1 NERSA Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2012/13 – 2014/15) 5 June 2012

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NERSA Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2012/13 – 2014/15)

5 June 2012

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CONTENT• Introduction• Framework for Strategic Plans and Annual Performance

Plans• Planning Concepts• Vision, Mission, Values and Regulatory Principles• Mandate• Achievements (2011/12)• Strategic Plan (2012/13 – 2016/17)• Annual Performance Plan (2012/13 – 2014/15)• Budget and Funding (2012/13)• Challenges facing NERSA• Plans for the future• Conclusion

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INTRODUCTION• The National Energy Regulator (NERSA) was established on 1

October 2005 in terms of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) to regulate:– Electricity industry (Electricity Regulation Act, 2006 (Act No. 4 of 2006))– Piped-Gas industry (Gas Act, 2001 (Act No. 48 of 2001))– Petroleum Pipelines industry (Petroleum Pipelines Act, 2003 (Act No. 60 of

2003))

• NERSA is expected to implement its mandate and to proactively take necessary regulatory actions in anticipation of and in response to the changing circumstances in the energy industry

• Furthermore, in executing its mandate NERSA needs to ensure that the interest of both licensed entities and end users/consumers are balanced

• In terms of the Public Finance Management Act, 1999 (Act No. 1 of 1999), NERSA is a Schedule 3A Public Entity

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FRAMEWORK FOR STRATEGIC PLANS AND ANNUAL PERFORMANCE PLANS

• Published by National Treasury in August 2010• Applicable to all national and provincial departments,

constitutional institutions and public entities in the development of their strategic plans

• Applicable from 2012/13 for Schedule 3A Public Entities• NERSA is required to:

– Produce and table a Strategic Plan with a five-year planning horizon;– Produce and table an Annual Performance Plan including forward

projections for a further two years, with annual and performance targets, where appropriate; and

– Identify a core set of indicators needed to monitor institutional performance.

PLANNING CONCEPTS

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VISION

“To be a world-class leader in energy regulation”

MISSION

“To regulate the energy industry in accordance with government laws and policies, standards and international best practices in support of sustainable development”

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VALUES

• Passion • Spirit of Partnership • Excellence • Innovation • Integrity • Responsibility • Professionalism

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REGULATORY PRINCIPLES

• Underpinned by NERSA’s legal mandate – Transparency – Neutrality – Consistency and Predictability– Independence – Accountability – Integrity– Efficiency

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MANDATE

• NERSA’s Mandate is anchored in – 4 Primary Acts:

• National Energy Regulator Act, 2004 (Act No. 40 of 2004)• Electricity Regulation Act, 2006 (Act No. 4 of 2006)• Gas Act, 2001 (Act No. 48 of 2001) • Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)

– 3 Levies Acts:• Gas Regulator Levies Act, 2002 (Act No. 75 of 2002)• Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004) • Section 5B of the Electricity Act, 1987 (Act No. 41 of 1987)

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MANDATE (2)

– 3 Facilitating Acts:• Public Finance Management Act, 1999 (Act No. 1 of 1999)

(PFMA)• Promotion of Access to Information Act, 2000 (Act No. 2 of

2000) (PAIA)• Promotion of Administrative Justice Act, 2000 (Act No. 3 of

2000) (PAJA)

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ACHIEVEMENTS (2011/12)

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ELECTRICITY INDUSTRY REGULATION• Tariffs

– Approved 177 municipal tariffs and reviewed 9 tariff applications for 2011/12;

– Approved a revised tariff increase for Eskom for the period 1 April 2012 to 31 March 2013 of 16% instead of the originally approved tariff of 25.9% on 9 March 2012; and

– Concurrence of the Energy Regulator with the determination made by the Minister of Energy in line with section 34 of the Electricity Regulation Act, 2006 (Act No. 4 of 2006) on the procurement process for renewable energy

• Generation– Conducted national hearings on the licence applications by the 28

‘DoE Renewable Energy IPP programme’ preferred bidders; and– Granting of 5 generation licences.

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ELECTRICITY INDUSTRY REGULATION (2)• Distribution

– The mediation between the Chiawelo community and Eskom was successfully completed after the adoption of the report Testing of Disputed Electricity Prepaid Meters in Chiawelo, Soweto; and

– Granting of 1 distribution licence and revocation of 1 distribution licence.

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PIPED-GAS INDUSTRY REGULATION• Pricing and Tariffs

– Approved Methodology to Approve Maximum Prices for Piped-Gas; and

– Three stakeholder workshops to inform stakeholders on the Methodology to Approve Maximum Prices for Piped-Gas.

• Licensing– Granting of 5 licences for the construction of gas transmission

facilities and 2 licences for the construction of gas distribution facilities; and

– Granting of 2 operation licences and 1 trading licence.• Other

– Gas dialogue on hurdles facing investment in gas infrastructure; and– Determination that there is inadequate competition in the piped-gas

industry. This determination paves the way for the implementation of the Maximum Pricing Methodology

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PETROLEUM PIPELINES INDUSTRY REGULATION

• Tariffs: – Approved an increase of 31.58% in allowable revenue for Transnet for

the period 2012/13; and– Approved storage facility tariffs for 9 licencees.

• Licensing– Approved 3 construction licences and 1 operation licence; and– Revoked 8 licences.

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STRATEGIC PLAN (2012/13 – 2016/17)

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STRATEGIC OUTCOME ORIENTED GOALS

• The strategic outcome oriented goals of NERSA are cascaded from the mandate and reflect the 12 National outcomes as well as those of the Department of Energy. These goals attest to NERSA’s role in facilitating the achievement of the national socio-economic and socio-political development agenda. The strategic outcome oriented goals are:1. To facilitate Security of Supply in order to support sustainable

economic development in South Africa;

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

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STRATEGIC OUTCOME ORIENTED GOALS (2)

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

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

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

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LINK TO TWELVE NATIONAL OUTCOMES• The strategic outcome oriented goals of NERSA are linked

to the following 12 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;

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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STRATEGIC OBJECTIVES

• The strategic objectives of NERSA, expressed as the desired end state of the energy industry are stated as:– A Regulatory environment that facilitates investment in energy

infrastructure;– Ensuring energy supply that is certain and secure for current and

future user needs;– Ensure that fair competition exists within the energy industry;– Ensure that regulatory certainty exists within the energy industry; – Ensure that energy is accessible and affordable for all citizens; and– Ensure that NERSA is established and positioned as a credible and

reliable regulator.

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PROGRAMMES

• 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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PROGRAMME STRATEGIC OBJECTIVES (ELECTRICITY)Programme Programme Strategic Objective

Setting and/or approval of tariffs and prices

• To ensure municipalities are sustainable within the ring fenced electricity business

• To ensure the sustainability of Eskom and the ESI

Licensing and registration To control entry and ensure orderly development of the Electricity industry

Compliance monitoring and enforcement

• To enforce compliance to the quality and reliability level of electricity supply

• To ensure efficient operation of the licensed activities

Dispute resolution including mediation, arbitration and handling of complaints

To create a fair balance between the needs of all stakeholders

Setting of rules, guidelines and codes for regulation

• To ensure non- discriminatory access to the electricity infrastructure

• To facilitate investment in the ESI

Establishing NERSA as an efficient and effective regulator

To facilitate the effectiveness of NERSA in the electricity industry

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PROGRAMME STRATEGIC OBJECTIVES (PIPED-GAS)Programme Programme Strategic Objective


• To approve prices in line with the published price methodology

• To approve and monitor tariffs in line with the published tariff guidelines

• To implement pricing provisions of schedule 1 to the Agreement

Licensing and registration • To process all licence applications within the statutory deadline

• To register gas imports and production

• To develop the non financial reporting requirements of the RRM

• To propose an implementation strategy for the gas to power component of IRP2010

• To propose to the policy makers an implementation strategy for LNG

• To research alternative gas sources from specifically compressed natural gas (CNG),Shale gas and coal bed methane and underground coal gasification

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PROGRAMME STRATEGIC OBJECTIVES (PIPED-GAS) (2)Programme Programme Strategic Objective


• To monitor the supply of 120m GJ p.a. from Mozambique to South Africa in terms of Schedule One of the Agreement

• To enforce licence conditions with regard to competitive prices and conditions

• To analyse compliance to the Regulatory Reporting Manual (RRM)

• To determine and publish uncommitted capacity in transmission pipelines and storage facilities


To ensure fairness and equity in the piped-gas market


• To provide stakeholder education and information sharing

• To develop; align to relevant legislation; and implement an HDSA scorecard


• To propose regulations and legislative review and to submit approved comments on draft legislative amendments to the policy makers

• To promote understanding of Energy Regulator decisions to stakeholders

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PROGRAMME STRATEGIC OBJECTIVES (PETROLEUM PIPELINES)

Programme Programme Strategic Objective


• To set and approve tariffs in accordance / in line with published methodologies

• To set and approve tariffs that facilitate affordability and accessibility whilst balancing the economic interests of all stakeholders

Licensing and registration • To decide on licence applications for pipelines, loading and storage facilities within statutory deadlines

• To decrease the number of unlicensed activities


• To monitor and enforce compliance with construction licence conditions

• To monitor compliance to HDSA ownership levels requirements within the petroleum pipelines industry

• To monitor compliance to third party access legislation requirements

• To investigate compliance to common carrier rules

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PROGRAMME STRATEGIC OBJECTIVES (PETROLEUM PIPELINES) (2)



To investigate complaints regarding non-compliance with legislation


• To publish licensing guidelines

• To publish tariff guidelines and amend as and when required


• To investigate the bottlenecks in the petroleum pipelines infrastructure in Durban

• To maintain, update and report on inland supply forecast model - 6 monthly report

• To review legislation affecting the petroleum industry and recommend changes (where appropriate)

• To publish relevant industry data

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PROGRAMME STRATEGIC OBJECTIVES (CROSS-CUTTING)



• To benchmark regulatory decisions against international best practice

• To determine the impact of regulatory decisions

• To develop the research agenda for the organisation on other new sources of energy

• To harmonise regulatory processes within the organisation and increase regulatory processes efficiencies

• To empower stakeholders with relevant energy industry knowledge and information

• To influence energy sector policy development and amendments to legislation

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PROGRAMME STRATEGIC OBJECTIVES (ORGANISATIONAL)



• To create an efficient and effective world class organisation

• To establish NERSA as an employer of choice

• To position and promote the good image of NERSA

• To improve the effectiveness of the financial processes, systems and procedures

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ANNUAL PERFORMANCE PLAN (2012/13 – 2014/15)

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ELECTRICITY INDUSTRY REGULATION

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NUMBER OF KPI’S PER PROGRAMME

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Programme 1: Setting and/or approval of tariffs and prices

• Eskom Multi-Year Price Determination;• Municipal tariff approvals;• Implementation of inclining block tariffs;• Implementation of Regulatory Reporting Manuals; and• Free Basic Electricity.

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Programme 2: Licensing and Registration

• Timely processing of licence applications

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Programme 3: Compliance Monitoring and Enforcement

• Conducting of compliance audits;• Implementation of action plans; and• Compliance with prescribed conditions.

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Programme 4: Dispute resolution, including mediation, arbitration and handling of

complaints

• Timely processing of complaints

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Programme 5: Setting of rules, guidelines and codes for the regulation of the

electricity industry

• Grid Code administration;• Development of Rules; and• Analysis of Transmission development plans.

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Programme 6: Establishing NERSA as an efficient and effective regulator

• Establishment of end-user forums

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PIPED-GAS INDUSTRY REGULATION

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• Approval of maximum prices;• Approval of transmission and storage tariffs;• Timely calculation of aggregate prices; and• Timely calculation of Sasol Gas prices for compliance report

on pricing provisions.

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• Timely processing of licence and registration applications and implementation of decisions;

• Investigation of industry investigated to identify unregistered import and production activities;

• Development of non-financial RRM; • Approved implementation strategy for the gas to power

component of IRP2010;• Approved implementation strategy for LNG; and• Research on alternate gas sources.

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• Assessment of volume balance reports;• Conducting of audits on ROMPCO pipeline;• Conducting investigations; • RRM compliance; and• Reports on uncommitted capacity.

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complaints

• Timely processing of received complaints; and• Timely processing of investigations.

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Programme 5: Setting of rules, guidelines and codes for the regulation of the piped-

gas industry

• Stakeholder workshops; and• Developed, approved and implemented HDI scorecard.

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• Proposed amendments to legislation;• Approved comments on draft legislation; and• Stakeholder workshops.

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• Setting of pipeline tariffs;• Approval of storage and loading facility tariffs; and• Implementation of RRMs.

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• Timely processing of licence applications; and• Investigation of suspected unlicensed activities.

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• Timely completion of assessment reports;• HDSA reporting;• 3rd party access reporting; and• Common carrier investigations.

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complaints

• Timely processing of complaints

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Programme 5: Setting of rules, guidelines and codes for the regulation of the

petroleum pipelines industry

• Publish licensing guidelines;• Publish tariff guidelines for storage facilities;• Publish Petroleum pipelines tariff methodology; and• Guidelines to approved Starting Regulatory Asset Base.

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• Infrastructure investigated and reported on in Durban;• Report on the inland supply forecast;• Report on the review of legislation;• Published storage tariffs;• Benchmark study on storage tariffs; and• Publication of financial and tariff information.

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CROSS-CUTTING REGULATORY

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• Benchmark report on regulatory decisions by category;• Impact of regulatory decisions;• Research on new sources of energy;• Harmonised regulatory processes;• Quarterly newsletters; • Stakeholder engagement and education; and• Approved proposals / comments on policy changes.

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ORGANISATIONAL

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• Implementation of Business Plan;

• Targets of KPI’s met;

• Staff retention;

• Organisational structure filled;

• Training and Development;

• Customer satisfaction;

• Unqualified audit; and

• Timely payment of creditors.

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BUDGET AND FUNDING (2012/13)

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RING-FENCING METHODOLOGY• According to Section 13 of the National Energy

Regulator Act, all accounts for the three regulated industries have to be ring-fenced

– all direct costs attributable to an industry are allocated to that industry

– the ratio of the staff compliment attributed to the industry-specific functions is used to allocate the remaining (common) costs to the respective industries

– the common costs allocation ratio for electricity, piped-gas and petroleum pipelines industries is 58%:21%:21%

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BUDGET AND FUNDING FOR 2012/13

*Over recovery from previous years from regulated industries – approved by National Treasury

Expenditure Income Levies

Electricity R137 485 425 R115 548 495 0.0447 c/kWh

Piped-Gas R51 194 911 R47 223 647 34.98 c/GJ

Petroleum Pipelines

R51 635 565 R49 153 861 0.2728 c/l

Other R28 389 898*

Total R240 315 901 R240 315 901

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CHALLENGES FACING NERSA

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ELECTRICITY INDUSTRY REGULATION• Finalisation of the proposed revision of the Electricity

Pricing Policy;– MYPD3; and– Implementation of the Inclining Block Tariffs.

• Apart from the Regulations on the revised New Generation Capacity, promulgated in May 2011, no legislation or regulations have been promulgated regarding the Cabinet’s decision in 2007 that Eskom will be responsible for ensuring that adequate generation capacity is made available and that 30% of the new power generation capacity is derived from IPP’s;

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ELECTRICITY INDUSTRY REGULATION (2)

• The ability of NERSA to enforce compliance is constrained by a lack of policy to impose penalties in cases of non-compliance;

• Establishment of end-user forums - NERSA is awaiting the Minister of Energy’s prescription of the process to be followed in establishing end-user forums as stipulated in the Electricity Regulation Act;

• Security of supply;

• Multiplicity of distributors of varying capabilities makes the regulation of the distribution sector difficult; and

• Carbon Tax.

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PIPED-GAS INDUSTRY REGULATION• Regulation of certain piped-gas activities not specifically

catered for in the Gas Act– Compressed Natural Gas (CNG)

• Monitoring and enforcing Sasol’s compliance with the regulatory agreement

– Enforcement of the market value pricing

• Private sector investment and markets for gas– Private sector investment in infrastructure faces many hurdles i.t.o.

supply and offtake agreements

• Regulatory certainty– PASA awarded prospecting licences for shale gas to Shell, Sasol and

others;– Cabinet decided to suspend shale gas prospecting; and– Decision of Sasol to invest billions of dollars in shale gas in Canada.

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• Supply chain is regulated by different authorities thus compromising the ability of coordinated regulatory oversight as a result of concurrent and/or adjacent jurisdiction;

• Security of supply of petroleum to the inland areas;• Possibility of tariffs almost exclusively used for capital

expansion funding by some State Owned Entities; • Promoting access to petroleum storage facilities by

Historically Disadvantaged South African wholesalers; and• Potential shortage of LPG (Maximum Pricing Methodology

needs to be reviewed).

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CROSS-CUTTING REGULATION

• Processes being dependent on other role players and therefore being outside of NERSA’s control e.g.:

– Outstanding legislative processes; and– Insufficient data in licence and tariff applications.

• Legislative gaps; and• Information Asymmetry.

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ORGANISATIONAL

• Acceptance of NERSA’s role and mandate by regulated entities;

• Attraction and retention of requisite skills;• Resourcing of the organisation;• Conducive working environment; and• Harmonised and documented regulatory processes.

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PLANS FOR THE FUTURE

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PLANS FOR THE FUTURE(Electricity Industry Regulation)

• To monitor and enforce compliance by all licencees;• Introduction of more Independent Power Producers;• Promotion of Renewable Energies in the generation mix;• To monitor the implementation of the second Multi-Year

Price Determination (MYPD2) by Eskom and to revise the rules for the MYPD2 if necessary;

• To start preparing for the third Multi-Year Price Determination for Eskom for the period 2013/14 – 2015/16, to continue giving certainty and predictability in terms of electricity prices;

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PLANS FOR FUTURE(Electricity Industry Regulation) (2)

• To streamline regulatory processes in the areas of licensing and analysis of tariff applications; and

• To rationalize tariff structures, taking into account regional pricing and geographical differentiation.

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PLANS FOR FUTURE(Piped-Gas Industry Regulation)

• To educate customers in order to assist in the enforcement of Market Value Pricing;

• To implement a compliance framework for licence conditions;

• To conduct a study on the integrity of the gas pipeline network;

• To benchmark licence conditions;

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PLANS FOR FUTURE(Piped-Gas Industry Regulation) (2)

• To highlight to the policy maker the need for a review of the Gas Act to address:– Definitions and provisions that hamper effective regulation of the

gas industry;– Infrastructure Planning and Construction Licences;– NERSA’s Tariff Mandate (Distribution and Transmission); and– Licensing deadlines.

• Transition to regulating maximum prices; and• Monitoring compliance to licence conditions.

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PLANS FOR FUTURE(Petroleum Pipelines Industry Regulation)

• To monitor the escalations in costs as well as the delays in construction of new infrastructure;

• To monitor and manage as far as possible a tariff spike through tariff structures;

• Monitoring compliance to licence conditions; • To facilitate market entry by historically disadvantaged

players; and • To facilitate third party access.

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PLANS FOR FUTURE(Cross-Cutting Regulation)

• To conduct a customer education programme / campaign across all 3 regulated industries;

• To manage the information asymmetry between NERSA and the licencees;

• To advise policy makers of NERSA views, policy gaps and NERSA’s mandate;

• To coordinate NERSA activities with other regulators with concurrent jurisdiction; and

• To assess NERSA’s processes and methodologies against best in world practices through regulatory analysis, research, benchmarking and auditing.

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CONCLUSION

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CONCLUSION• NERSA would like to thank the Select Committee for the

opportunity to present its Strategic Plan and Annual Performance Plan

• NERSA is a relatively young regulator• Ongoing refinement of processes is taking place• There is a steep learning curve for both regulator and

regulated entities during these process refinements• NERSA is conscious of the regulatory burden it imposes• NERSA is striving for regulatory certainty to create a

conducive environment for attracting and ensuring orderly investment

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CONCLUSION (2)• Filling legislative gaps is a priority• NERSA aims to balance the interests of suppliers and

customers

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THANK YOU

Documents

1 NERSA Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2012/13 – 2014/15) 5 June 2012