitating the conclusion of Power Purchase Agreements between the

buyer and the renewable energy Independent Power Producers; o Regulating in a manner which facilitates security of supply; ando Policy advocacy with regards to cleaner fuels.

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OUTCOME 4: DECENT EMPLOYMENT THROUGH INCLUSIVE ECONOMIC GROWTH

• NERSA contributes through: o Licensing and the setting and/or approving of tariffs and prices. In this

manner NERSA creates pre-conditions towards the achievement of this outcome;

o Approving renewable energy licensees to ensure that the socio-economic development commitments specified in the DoE bidding process are met;

o Promoting companies that are owned and controlled by Historically Disadvantaged Individuals (HDIs) to become competitive; and

o Regulating in a manner which facilitates security of supply.

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OUTCOME 6: AN EFFICIENT, COMPETITIVE AND RESPONSIVE ECONOMIC INFRASTRUCTURE

NETWORK

• NERSA contributes through: o Setting and/or approving cost reflective tariffs and prices that

encourage efficient investment;o Facilitating and enforcing (piped-gas) 3rd party access to facilities; o Monitoring compliance and undertaking technical audits leading to

regular maintenance and refurbishment of the infrastructure and therefor to the improvement in quality of supply; and

o Promoting competition and competitiveness.

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OUTCOME 8: SUSTAINABLE HUMAN SETTLEMENTS AND IMPROVED QUALITY OF

HOUSEHOLD LIFE• NERSA contributes through: o Facilitating access to energy services;o Facilitating reliability of supply;o Monitoring maintenance of infrastructure;o Compliance monitoring with licence conditions; o Taking affordability into consideration when setting and/or approving


protect the low income electricity consumers; o Promoting energy efficiency in licencees and in the NERSA building;

ando Dispute resolution, including mediation, arbitration and handling of

complaints.

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OUTCOME 10: ENVIRONMENTAL ASSETS AND NATURAL RESOURCES THAT ARE WELL

PROTECTED AND CONTINUALLY ENHANCED• NERSA contributes through: o Incorporating compliance with the National Environmental Management

Act, 1998 (Act No. 107 of 1998) as well as decommissioning remediation and the funding thereof into licence conditions;

o Promoting energy efficiency in licencees and in the NERSA building;o Facilitation of the implementation of the Integrated Resource Plan (IRP)

through considering concurring with determinations made by the Minister of Energy in line with section 34 of the Electricity Regulation Act, 2006 (Act No. 4 of 2006);

o Monitoring the implementation of the IRP, the Integrated Energy Plan (once promulgated) and the Gas Utilisation Master Plan (once in promulgated); and

o Facilitating the transition to a low carbon economy.

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OUTCOME 12: AN EFFICIENT, EFFECTIVE AND DEVELOPMENT ORIENTED PUBLIC SERVICE AND

AN EMPOWERED, FAIR AND INCLUSIVE CITIZENSHIP (1)

• NERSA contributes through (1): o Transparent Processes and public participation;o All decisions and reasons thereof are made public;o The public is invited to make comments prior to decisions being made

(written or in public hearings); o Customer education;o Training and development of staff and stakeholders, including training

of electricity distributors on the completion of the forms requesting information from them;

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OUTCOME 12: AN EFFICIENT, EFFECTIVE AND DEVELOPMENT ORIENTED PUBLIC SERVICE AND

AN EMPOWERED, FAIR AND INCLUSIVE CITIZENSHIP (2)

• NERSA contributes through (2): o Participating in the Clean Energy Education and Empowerment

Programme (C3E); o Corporate Social Investment activities; ando Techno Girls programme where ten girls from grade 9 to grade 12 are

exposed to NERSA’s activities through visits during school holidays.

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TECHNO GIRLS2012 and 2014 Intake

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• The strategic outcome oriented goals of NERSA are linked to the following enabling milestones in the National Development Plan: 4. Establish a competitive base of infrastructure, human resources and

regulatory frameworks;

5. Ensure that skilled, technical, professional and managerial posts better reflect the country's demographics;

6. Broaden ownership of assets to historically disadvantaged groups; and

10. Produce sufficient energy to support industry at competitive prices, ensuring access for poor households, while reducing carbon emissions per unit of power by about one-third.

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MILESTONE 4: ESTABLISH A COMPETITIVE BASE OF INFRASTRUCTURE, HUMAN RESOURCES AND

REGULATORY FRAMEWORKS (1)• NERSA contributes through (1): o Publication of rules, codes and guides for the regulation of the electricity,

piped-gas and petroleum pipelines industries;o Setting rules and frameworks that facilitate the building of new

infrastructure;o Setting and/or approving cost reflective tariffs and market related prices

that encourage investment;o Facilitating and enforcing third party access to facilities; o Monitoring compliance through undertaking technical audits leading to

regular maintenance and refurbishment of infrastructure and thus contributing to an increase in quality of supply;

o Transparent Processes and public participation;

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MILESTONE 4: ESTABLISH A COMPETITIVE BASE OF INFRASTRUCTURE, HUMAN RESOURCES AND

REGULATORY FRAMEWORKS (2)• NERSA contributes through (2): o All decisions and reasons thereof are made public through being

published on the NERSA website;o The public is invited to make comments prior to decisions being made

(written or in public hearings); o Customer education; ando Setting targets for becoming a more credible, reliable, efficient and

effective regulator.

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MILESTONE 5: ENSURE THAT SKILLED, TECHNICAL, PROFESSIONAL AND MANAGERIAL

POSTS BETTER REFLECT THE COUNTRY'S RACIAL, GENDER AND DISABILITY MAKEUP

• NERSA contributes through: o Development and implementation of an Employment Equity Plan;o Development and implementation of the Youth Employment Accord;o Implementation of a Learnership Programme as well as an Internship

Programme;o Training and development of staff and stakeholders; ando Techno Girls programme where ten girls from grade 9 to grade 12 are

exposed to NERSA’s activities through visits during school holidays.

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MILESTONE 6: BROADEN OWNERSHIP OF ASSETS TO HISTORICALLY DISADVANTAGED GROUPS

• NERSA contributes through: o Licensing and the setting and/or approving of tariffs and prices. In this

manner NERSA creates pre-conditions towards the achievement of this milestone;

o Issuing licences to eligible applicants to facilitate the meeting of stated socio-economic development targets;

o Facilitating and enforcing (piped-gas) 3rd party access to facilities; o Promoting companies that are owned and controlled by Historically

Disadvantaged Individuals (HDIs) to become competitive; ando Regulatory advocacy for strengthening the powers of the Regulator.

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MILESTONE 10: PRODUCE SUFFICIENT ENERGY TO SUPPORT INDUSTRY AT COMPETITIVE PRICES, ENSURING ACCESS FOR POOR

HOUSEHOLDS, WHILE REDUCING CARBON EMISSIONS PER UNIT OF POWER BY ABOUT ONE-

THIRD (1)• NERSA contributes through (1): o Regulating in a manner which facilitates security of supply;o Taking affordability into consideration when setting and/or approving


protect the low income electricity consumers; o Facilitating the conclusion of Power Purchase Agreements between the

buyer and the renewable energy Independent Power Producers;

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THIRD (2)• NERSA contributes through (2): o Registration of gas importation and production facilities (including

biodigesters);o Facilitating access to electricity in setting aside some funds for the

Electrification Cross-subsidy as part of determining electricity prices; o Incorporating compliance with the National Environmental Management

Act, 1998 (Act No. 107 of 1998) into licence conditions;o Promoting energy efficiency in general in South Africa;

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THIRD (3)

• NERSA contributes through (3): o Facilitation of the implementation of the Integrated Resource Plan (IRP)


o Monitoring the implementation of the IRP; o Development and implementation of the Grid Code for renewable energy

to facilitate the introduction of renewable energy power producers;

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THIRD (4)

• NERSA contributes through (4): o Facilitating the transition to a low carbon economy; o Regulatory advocacy with regards to cleaner fuels policy; ando Monitoring the implementation of the Gas Utilisation Master Plan (once

promulgated).

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• The strategic outcome oriented goals of NERSA are linked to the following strategic integrated projects in the National Infrastructure Plan: 8. Green energy in support of the South African economy;

9. Electricity generation to support socio- economic development; and

10. Electricity transmission and distribution for all.

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SIP 8: GREEN ENERGY IN SUPPORT OF THE SOUTH AFRICAN ECONOMY

• NERSA contributes through: o Facilitating the conclusion of Power Purchase Agreements between the

buyer and the renewable energy Independent Power Producers; o Incorporating compliance with the National Environmental Management

Act, 1998 (Act No. 107 of 1998) into licence conditions;o Facilitation of the implementation of the Integrated Resource Plan (IRP)


o Monitoring the implementation of the IRP; o Facilitating the transition to a low carbon economy; ando Regulatory advocacy with regards to cleaner fuels policy.

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SIP 9: ELECTRICITY GENERATION TO SUPPORT SOCIO- ECONOMIC DEVELOPMENT

• NERSA contributes through: o Regulating in a manner which facilitates security of supply and

investment;o Facilitating the conclusion of Power Purchase Agreements between the

buyer and the renewable energy Independent Power Producers; o Setting rules and frameworks that facilitate the building of new

infrastructure;o Setting and/or approving cost reflective tariffs and prices that

encourage investment;o Monitoring compliance through undertaking technical audits leading to

regular maintenance and refurbishment of infrastructure and thus contributing to an improvement in quality of supply.

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SIP 10: ELECTRICITY TRANSMISSION AND DISTRIBUTION FOR ALL (1)

• NERSA contributes through (1): o Facilitating access to electricity in setting aside some funds for the

Electrification Cross-subsidy as part of determining electricity prices; o Taking affordability into consideration when setting and/or approving

tariffs and prices, while allowing a provision for expansion of current operations;

o Determining inclining block tariffs and free basic electricity tariffs to protect the low income electricity consumers;

o Facilitating and enforcing third party access to facilities; o Facilitating reliability of supply;o Determining benchmarks and monitoring maintenance of infrastructure;

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SIP 10: ELECTRICITY TRANSMISSION AND DISTRIBUTION FOR ALL (2)

• NERSA contributes through (2): o Auditing of the implementation of the Transmission Development Plan

by Eskom;o Monitoring compliance with licence conditions; ando Dispute resolution, including mediation, arbitration and handling of

complaints.

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• The strategic outcome oriented goals of NERSA are linked to the following policies in the National Industrial Policy Framework: vi. Competition and regulation policies that lower costs for productive

investments and for poor and working-class households; and

ix. Interventions that give expression to Government’s commitment to regional economic development and integration in Africa.

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POLICY VI: COMPETITION AND REGULATION POLICIES THAT LOWER COSTS FOR PRODUCTIVE

INVESTMENTS AND FOR POOR AND WORKING-CLASS HOUSEHOLDS (1)

• NERSA contributes through (1): o Regulating in a manner which facilitates security of supply and

investment;o Taking affordability into consideration when setting and/or approving

tariffs and prices, while allowing a provision for expansion of current operations;

o Determining inclining block tariffs and free basic electricity tariffs to protect the low income electricity consumers;

o Facilitating the conclusion of Power Purchase Agreements between the buyer and the renewable energy Independent Power Producers;

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POLICY VI: COMPETITION AND REGULATION POLICIES THAT LOWER COSTS FOR PRODUCTIVE

INVESTMENTS AND FOR POOR AND WORKING-CLASS HOUSEHOLDS (2)

• NERSA contributes through (2): o Registration of gas importation and production facilities; ando Maintenance of the Grid Code and amendment of the said code to

facilitate the introduction of renewable energy power producers.

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POLICY IX: INTERVENTIONS THAT GIVE EXPRESSION TO GOVERNMENT’S COMMITMENT TO REGIONAL ECONOMIC DEVELOPMENT AND

INTEGRATION IN AFRICA• NERSA contributes through: o Founding member and a current member of the Executive Committee

of the African Forum for Utility Regulators; ando Member of and current chair of the Regional Electricity Regulatory

Association.o This will be covered later in this presentation.

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III. STRATEGIC OBJECTIVES• Promote energy supply that is certain and secure for current

and future user needs;• Create a regulatory environment that facilitates investment

in energy infrastructure;• Promote competition and competitiveness within the energy

industry;• Promote regulatory certainty within the energy industry;• Promote accessible and affordable energy for all citizens;

and• Establish and position NERSA as a credible and reliable

regulator.

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IV. PROGRAMMES (1)

• In order to achieve its outcome oriented goals NERSA will deliver on its strategic objectives through the following structured programmes:1. Setting and/or approving tariffs and prices;

2. Licensing and registration;

3. Compliance monitoring and enforcement;

4. Dispute resolution including mediation, arbitration and the handling of complaints;

5. Setting of rules, guidelines and codes for the regulation of the three industries; and

6. Establishing NERSA as an efficient and effective regulator.

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III. PROGRAMMES (2)Strategic Objectives Programme

Promote energy supply that is certain and secure for current and future user needs

Setting and/or approval of tariffs and pricesLicensing and registrationCompliance monitoring and enforcement

Create a regulatory environment that facilitates investment in energy infrastructure

Setting and/or approval of tariffs and pricesLicensing and registrationCompliance monitoring and enforcementSetting of rules, guidelines and codes for the regulation of the three energy industriesEstablishing NERSA as an efficient and effective regulator

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III. PROGRAMMES (3)

Strategic Objectives Programme

Promote competition and competitiveness within the energy industry

Setting and/or approval of tariffs and pricesLicensing and registrationCompliance monitoring and enforcementDispute resolution, including mediation, arbitration and handling of complaintsSetting of rules, guidelines and codes for the regulation of the three energy industries

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Promote regulatory certainty within the energy industry

Setting and/or approval of tariffs and pricesSetting of rules, guidelines and codes for the regulation of the three energy industriesEstablishing NERSA as an efficient and effective regulator

Promote accessible and affordable energy for all citizens

Setting and/or approval of tariffs and pricesLicensing and registrationCompliance monitoring and enforcementDispute resolution, including mediation, arbitration and handling of complaints

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Establish and position NERSA as a credible and reliable regulator

Dispute resolution, including mediation, arbitration and handling of complaintsSetting of rules, guidelines and codes for the regulation of the three energy industriesEstablishing NERSA as an efficient and effective regulator

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E. PERFORMANCE AGAINST PREDETERMINED OBJECTIVES

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I. PERFORMANCE AGAINST PREDETERMINED OBJECTIVES

Executed As Planned

Not Executed As PlannedExternal Dependencies

Internal Constraints

2012/13 2013/14 2012/13 2013/14 2012/13 2013/14

Electricity 79% 99% 21% 4% 0% 0%

Piped-Gas 86% 100% 5% 0% 9% 0%

Petroleum Pipelines

90% 83% 5% 4% 5% 13%

Cross-cutting Regulatory

100% 86% 0% 0% 0% 14%

Organisational 86% 75% 0% 0% 14% 25%

Total 87% 90% 8% 2% 5% 7%

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II. PROGRAMME PERFORMANCE

Programme

1 2 3 4 5 6

Electricity 100% 100% 100% 100% 83% 100%

Piped-Gas 100% 100% 100% 100% 100% 100%

Petroleum Pipelines

83% 50% 80% 100% 83% 100%

Cross-cutting Regulatory

- - - - - 86%

Organisational - - - - - 75%

Total 95% 83% 94% 100% 83% 85%

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F. ACHIEVEMENTS

I. ELECTRICITY INDUSTRY REGULATION (1)

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Tariffs Licensing

Approved 182 out of 186 (98%) municipal and private distributor tariffs

Approved all 17 Renewable Energy Generation licences under the third phase of the DoE Renewable Energy procurement programme

Approved:•Eskom’s retail tariff structure adjustments for 2014/15•2014/15 schedule of Eskom’s standard tariffs•Free Basic Electricity Rate for 2014/15 (77.43c/kWh)•Eskom’s Regulatory Financial Report for 2012/13•City of Cape Town’s Regulatory Financial Report for 2012/13•Regulatory Reporting Manual Implementation Plan for the City of Tshwane•Regulatory Reporting Manual Implementation Plan for the City of Tshwane

Granted 5 generation licences, 2 distribution licences and 1 distribution connection facility licence

Approved amendments to 6 generation, 1 distribution licence and 1 trading licenceApproved the Renewable Energy Grid Code

Approved the Consultation Paper on Electricity Resellers Tariff Guidelines for public comments

I. ELECTRICITY INDUSTRY REGULATION (2)

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Other

Conducted a preliminary investigation into the load shedding of 6 March 2014

Completion of the Eskom Integrated Demand Management (IDM) audit 2012/13

Published a report on the trends regarding to and the status of complaints in the electricity industry

The System Adequacy Report for 2012 and Year To Date 2013 was published

Two successful workshops on the Non-Financial Information (NFI) Regulatory Reporting Manuals were held with Eskom and the Association of Municipal Electricity Utilities (AMEU)

The draft revised Integrated Resource Plan (IRP2010) was analysed and comments were submitted to the Department of Energy

A NERSA/Eskom stakeholder engagement on cross border trading took place

II. PIPED-GAS INDUSTRY REGULATION (1)

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Pricing and Tariffs Compliance Monitoring and Enforcement

Approved:•Maximum Price of Piped-Gas for Spring Lights Gas (Pty) Ltd for the period 1 July 2013 to 30 June 2014•Maximum prices for NOVO for the period 2 April 2013 to 31 March 2014•Maximum prices for:

o greenfields customerso distributors and reticulators o brownfields customers

•Minimum prices for gas•Discounts to small customers•ROMPCO tariff for Q2 and Q3 of 2013•Transnet Transmission tariff for 2013

Concluded investigations on:•CBI Electric (Pty) Ltd price complaint (non-compliance notice issued)•Nampak (Pty) Ltd and Columbus (Pty) Ltd (price charged was below market value price)•Southdowns (price charged was above market value price – Sasol reimbursed)•Vereeniging Refactories (Pty) Ltd (price reduction approved)•Norcross (Pty) Ltd (reduced price negotiated)•BMW (Pty) Ltd (reduced price negotiated)

Started regulating the prices of gas using section 21(1)(p) of the Gas Act as from 26 March 2014. As a result, Sasol Gas implemented a 5% reduction in current prices for all 347 customers in order to assist during the transition

II. PIPED-GAS INDUSTRY REGULATION (2)

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LicensingOther

Reatile Gastrade was granted a licence to trade in gas in fourteen (14) areas in the Gauteng province. This was an important milestone for transformation of the gas industry as well as entry of new players into the gas market as Reatile Gastrade is a 100% empowerment company with an interest in the oil and gas industry in South Africa

CNG Holdings (Pty) Ltd launched the second phase of its gas for vehicles project in Langlaagte. The company was licensed by the Energy Regulator to trade in compressed natural gas and has converted 300 minibus taxis within the greater Johannesburg Metropolitan Council to run on gas

III. PETROLEUM PIPELINES INDUSTRY REGULATION

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Pricing and Tariffs Other

Granted an increase of 5.08% in allowable revenue to Transnet Pipelines for 2014/15

62% (24) of all licencees currently comply with all the regulatory reporting requirements

Granted an increase of 0.14% in allowable revenue to Chevron for 2014/15

202 inspections of suspected unlicensed activities were conducted - 154 were deemed to be licensable

Set tariffs for 14 pipelines and or pipeline networks

Licensing

IV. CROSS-CUTTING REGULATORY

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Establishing NERSA as an efficient and effective Regulator

Hosted the second South African Energy Regulators Conference in March 2014

Approved the Framework for conducting a Regulatory Impact Assessment

Approved the report on the harmonisation of tariff methodologies

Signed Cooperation Agreement / Memorandum of Understanding with the National Nuclear Regulator

V. ORGANISATIONAL

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Establishing NERSA as an efficient and effective Regulator

Appointment of three new part-time Regulator Members by the Minister of Energy. These are Mr JRD Modise (Chairperson), Ms MMD Nkomo (Deputy Chairperson) and Mr FK Sibanda

Re-appointment of Ms KR Mthimunye as a part-time Regulator Member by the Minister of Energy

Appointment of the Executive Manager: Piped-Gas Regulation, Ms N Maseti, as the Full-time Regulator Member primarily responsible for piped-gas by the Minister of Energy

Unqualified audit for 9 consecutive years

For the first time since its inception, 95% of the organisational structure of the National Energy Regulator has been filled

Participated in the 2nd High Level Meeting of Regional Energy Regulatory Association of Emerging Markets held on16-17 March 2014

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G. FINANCIAL PERFORMANCE

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I. FINANCIAL PERFORMANCE (1)

• Actual levies collected amounted to R226.9 million, received from the following sources: o Electricity industry – R127.6milliono Piped-Gas industry – R51.9 milliono Petroleum Pipelines industry – R47.3 million

• The under recovery of the levies, compared to the budget is due to the actual volumes of product transported being below the volumes projected by the industry.

• The actual expenditure for the period 1 April 2013 to 31 March 2014 amounted to R 227 million. This represents an underspending of 10% compared to the budgeted amount of R252.8 million.

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II. FINANCIAL PERFORMANCE (2)

• A Cash Flow Mitigation Reserve has become necessary for NERSA to be able to fulfil its financial obligations should there be a delay in the approval of the budget and/or delays in the payment of levies by the regulated entities.

• Commitments – expenditure contracted for but the goods/ service has not yet being receivedo Capital Expenditure R 2 135 410o Operating Expenditure R24 956 641o Total Commitments R27 092 051


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Programme performance

INCOME STATEMENT

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LEVY INCOME PER INDUSTRY

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OPERATING EXPENDITURE ACTUAL VS BUDGET

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BALANCE SHEET ACTUAL 2014 VS ACTUAL 2013

Current ratio of 3:1

Current Assets

Non-Current Assets

Current Liabilities

Equity

Current assets higher due to cash-on-hand increased as a result of higher Surplus Funds to be refunded back to industry

Current liabilities higher due to Trade Creditors that are due after year-end

Non-current Assets higher due to Revaluation of Land & Build and purchases of Computer Software and Hardware

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CASH FLOW STATEMENT

The cash flow statement demonstrates that NERSA has sufficient funds available for normal operations and future capital projects

Opening Balance

Customer Receipts

Supplier Payments

PPE Purchased

Closing Balance

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• Total irregular expenditure not yet condoned at year end was R0.00

• Fruitless and wasteful expenditure was R5,475.00 - relating to interest charged for late payment of invoices

• A central invoice recording and tracking system has been implemented together with a dedicated invoice receipting email address ([email protected]) as a measure to prevent reoccurrence of fruitless and wasteful expenditure

mailto:[email protected]

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II. KEY CAPITAL PROJECTS (1) • In 2012 the Energy regulator resolved to remain in their

current premises and conduct some major upgrades to the building

• The following slide indicates the costs incurred to date relating to the Refurbishment project:

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Key Capital Projects RStandby Generator 1 968 735Fire escape and Water proofing 1 795 775 Gas system server room 55 176 Lifts 2 124 575 Bio metric access control 360 358 BUILDING REFURBISHMENT COMPLETED 2013/2014 6 304 619 Lifts (Handover in Oct 2014) 1 062 288 Metal detectors and X-Ray machines (To start Oct 2014) 2 000 000 BUILDING REFURBISHMENT WORK IN PROGRESS 2013/14 - 2014/15 9 366 907

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III. AUDIT AND RISK COMMITTEE

• The Audit and Risk Committee: o considers the quarterly management reports and unaudited annual

financial statements;o reviews the audited financial statements included in the annual

report; ando monitors on a quarterly basis the implementation of agreed action

plans on the findings by Internal Audit and the Auditor-General.o The Chairperson of the Audit and Risk Committee will elaborate on

these issues in her presentation

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IV. CHECKS AND BALANCES ON SUPPLY CHAIN MANAGEMENT

• Approved Supply Chain Management (SCM) policy and procedures in place

• SCM Officials are undergoing security clearance• Standing bid adjudication committees in place • Approval authority delegated to three different bid adjudication

committees (BAC) based on amount:o R500 001 to R1.5 m (Management Committee BAC)o Above R1.5 m to R3 m (Regulator Executive Committee BAC)o Above R3 m to R10 m (Finance Committee BAC)o Above R10 m – Energy Regulator

• Bid specifications, evaluation• And adjudication committees in place

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H. AUDIT OUTCOMES

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AUDIT OUTCOMES (2013/14)• The Chairperson of the Audit and Risk Committee will

cover audit outcomes in her presentation.

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I. STAFF ANALYSIS

STAFF ANALYSIS (1)

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Demographic Profile

Gender Profile

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STAFF ANALYSIS (2)

• Total staff complement = 180 (including Full-time Regulator Members)

• Total strength = 159 (95%)• Vacancies = 21 (5%)• Resignations = 13• Appointments = 22• Employment of people with disabilities = 3

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J. INTERNATIONAL ACTIVITIES

REGIONAL ELECTRICITY REGULATORY ASSOCIATION OF SOUTHERN AFRICA (RERA)

• NERSA is the Current Chair and Member of the Executive Committee of RERA

• RERA Objectives:o Capacity Building and Information Sharing;o Facilitation of Electricity Supply Industry Policy, Legislation and

Regulations; ando Regional Regulatory Cooperation.

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RERA MEMBERSHIP• Angola - Institute for Electricity Sector Regulation (IRSE);

• Lesotho - Lesotho Electricity and Water Authority (LEWA);

• Malawi - Malawi Energy Regulatory Authority (MERA);

• Mozambique - National Electricity Advisory Council (CNELEC);

• Namibia - Electricity Control Board (ECB);

• South Africa - National Energy Regulator of South Africa (NERSA);

• Swaziland – Swaziland Energy Regulatory Authority (SERA);

• Tanzania - Energy & Water Utilities Regulatory Authority (EWURA);

• Zambia - Energy Regulation Board (ERB); and

• Zimbabwe - Zimbabwe Energy Regulatory Authority (ZERA)

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RERA Membership o 12 of the15 SADC countries have

energy/electricity regulatorso 10 of the 12 regulators are Members of

RERAo 2 regulators - ORE of Madagascar and

Energy Commission of Seychelles are not yet Members of RERA

o 4 are electricity regulators, 6 are energy regulators and 2 are multi-sector (energy/water) regulators

o Remaining 3 SADC countries (Botswana, the DRC and Mauritius) are at various stages of sector reform

DR CongoTanzania

Zambia

Angola Malawi

Zimbabwe

MozambiqueBotswanaNamibia

South Africa Lesotho

Swaziland

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RERA 10th ANNIVERSARY-2012 WINDHOEK, NAMIBIA

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RERA 10th ANNIVERSARY-2012 WINDHOEK, NAMIBIA

AFRICAN FORUM FOR UTILITY REGULATORS (AFUR)

• NERSA is a member of AFUR EXCO and Energy Sectoral Committee; and

• AFUR focuses on issues related to the regulation of the Energy, Telecommunications, Transport , Water and Sanitation Sectors

• AFUR Objectives:o Information sharing;o Capacity building; ando Harmonisation of regulatory policies and legislation.

• The AFUR Annual Conference and Annual General Meeting will be held in April 2015, at the Cape Town International Convention Centre in Cape Town, hosted by Department of Water Affairs and Sanitation. 85

ETHIOPIA - ObserverUGANDA

KENYATANZANIA

MALAWIZAMBIA

ZIMBABWENAMIBIA

MOZAMBIQUESOUTH AFRICA

LESOTHO

RWANDA - ObserverNORTH SUDAN - Observer

ALGERIA

MAURITANIANIGERMALISENEGALGAMBIABURKINA FASO

COTE D’IVOIRE

GHANATOGO NIGERIACAMEROON

ANGOLA - observerBENINDRC - Observer

AFUR MEMBERSHIP

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COOPERATION WITH OTHER GLOBAL INSTITUTIONS / ORGANISATIONS

• RERA and AFUR continue to enjoy excellent working relationships and support from the:o African Union (AU);o SADC Secretariat;o Southern African Power Pool (SAPP);o International Confederation of Energy Regulators (ICER);o Council of European Energy Regulators (CEER); o Energy Regulators Regional Association (ERRA);o ECOWAS Regional Electricity Regulatory Authority (ERERA); ando Roundtable of Regional Energy Regulators Associations of

Emerging Market.

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88

AFUR ROUNDTABLE2012, PRETORIA, RSA

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K. CONCLUSION

CONCLUSION (1)• NERSA would like to thank the Parliamentary Portfolio Committee

for the opportunity to present its Annual Report 2013/14; • NERSA continues to grow from strength to strength since its

inception in 2005. • The results of its work continue to have a profound impact on the

lives of ordinary people as well as on the economy of the country; • The regulation of the three energy industries characteristically

continues to pose challenges in that the Energy Regulator is required to balance the conflicting interests of licensees, investors, consumers/end-users and the policy maker;

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CONCLUSION (2)

• NERSA has achieved its regulatory mandate through key performance indicators set for the 2013/14 financial year – it achieved 90% of its targets;

• The staff turnover has stabilised over the years; • NERSA is a viable entity and is still operating as a going

concern; and• To deal with regulatory challenges, NERSA has

undertaken various initiatives to refine regulatory practices and methodologies in its quest to become a world-class leader in energy regulation and will continue to do so.

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THANK YOUvisit us at www.nersa.org.za

Documents

1 NERSA ANNUAL REPORT 2013/14 Parliamentary Portfolio Committee on Energy Chairperson and Chief Executive Officer 15 October 2014