ANNUAL REPORT 2012/2013 and...3 NERSA - ANNUAL REPORT 2012/2013 PART A: GENERAL INFORMATION 1. GENERAL INFORMATION 6 2. ABBREVIATIONS AND ACRONYMS 7 3. STRATEGIC OVERVIEW 9 3.1 Vision

ANNUAL REPORT2012/2013

ANNUAL REPORT2012/2013

NERSA - ANNUAL REPORT 2012/2013 2

VISIONTo be a world-class leader in

energy regulation

MISSIONTo regulate the energy industry in accordance with government laws and policies, standards

and international best practices in support of sustainable development.



PART A: GENERAL INFORMATION 1. GENERAL INFORMATION 6

2. ABBREVIATIONS AND ACRONYMS 7

3. STRATEGIC OVERVIEW 9

3.1 Vision

3.2 Mission

3.3 Values

3.4 Regulatory Principles

3.5 Strategic Outcome-Orientated Goals

4. LEGISLATIVE AND OTHER MANDATES 10

5. ORGANISATIONAL STRUCTURE 12

6. FOREWORD BY CHAIRPERSON 15

7. CHIEF EXECUTIVE OFFICER’S OVERVIEW 20

PART B: PERFORMANCE INFORMATION 1. STATEMENT OF RESPONSIBILITY FOR 37

PERFORMANCE INFORMATION

2. AUDITOR’S REPORT: PREDETERMINED OBJECTIVES 38

3. OVERVIEW OF NERSA’S PERFORMANCE 38

3.1 Service Delivery Environment

3.2 Organisational environment

3.3 Key policy developments and legislative changes

3.4 Strategic Outcome-Orientated Goals

4. PERFORMANCE INFORMATION BY PROGRAMME 52

4.1 Programme 1

4.2 Programme 2

5. SUMMARY OF FINANCIAL INFORMATION 124

5.1 Revenue Collection

5.2 Programme Expenditure

5.3 Capital investment, maintenance and asset

management plan

CONTENTS


PART C: CORPORATE GOVERNANCE

1. INTRODUCTION 129

2. PORTFOLIO COMMITTEES 129

3. EXECUTIVE AUTHORITY 131

4. THE ACCOUNTING AUTHORITY / ENERGY REGULATOR 131

5. RISK MANAGEMENT 146

6. INTERNAL CONTROL UNIT 148

7. INTERNAL AUDIT AND AUDIT AND RISK COMMITTEES 148

8. COMPLIANCE WITH LAWS AND REGULATIONS 150

9. FRAUD AND CORRUPTION 151

10. MINIMISING CONFLICT OF INTEREST 151

11. CODE OF CONDUCT 151

12. HEALTH SAFETY AND ENVIRONMENTAL ISSUES 151

13. REGULATOR SECRETARY 152

14. SOCIAL RESPONSIBILITY 152

15. REPORT OF THE AUDIT AND RISK COMMITTEE 153

CONTENTSPART D: HUMAN RESOURCE MANAGEMENT

1. INTRODUCTION 157

2. HUMAN RESOURCE OVERSIGHT STATISTICS 160

PART E: FINANCIAL INFORMATION

1. STATEMENT OF RESPONSIBILITY 169

2. REPORT OF THE CHIEF EXECUTIVE OFFICER 170

3. REPORT OF THE AUDITOR-GENERAL 171

4. ACCOUNTING AUTHORITY’S REPORT 174

5. ANNUAL FINANCIAL STATEMENTS 179

• StatementofFinancialPosition 179

• StatementofFinancialPerformance180

• StatementofChangesinNetAssets180

• CashFlowStatement181

• StatementofComparisonofBudget

and Actual Amounts 182

• AccountingPolicies 184

• NotestotheAnnualFinancialStatements 191


PART A: GENERAL INFORMATION


1. GENERAL INFORMATIONREGISTERED NAME: NATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERSA)

REGISTRATION NUMBER (if applicable): NOT APPLICABLE

PHYSICAL ADDRESS: KULAWULA HOUSE

526 MADIBA STREET

ARCADIA

PRETORIA

0083

POSTAL ADDRESS: PO BOX 40343

ARCADIA

0007

SOUTH AFRICA

TELEPHONE NUMBER/S: 027 12 401 4600

FAX NUMBER: 027 12 401 4700

EMAIL ADDRESS: [email protected]

WEBSITE ADDRESS: www.nersa.org.za

EXTERNAL AUDITORS: AUDITOR-GENERAL OF SOUTH AFRICA

BANKERS: STANDARD BANK, ARCADIA

REGULATOR SECRETARY: KAREN BRITS, SENIOR MANAGER: REGULATOR SUPPORT


2. ABBREVIATIONS AND ACRONYMSAFS ANNUAL FINANCIAL STATEMENTSAFUR AFRICAN FORUM FOR UTILITY REGULATORSAIPL AGGREKO INTERNATIONAL PROJECTS LIMITEDAMEU ASSOCIATION OF MUNICIPAL ELECTRICITY UNDERTAKINGSARC AUDIT AND RISK COMMITTEEASB ACCOUNTING STANDARDS BOARDCAM COST ALLOCATION MANUALCEO CHIEF EXECUTIVE OFFICERCNG COMPRESSED NATURAL GASCOSO COMMITTEE OF SPONSORING ORGANIZATIONS OF THE TREADWAY COMMISSIONCPI CONSUMER PRICE INDEXDJP DURBAN JOHANNESBURG PIPELINEDoE DEPARTMENT OF ENERGYEE ENERGY EFFICIENCYEEDSM ENERGY EFFICIENCY AND DEMAND SIDE MANAGEMENTELS ELECTRICITY SUBCOMMITTEEESETA ENERGY SECTOR EDUCATION AND TRAINING AUTHORITYEWSETA ENERGY AND WATER SECTOR EDUCATION AND TRAINING AUTHORITYFAQ FREQUENTLY ASKED QUESTIONS

FBE FREE BASIC ELECTRICITYFIC FINANCE COMMITTEEGCAC GRID CODE ADVISORY COMMITTEEGJ/a GIGAJOULE PER ANNUMGRAP GENERALLY RECOGNISED ACCOUNTING PRACTICEGTA GAS TRANSPORTATION AGREEMENTHR HUMAN RESOURCESHRC HUMAN RIGHTS COMMISSIONHRC HUMAN RESOURCES COMMITTEEICT INFORMATION AND COMMUNICATION TECHNOLOGYIPP INDEPENDENT POWER PRODUCERISMO INDEPENDENT SYSTEM AND MARKET OPERATORIT INFORMATION TECHNOLOGYkWh KILOWATT-HOURLNG LIQUEFIED NATURAL GASLPG LIQUEFIED PETROLEUM GASMVP MARKET VALUE PRICINGMW MEGAWATTMYPD MULTI-YEAR PRICE DETERMINATIONNEHAWU NATIONAL EDUCATION HEALTH AND ALLIED WORKERS UNIONNERSA NATIONAL ENERGY REGULATOR OF SOUTH AFRICANMPP NEW MULTI-PRODUCT PIPELINEOCGT OPEN CYCLE GAS TURBINE


OHS OCCUPATIONAL HEALTH AND SAFETYOTGC OIL TANKING GRINDROD CALULOPAIA PROMOTION OF ACCESS TO INFORMATION ACTPFMA PUBLIC FINANCE MANAGEMENT ACTPGS PIPED-GAS SUBCOMMITTEEPPA POWER PURCHASE AGREEMENTPPC PARLIAMENTARY PORTFOLIO COMMITTEEPPS PETROLEUM PIPELINES SUBCOMMITTEERE RENEWABLE ENERGYREC REGULATOR EXECUTIVE COMMITTEERERA REGIONAL ELECTRICITY REGULATORY ASSOCIATION RFR REGULATORY FINANCIAL REPORTROMPCO REPUBLIC OF MOZAMBIQUE PIPELINE INVESTMENT COMPANY (PTY) LIMITEDRRM REGULATORY REPORTING MANUALRRS REGULATORY REPORTING SYSTEMRURA RWANDAN UTILITIES REGULATORY AUTHORITY SAPREF SOUTH AFRICAN PETROLEUM REFINERY (PTY) LTDSAQA SOUTH AFRICAN QUALIFICATIONS AUTHORITY STPPP SHORT-TERM POWER PURCHASE PROGRAMME


communication channels to treat everybody as stakeholders

3.4 Regulatory PrinciplesIn regulating the three industries, NERSA must adhere to sound principles and approaches to be able to deliver on its mandate and achieve its objectives. NERSA has given consideration both to international best practice, as well as to the key principles stated in the “AFUR framework for utility regulation in Africa”. Following the completion of the report Benchmarking the National Energy Regulator of South Africa against international good practice, NERSA reviewed the literature ongood regulatory principles and identified the good regulatory principles thatemerge strongly and consistently as international good practice. Underpinned by NERSA’s legal mandate, it adopted the following internationally accepted regulatory principles to underpin its regulatory approach:

• Transparency: The Energy Regulator is required to explain its decisions and processes to regulated entities and other interested parties, implying that the data or information that the decision is based on, is readily available and the reasoning behind it is readily explained. This covers public consultation and accessibility.• Neutrality: The Energy Regulator should be neutral to all market players without favouring one or other group (non-discrimination).• Consistency and Predictability: Decisions must be consistent and should have a reasonable degree of predictability based on previous rulings in similar cases.• Independence:The independence of the Energy Regulator from the regulated companies is a prerequisite for any sound regulatory system. Independence from political influence is also desirable to ensure long-term stability of regulatory practices. Avoidance of regulatory capture by some customer groups is also necessary for successful regulation.

3. STRATEGIC OVERVIEW3.1 VisionTo be a world-class leader in energy regulation

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

3.3 ValuesValues are the expression of what we stand for and how we will conduct ourselves. In this context and in addition to our commitment to comply with the requirements of Section 9 (11) of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) and its Code of Conduct, we have adopted the following values:

• Passion: We conduct our business with a sense of urgency and commitment and are proud to be part of NERSA• Spirit of Partnership: In working with all our stakeholders we deliver on our promises for the purpose of sustainable development• Excellence: In striving for the best results, we promote growth / development of our staff, and benchmarks ourselves against the “best-in-class” energy regulators across the globe• Innovation: As a learning organization, we strive to set trends and promote creativity by challenging the norm in order to continuously improve• Integrity: Being honest, fair and sincere with all stakeholders and amongst ourselves• Responsibility: We practice responsibility and take ownership of our actions and decisions • Professionalism: We encourage maintenance of high standards of professional competence, interdependence between our teams using effective


• Accountability: The Energy Regulator should be accountable for its actions and decisions. Independence must not be confused with the lack of accountability.• Integrity: The Energy Regulator should exercise professionalism, honesty and objectivity in the management of the Energy Regulator’s affairs and in all its dealings with stakeholders.• Efficiency: The Energy Regulator should make the best use of resources to further the regulatory objectives by exercising objectivity and commitment to evidence-based strategies for improvement.

3.5 Strategic outcome-oriented goalsNERSAhasformulatedthefollowingfivestrategicoutcome-orientedgoals: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;3. Topromotecompetitiveandefficientfunctioningoftheenergyindustry 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; and5. To position and establish NERSA as a credible and reliable regulator in order to create regulatory certainty.

4. LEGISLATIVE AND OTHER MANDATES

NERSA is listed as a public entity in terms of Schedule 3A of the Public

Finance Management Act, 1999 (Act No.1 of 1999).

NERSA is the regulatory authority established in terms of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) with the mandate to “undertake the functions of the National Electricity Regulator as set out in the Electricity Regulation Act, 2006 (Act No. 4 of 2006), undertake the functions of the Gas Regulator as set out in the Gas Act, 2001 (Act No. 48 of 2001), undertake the functions of the Petroleum Pipelines Regulatory Authority as set out in the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) and to perform such other functions as may be assigned to it by or under these Acts”. NERSA’s mandate is anchored on the following four primary Acts:• National Energy Regulator Act, 2004 (Act No. 40 of 2004); • Electricity Regulation Act, 2006 (Act No. 4 of 2006) (ERA);• Gas Act, 2001 (Act No. 48 of 2001); and• Petroleum Pipelines Act, 2003 (Act No. 60 of 2003).

NERSA derives its revenue by, amongst others, imposing prescribed levies on the regulated industries following a prescribed transparent procedure. In this regard, the following Acts govern the imposition of such levies:1. Gas Regulator Levies Act, 2002 (Act No. 75 of 2002); 2. Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004); and

Section 5B of the Electricity Act, 1987 (Act No. 41 of 1987).

Apart from the mentioned legislation that anchors NERSA’s mandate and the imposition of levies, the following facilitating and all other legislation is also applicable to NERSA’s conduct of its business:• The Public Finance Management Act, 1999 (Act No. 1 of 1999)(PFMA),


whichspecifiestheaccountingofNERSAasaSection3PublicEntity;• The Promotion of Access to Information Act, 2000 (Act No. 2 of 2000) (PAIA), which determines the way that NERSA has to treat access to information; • The Promotion of Administrative Justice Act, 2000 (Act No. 3 of 2000) (PAJA), which determines just administrative action of NERSA; and• The Constitution.

NERSA’s mandate is further derived from written government policies developed by the Minister of Energy in terms of the Electricity Regulation Act, Gas Act and Petroleum Pipelines Act. According to the Electricity Regulation Act, Gas Act and

Petroleum Pipelines Act, NERSA must make decisions that are not at variance with published government policy.

The relevant policies applicable are:• White Paper on Energy Policy for South Africa of 1998; • Electricity Pricing Policy (EPP) of the South African Electricity Supply Industry;• Free Basic Electricity Policy; and• White Paper on Renewable Energy Policy for South Africa of 2003;• Energy Security Master Plan: Liquid fuels published by the Department of Energy in 1998 and 2007.


5. ORGANISATIONAL STRUCTURE

Information Resources

Management(IRM) (12)

FTRM primarily responsible for

Electricity Regulation

Electricity Regulation(ELR) (3)

Electricity Infrastructure

Planning(EIP) (10)

Electricity Pricing

and Tariffs(EPT) (16)

Electricity Regulatory

Reform (ERR) (5)

International Coordination and

Partnerships(ICP) (3)

Electricity Licensing, Compliance and

Dispute Resolution (ELC) (19)

Piped-Gas Regulation(GAR) (6)

Gas Pricing and Tariffs (GPT) (5)

Gas Licensing, Compliance and

Dispute Resolution(GLC) (8)

Petroleum Pipelines

Regulation(PPR) (6)

Petroleum Pipelines

Tariffs(PPT) (8)

Petroleum Licensing, Compliance and

Dispute Resolution(PLC) (5)

Corporate Services(COS) (2)

Legal Advisory Services(LAS) (5)

Communication and Stakeholder Management(CSM) (10)

Human Resources(CHO) (2)

Human Resources(HRD) (5)

Finance and Administration

(CFO) (2)

Finance and Administration

(FAD) (13)

Regulatory Analysis

and Research (RAR) (3)

Strategic Planning and Monitoring

(SPM) (3)

Internal Audit (IAU) (5)

Special Support Units(SSU)

Regulator Support(RSU) (15)


Piped-Gas Regulation


Petroleum Pipelines Regulation

CEO’sOfficeOperations (COO) (6)

CEO

Energy Regulator

SLA

SLASLA


Energy Regulator Members PositionCecilia Khuzwayo Chairperson

Joe Lesejane Deputy Chairperson

Oupa Komane Part-Time Regulator Member

Khomotso Mthimunye Part-Time Regulator Member

Gillian Whittington-Banda Part-Time Regulator Member

The following table depicts the Full-Time Regulator Members (FTRMs) and the CEO, who are Energy Regulator Members, as well as the Direct Reports to the CEO with their link to the programmes being implemented by NERSA :

Employee Position Programme InvolvementPhindile Baleni (née Nzimande)

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

Programme 2: Licensing and registration

Programme 3: Compliance monitoring and enforcement

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

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

Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Thembani Bukula Full-Time Regulator Member responsible for Electricity Regulation

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



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



Ethel Teljeur Full-Time Regulator Member responsible for Piped-Gas Regulation



Programme 3: Compliance monitoring enforcement




The organisational structure of NERSA is as provided on page 12 and the tables below provides high level details on the composition of the structure:


Employee Position Programme InvolvementDr Rod Crompton Full-Time Regulator Member responsible for

Petroleum Pipelines RegulationProgramme 1: Setting and/or approval of tariffs and prices






Mbulelo Ncetezo Executive Manager: Electricity Regulation Programme 1: Setting and/or approval of tariffs and prices






Nomfundo Maseti Executive Manager: Piped-Gas Regulation Programme 1: Setting and/or approval of tariffs and prices





Programme6:EstablishingNERSAasanfficientandeffectiveregulator

Arthur Lees-Rolfe Executive Manager: Petroleum Pipelines Regulation Programme 1: Setting and/or approval of tariffs and prices






Nomalanga Sithole Executive Manager: Corporate Services Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Zak Lombaard ActingChiefFinancialOfficer(Positionvacant) Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Paseka Nku ChiefHumanCapitalOfficer Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Patrick Mabuza Senior Manager: Regulatory Analysis and Research Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Karen Brits Senior Manager: Regulator Support Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Masesi Malope Chief Audit Executive Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Zethu Mackenzie SeniorManager:CEO’sOfficeOperations Programme6:EstablishingNERSAasanefficientandeffectiveregulator

Esther Viljoen Senior Manager: Strategic Planning and Monitoring Programme6:EstablishingNERSAasanefficientandeffectiveregulator


6. FOREWORD BY CHAIRPERSON

I am proud to present the Annual Report for the period 01 April 2012 to 31 March 2013 on behalf of the National Energy Regulator of South Africa (NERSA). The Regulator is mandated to ensure that there is orderly development in the energy sector, mainly through licensing, setting or approving of prices and tariffs, compliance monitoring and enforcement, as well as dispute resolution, in the electricity, piped-gas and petroleum pipelines industries respectively.

In executing our mandate, we have the challenging task of ensuring that we strike a balance between the interests of consumers/end-users on the one hand and regulated entities on the other hand. This is never an easy task, for inevitably it is influenced by the greater economic environment both locally and internationally and also directed by Government policy. However, this balance is important so that Government policy objectives are achieved, customer needs are met and the energy industries are sustainable in the long run.

As we draw closer to the end of the term for the current accounting authority at NERSA, I would like to reflect on the achievements realised during the four-year period.

NERSAhasmadesignificantstridesinengagingwiththechallengesofregulatingthe electricity, piped-gas and petroleum pipelines markets. I am particularly pleasedwiththeprogressthatwehavemadeinthedevelopment,fine-tuningandimplementation of regulatory methodologies and procedures to further achieve our mandate.

In electricity regulation, we have continued to fine-tune the Multi-YearPrice Determination (MYPD) methodology with good results. In Eskom’s second Multi-Year Price Determination (MYPD 2), the Energy Regulator introduced the Inclining Block Tariffs (IBTs) in an effort to protect the low-income consumers from the necessary price increases awarded to Eskom. These IBTs have now been fully implemented by Eskom to their conventional metered and prepaid meter customers. The power of the public consultation that has become part of the process in all our regulatory work paid handsome dividends during the third Multi-Year Price Determination (MYPD 3) process that was completed in February 2013. A record number of written and oral presentations were received, spanning across the business, government and non-governmental organisation trade unions and ordinary individuals. This was an enriching experience for us as the Energy Regulator, which also provided stakeholders and the general public with a platform to actively participate in the Energy Regulator’s decision-making process.

The decision to grant Eskom an 8% average price increase versus the 16% they had applied for in the MYPD3, clearly demonstrated the Energy Regulator’s commitment to a fair and transparent process, that yields economically sound

Mrs Cecilia Khuzwayo


outcomes. The overwhelming positive response to our announcement on 28 February 2013 from all sectors of the society proves that NERSA has matured as the Energy Regulator. We continue to pursue our vision to become a ‘world-class regulator’ with passion. To this end, we have embarked on bench marking ourselves against international best practice in energy regulation.

I also believe that we undertook our statutory duties with distinction. Our Corporate Governance has improved, with regular board reports provided on the work of the board committees. The Auditor-General has given us an unqualifiedauditopiniononourannualfinancialstatementsandapositiveoutcome on the organisational performance.

The need to diversify the energy sources in the country and the emphasis on sustainability are clearly articulated in the Integrated Resource Plan 2010. The introduction of renewable energy and independent power producers into the grid has been a priority.

In this regard, NERSA approved the licensing applications of 47 preferred biddersforthefirstphase(28)andsecondphase(19)oftheDepartmentof Energy’s Renewable Energy Independent Power Producers (REIPPs) Programme. The completion of the licensing process followed a series of public hearings on the generation licence applications in line with the Energy Regulator’s commitment to ensure stakeholder and public participation in its decision-making processes. All 46 applications met the required criteria, which includedtechnical,financial,economic,regulatoryandlegalrequirements.

The regulation of the piped-gas industry has grown with the development of methodologies, procedures and processes required for the implementation

of the Gas Act, and the annexed Agreement concerning the Mozambican Gas Pipeline between the Government of South Africa and Sasol Ltd completed. A licence to trade in compressed natural gas (CNG) was grantedforthefirsttimetoNovoEnergy(Pty)Ltd,andtherulesintermsof the Gas Act, 2001 (Act No. 48 of 2001), the Tariff Guidelines for Gas Transmission and Storage Facilities, as well as the Methodology to approve Maximum Prices of Piped-Gas in South Africa were approved. The approval of Maximum Prices of Piped-Gas will ensure that the prevalence of price discrimination currently experienced in the gas industry as a result of Sasol Gas Ltd’s use of market value pricing is curtailed.

In enhancing the regulation of the petroleum pipelines industry, NERSA completed the comprehensive Petroleum Pipelines Rule Book. Other highlights were the approval of the Storage and Loading Facilities Tariff Methodology as well as the approval of the third and fourth amendments of the Tariff Methodology for the Petroleum Pipelines Industry. The Energy Regulator also amended Transnet Limited ‘s licence to operate its petroleum pipeline system by setting tariffs that would allow Transnet to realise an 8.53% increase in allowable revenue for the period 03 April 2013 to 01 April 2014. Transnet had applied for a 22.6% increase in its allowable revenue. NERSA continued to serve as a key enabler to advance economic growth and social development in South Africa. The importance of its role is enhanced by the fact that energy forms the necessary prerequisite of the South African economy, not only from a growth point of view, but also in terms of job creation and social upliftment.

Though energy security continues to be a challange emphasis on the environment and cleaner, resource-efficient production, has grown.


Additional infrastructure such as the construction of new electricity generation capacity as well as Transnet’s new multi-product pipeline, scheduled to be completed withinthenextfiveyears,willassistinalleviatingthesecapacityconstraints.

The introduction of renewable energy and independent power producers into the electricity grid will also facilitate the diversification of the country’s energysources. The growth of the gas market in South Africa remains a challenge, given the paucity of domestic natural gas and the substantial investment cost involved for new entrants.

The pivotal role that NERSA plays in regulating the electricity, piped-gas and petroleum pipelines industries is underpinned by its mandate, which is enshrined in the National Energy Regulator Act, 2004 (Act No. 40 of 2004), the Electricity Regulation Act, 2006 (Act No. 4 of 2006), the Gas Act, 2001 (Act No. 48 of 2001) and the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003). Within this legislative context, the Energy Regulator’s performance and relevance are informed by the tangibleimpactandbenefitsofitsworkonandforthecitizensofSouthAfrica.

InAugust2012,GovernmentlaunchedthefirstNationalDevelopmentPlanforSouthAfrica, in which targets were set for 2030. The roles of the key sector regulators in the country’s economic infrastructure were analysed in this plan, particularly those of the country’s energy, water, transport, and information and communication technology (ICT) regulators. The plan envisages an energy sector that promotes economic growth and development, social equity and environmental sustainability by 2030. It also envisages that more than 90% of the population should enjoy access to grid-connected or off-grid electricity by 2030.

In order to achieve this vision, NERSA will have to improve its performance and

build on its capacity over the next few years to ensure better regulation of the price, supply and quality of energy products in order to contribute to the socioeconomic development of the country.

In cross-cutting regulatory matters, NERSA was proud to host the first SouthAfrican Economic Regulators Conference (SAERC) in Johannesburg from 21 to 22 August 2012. The purpose of the Conference was to build capacity in the areas of economic regulation, as well as to establish and advance an intellectual discourse in economic regulation in South Africa. The timing of the Conference coincided with the Government’s economic policy being spearheaded by an infrastructure thrust, to be implemented mainly – but not only – by state-owned enterprises. The mixed regulatory dispensations and various economic regulators’ decisions play a critical role in shaping the trajectory of South Africa’s infrastructure sectors, including energy, transport, water and telecommunications. This informed the theme of the conference: How can South Africa’s economic regulators contribute to cost-effective delivery of essential infrastructure in the face of financial, social and environmental imperatives?

Regarding organisational matters, at year end, the levies collected from the industries were R106 million (56.4% increase) for the electricity industry; R56 million (32.9% increase) for the piped-gas industry and R42 million (33.0% increase) for the petroleumpipelinesindustry.Thisisa44.2%increasefromthepreviousfinancialyear (2011/12) due to reduced surpluses refunded to the industries.

Human Capital management and development has been a challenge for us at NERSA. I am pleased to report that we now have a thorough understanding of our weaknesses and have embarked on a systematic programme to work through these by developing an Integrated Human Capital Strategy that will address our retention plan, and develop a persuasive employee value proposition. A lot of work has been


completed and implemented in terms of Remuneration. The Learnership and Job Shadowing programmes continue to run effectively as our input into the broader Skills Development Programme within the energy sector. The implementation of the organisational structure progressed well, with 88.1%ofthepositionsfilled.

The second group of 12 learners was appointed during January 2013 to participate in NERSA’s Learnership Programme. This programme is aimed at providing young graduates from further education and training institutions and universities with access to theoretical and on-the-job training, in order to prepare them for future employment opportunities, as well as to create a pool of potential candidates for employment by the Energy Regulator.

NERSA continued to play an active role regionally and continentally, through participation in the activities of the African Forum of Utility Regulators (AFUR) and the Regional Electricity Regulators Association of Southern Africa (RERA). NERSA, as chair of RERA, was actively involved in the preparations and activities of RERA’s 10th Anniversary Celebrations that took place from 04 to 08 November 2012 in Windhoek, Namibia.

Conclusion

The successes of the past year can be ascribed to the sound relationship and excellent mutual cooperation that exists between the Energy Regulator, the Management and Staff. I wish to record my appreciation to my fellow Regulator Members and the Staff for their tireless support, which made it

easy for us to serve the Energy Regulator. Your energy, dedication and enthusiasmhavedrivensignificantchangewithinNERSAasaregulator.Through your work, the profile of NERSA has been elevated within theenergy industry as a whole. Through your effort, NERSA has earned a reputation as a credible regulator and is seen as a sound contributor to Government policy decision-making – thank you for your commitment.

Our relationship with the Honourable Minister of Energy, Ms Dipuo Peters, and the Deputy Minister, Ms Barbara Thompson, has grown from strength to strength and we appreciate their continued leadership and support during the past few years.

We had to bid farewell to Ms Ethèl Teljeur, who resigned as Full-Time Regulator Member responsible for Piped-Gas. I would like to thank Ms Teljeur for her valuable contribution and wish her all the best in her future endeavours.

Finally, I extend my gratitude to all our stakeholders for their fruitful collaboration in ensuring that the energy industry continues to grow, diversifyandfunctiontothebenefitofallsectorsofthepopulation.

Cecilia KhuzwayoChairperson



7. CHIEF EXECUTIVE OFFICER’S OVERVIEW

Introduction The2012/13financialyearhaspresenteduswithchallengesaswellasgreatachievements, which would not have been possible without the enthusiasm and professionalism that the Regulator Members, Management and Staff have shown in dealing with the regulation of the electricity, piped-gas and petroleum pipelines industries.

While we pat ourselves on the back for these achievements, we are not oblivious to the complex challenges that must be addressed during the next financial year and beyond. We are also aware of the need tocontinuously review and improve the effectiveness and efficiency of ourfunctions as the Energy Regulator. I am therefore optimistic that we will rise to the occasion and ensure that there is orderly development and stability

in the three industries.

The period under review once again presented the Energy Regulator with challenges that required it to proactively make the necessary regulatory decisions in anticipation of and in response to the changing circumstances in the energy industry.

NERSA’s achievements during the period under review were driven by a renewed sense of urgency to deliver on its mandate, particularly within the context of its Strategic Plan, which is focused on improving the planning, monitoring and evaluation of the Energy Regulator by ensuring that its strategic objectives are specific,measurable, agreed upon, realistic andtime-based (SMART). The implementation plans that have been developed to achieve these objectives are not only realistic, but also robust.

Aspects within NERSA’s performance environment that impact on its ability to deliver on its mandate include the security of the country’s energy supply, investment in infrastructure, the competitive functioning of the industry, affordabilityandaccess.NERSA’sresponsetothesechallengesisreflectedin the summary of its organisational performance in this report.

In accordance with its mission of regulating the energy industry together with Government laws and policies, standards and best practices in support of sustainable and orderly development, the Energy Regulator will continue to ensure that the regulation of the country’s electricity, piped-gas and petroleum pipelines industries takes place in a manner that contributes to economic growth and social development.

Ms Phindile Baleni (née Nzimande)


Summary of organisational performance

Now in its eighth year of existence, I am pleased to announce that NERSA has onceagainmaintainedanunqualifiedauditreport–acleartestamenttotheethosof responsible and accountable corporate governance that exists throughout the organisation.

The total number of key performance indicators for NERSA during the review period was 74. A total of 64 (87%) were successfully completed. Five (7%) key performance indicators could not be implemented due to external dependencies and the remaining four (5%) could not be implemented due to internal constraints.

The following is a breakdown of the organisation’s performance during the review period: • In Electricity Industry Regulation, 15 (79%) of the 19 key performance indicators were successfully implemented as planned. The remaining four were delayed due to external dependencies. • In Piped-Gas Industry Regulation, 18 (86%) of the 21 key performance indicators were implemented as planned. The remaining two were delayed due to internal constraints. • In Petroleum Pipelines Industry Regulation, 18 (90%) of the 20 key performance indicators were implemented as planned. The remaining two were delayed due to internal constraints and external dependencies.• All seven of the cross-cutting regulatory key performance indicators were implemented as planned. • Sixoftheseven(86%)organisationalkeyperformanceindicatorswerecarried out as planned. The one that was not implemented was due to internal constraints.

Corporate Matters

FinancialManagementNERSA’s annual business is conducted in terms of its Strategic Plan and its Business Plan and Budget, prepared in the year prior to the review period, and submitted to theMinisterofEnergy.ThefinancialoutcomesofNERSA’spursuitsandresultsare reported annually in its Annual Financial Statements (AFS), which are published in its Annual Report. The AFS are prepared in accordance with the requirements of the PFMA, the National Energy Regulator Act, 2004 (Act No. 40 of 2004), Treasury Regulations and Generally Recognised Accounting Practice (GRAP).

The Annual Financial Statements, Performance Against Predetermined Objectives and Annual Report for 2011/12 were approved on 30 May 2012 and submitted to the Auditor-General, Minister of Finance and Minister of Energy on 31 May 2012.

The financial year under review saw the first year of the implementation of theFramework for Strategic Plans and Annual Performance Plans as published by National Treasury. In line with this Framework, NERSA developed a Strategic Plan (2012/13–2016/17)andAnnualPerformancePlan(2012/13–2014/15).Thefirstdraft of these documents was submitted to the Minister of Energy on 31 August 2011,theseconddrafton30November2011andthefinalversionon31January2012. The Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2012/13 – 2014/15) were approved by the Minister on 09 March 2012.

The Annual Report (2011/12) was submitted to the Minister of Energy, Minister of Finance and Auditor-General on 31 August 2012 as required in terms of Section 32 (a) of the Public Finance Management Act (Act No. 1 of 1999 as amended by


Act 29 of 1999) and Section 14 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004).

The imposition of the electricity levy was gazetted by the Minister of Energy on 23 March 2012, taking effect from 01 April 2012. The imposition of the piped-gas and petroleum pipelines levies was gazetted on 03 April 2012,takingeffectfrom01April2012.Allleviesforthe2012/13financialyear were billed by 31 March 2013.

Cash flow mitigating reserve NERSA has a cash flow risk mitigation reserve to overcome timing differences between the start of the financial year and the start of levypayment by the industries. The reserve target is three months’ employment cost for all staff members and 4.5% of the annual operating expenditure budget. This reserve will also cover a shortfall in levies in cases where the levies collected are below the total expenditure. The balance of the reserve is R28 million (2011/12: R25 million).

ExternallyFocusedResponsibilitiesandInitiativesDifferent approaches and communication mechanisms were used to engage stakeholders and the public at large in the processes and activities of the Energy Regulator. These include, among others, stakeholder meetings, public hearings, exhibitions, the NERSA website, as well as the print and electronic media.

Parliamentary Portfolio Committee on EnergyNERSA has interacted on several occasions with the Parliamentary Portfolio Committee on Energy (PPC):

• to present NERSA’s Annual Report for 2011/12;• to brief the PPC on NERSA’s decision on Eskom’s Revenue Application for the Multi-Year Price Determination period 2013/14 to 2017/18; • to brief the PPC on NERSA’s approval of Maximum Prices Application and the piped-gas transmission tariffs for Sasol Gas; and• to brief the PPC on NERSA’s decision on Transnet Limited’s Petroleum Pipeline Tariffs for 2013/14. Public AwarenessExtensive public awareness was generated through participation in 11 exhibitions. NERSA also took part in various public participation activities of the Department of Energy, which include the following:• Annual Learners Focus Week; and• Electricity Switch-On at Umjindini Municipality in Mpumalanga. Five stakeholder workshops were conducted in Gauteng and the Free State to educate stakeholders on the methodology to approve maximum prices for gas. Three workshops were held with customers in Pretoria, Sasolburg and the East Rand to educate them on gas licensing, compliance and dispute resolution.

Media CoverageDaily monitoring of print and electronic media in relation to electricity, piped-gas, petroleum pipelines and any other matter related to energy was conducted. The majority of NERSA’s coverage for the review period was neutral and most coverage was on electricity related issues.


A total of 102 media interviews were facilitated with the print and electronic media and12mediastatementswereissued.OnemediabriefingwasheldtoannounceNERSA’s decision on Eskom’s Revenue Application for MYPD3.

Two media breakfasts were held where the approved Methodology to Approve Maximum Prices of Piped-Gas, the determination of inadequate competition in the piped-gas industry, as well as NERSA’s decision on Sasol Gas’ application for the approval of maximum prices and a transmission tariff for piped-gas were shared with the media.

International Co-ordination and PartnershipsNERSA assisted with preparations for and participated in the Regional Electricity Regulatory Association (RERA) 10th Anniversary Celebrations from 05 to 09 November 2012 in Windhoek, Namibia.

In the same vein, NERSA also participated in the 9th AFUR Annual General Meeting which was hosted by the AFUR secretariat in Centurion, South Africa on 19 April 2012. This event marked a new milestone through the election of new leadership of AFUR, including the Chairperson and Deputy Chairperson of the Association, as well as members of the Executive Committee and the Sectoral Committees of AFUR.

NERSA participated in the 5th World Forum on Energy Regulation which took place in Quebec City, Canada in May 2012. The Conference, whose theme was ‘Striking a balance in the midst of change’, drew participation from over 600 senior government officials, regulatoryexperts and keyplayers in theenergy sector fromaround theworld. In its capacity as current chair of RERA, NERSA presented a paper during a session dealing with Universal Service and moderated a session on the Consumer’s

role in energy markets. A number of meetings were also held with other Regulatory associations with the aim of strengthening RERA’s relations with those associations.

In the spirit of collaboration and information sharing, NERSA also hosted delegations from the Rwandan Utilities Regulatory Authority (RURA) and the Zimbabwe Energy Regulatory Authority.

Core Regulatory Functions

Electricity Industry Regulation(a) Licences granted, amended, renewed or withdrawnNERSA is responsible for granting, amending, renewing or withdrawing the licences of regulated entities in the electricity sector. The following licensing activities were conducted during the review period:• Forty-seven licences for Renewable Energy Independent Power Producers (REIPPs)were approved under the first (28) and second (19) phase of the Department of Energy’s REIPP Procurement Programme. • Thirteen distribution licences were issued to REIPPs for connection facilities to the delivery point in Eskom’s grid. • Nine generation licences were issued under the Short-Term Power Purchase Programme (STPPP) as part of the short-term mitigation programme during themaintenanceofEskom’sgenerationfleet.• Three distribution licences were amended, while one was revoked.• No licences were transferred or renewed.• Electricity Distribution Compliance audits were conducted and concluded on 12 Distribution licensees in six provinces. • Temporary exemption on regulation 773 was granted to eThekwini Metro.


(b) Tariffs or tariff structures set or approved Third Multi-Year Price Determination (MYPD3)On 28 February 2013, the Energy Regulator approved an 8% average price increase per year for Eskom’s Revenue Application for the Third Multi-Year Price Determination (MYPD3) control period 2013/14 to 2017/18. The average electricity price will increase to 65.51c/KWh in 2013/14 and up to 89.13c/kWhin2018.Thetotalrevenueapprovedforthefiveyearsamountsto R906,553 million.

Eskom’sapplicationwasfora16%priceincreaseperyearforaperiodoffiveyears, which would translate into required revenues of over R1 trillion over the MYPD3 period. Eskom’s MYPD3 application also included proposals to restructure its retail tariffs. These are the tariff rates applicable to various customer categories (urban, rural, residential and local authorities).

Licensees’ Distributors Tariff ApprovalNERSA is responsible for the approval of tariffs for all municipalities and other electricity distributors in South Africa. A total of 183 out of 186 municipal and private distributor tariff applications for 2012/13 were received, analysed and approved for implementation on 01 July 2012.

Charge out rates and FBE ratesNERSA determined the free basic electricity (FBE) rate for the compensation of Eskom. This will ensure that poor residential electricity consumers who are supplied by Eskom have access to electricity.

(c) Regulations made and directives issued by the Minister of Energy In terms of its mandate, NERSA is expected to perform the necessary

regulatory actions in anticipation of and/or in response to changing circumstances in the energy industry. Activities in this regard included the following:• providing written comments and delivering three presentations to the Parliamentary Portfolio Committee on Energy on the Independent System and Market Operator (ISMO) Bill and participating in the public hearings on this bill; and• assessing and concurring with three determinations of the Minister of Energy in terms of Section 34 of the Electricity Regulation Act, 2006 (Act No. 40 of 2006).

(d) Grid Code managementNERSA is the custodian of the South African Grid Code and also serves as the chair of the Grid Code Advisory Committee (GCAC). The principal objective of NERSA’s involvement in the implementation of the Grid Code is to ensure that the Energy Regulator’s strategic objective of ensuring non-discriminatory access to the electricity infrastructure, as well as the safe and reliable operation of this infrastructure by licensees, is accomplished in an orderly manner. It should be noted that the Grid Code is a living document which is subject to amendment or licensees being granted approvals by NERSA for exemptions to identified prohibitive clauses as part of theiradherence to their licence conditions. During the period under review, the following key activities relating to the Grid Code were considered:• The Grid Connection Requirements for Wind Energy Facilities (WEF) version 5.4 was approved.• ThefirstGridConnectionCodeRequirementsforallRenewableEnergy Plants version 2.6 was approved.• The Grid Code Primary Energy Fuel Requirements for thermal, gas and


hydro generators was approved.• The self-assessments to ascertain the levels of compliance to the Distribution Codewasconductedandfinalisedbytwolicensees,namely,theCityofCape Town and Buffalo City. This exercise is under taken as an enabler to empower licensees to conduct an introspection of the state of their electricity business.• NERSA received 15 applications for exemptions to the Transmission Grid Code and a 100% approval rate by the Energy Regulator was achieved.• A further 15 applications requesting amendment of certain clauses of the Transmission Grid Code was submitted by licensees and the Energy Regulator granted a 100% approval after considering the applications.• NERSA received another 13 applications from licensees requesting to be exempted from certain clauses of the Distribution Code. A 100% approval rate was achieved after these applications were duly considered by the Electricity Subcommittee of the Energy Regulator.• Only one application requesting an amendment to the Distribution Code was received and subsequently approved. • The Self Dispatch regime for the Renewable Energy Bid Programme was approved and posted on the NERSA website.

(e) Other activitiesOther activities conducted during the period under review in support of the regulation of the electricity industry included the following:• An Electricity Distribution Licensing Procedure together with the Electricity Distribution Licence Application Form, Inspection in loco Questionnaire and the Licence Tracking and Archiving Procedure was approved.• A presentation on the rationalisation of tariffs at the Association of Municipal Electricity Undertakings (AMEU) Convention was delivered.• A presentation at the Solar South Africa Conference was delivered.

• A presentation on licensing during the Department of Energy’s second IPP Bidders’ Conference held on 16 August 2012 was delivered.• Thefirstbulletinon themonitoringof renewableenergyperformance,which analysedthefirstwindowIPPprojectedperformancewaspublished.• An energy audit on the NERSA Building was completed.• TheEnergyEfficiencyDemandSideManagement(EEDSM)fundmanagedby Eskom was audited. • The application for cost recovery and noting the cross-border Power Purchase Agreement (PPA) between Eskom Holdings SPC Limited (Eskom) and Aggreko International Projects Limited (AIPL) for the importation of energy from a 100 MW plant in Ressano Garcia, Mozambique was approved.

Piped-Gas Industry Regulation (a) Licences granted, amended, renewed or withdrawnNERSA is responsible for the licensing of the construction and operation of gas transmission, storage, distribution, liquefaction and regasification facilities, as wellas trading in the piped-gas industry. The following represents all licensing activities during the period under review:

Licences grantedThe Energy Regulator granted a total of 13 licences to Sasol Gas Limited, Novo MacFarlane (Pty) Ltd, Novo Sebenza (Pty) Ltd and Novo Lincoln Energy (Pty) Ltd in the year under review as follows: • Six licences were granted to Sasol Gas for the construction of gas distribution facilities in Rosslyn, Alrode, Isando, Prospecton and Mobeni.• Three licences were granted to Novo MacFarlane (Pty) Ltd, Novo Sebenza (Pty) Ltd and Novo Lincoln (Pty) Ltd for the operation of storage facilities in the MarFarlane, Sebenza and Boksburg areas of the Ekurhuleni Metropolitan


Municipality in the Gauteng province.• Two licences were granted to Sasol Gas to trade in gas in the Komatipoort and Secunda areas of the Mpumalanga province.• One licence was granted to Sasol Gas to operate a gas distribution facility in the Secunda area of the Mpumalanga province.• One licence was granted to Sasol Gas to convert a gas transmission facility in Phoenix, KwaZulu-Natal to a gas distribution facility.• A total of 422 temporary jobs and 15 permanent jobs were created from the construction projects licensed by NERSA in the year under review.

Licences amended• Ten licences granted to Sasol Gas for the operation of gas distribution facilities were amended to include newly constructed distribution facilities. • Ten licences granted to Sasol Gas for trading in gas were amended to include newly constructed distribution facilities.• Thirty-six licences granted to Sasol Gas for trading in gas were amended to include a new licence condition in terms of section 21(1) (m) of the Gas Act, 2001 (Act No 48 of 2001).• Thirty-six applications submitted by Sasol Gas for amendment of gas trading licence conditions were rejected.

Operations registered in terms of section 28 of the Gas Act In terms of section 28 of the Gas Act, operations related to the production or importation of gas, transmission of gas for own use and small biogas projects located in rural areas are required to be registered by the Energy Regulator.

The following operations were registered in the year under review:• One gas production operation conducted by PetroSA in Mosselbay, Western Cape Province.• One gas production operation conducted by Anglo Thermal Coal (Pty) Ltd in Limpopo.

Licences withdrawn and revokedNo licences were withdrawn or revoked during the period under review.

(b) Tariffs and prices set or approvedPiped-gas prices monitored in terms of Schedule One to the Agreement• NERSA determined and monitored maximum and minimum prices of gas for Distributors and Reticulators in terms of Schedule One to the Agreement Concerning the Mozambique Gas Pipeline between the Government of the Republic of South Africa and Sasol Ltd.• NERSA calculated the price capping mechanism in terms of Schedule One to the Agreement in order to ascertain if Sasol Gas Ltd should be required to refund its customers as a result of over recovery.• NERSA determined that Sasol Gas Ltd complied with clause 12 of the Schedule One to the Agreement as it granted discounts to small customers as prescribed.• The Market Value Pricing (MVP) Explanatory Note was also approved and will serve as guidelines in the interpretation and implementation of the MVP method for customers and Sasol Gas Ltd.

(d) Regulated Prices and TariffsNon-compliance with pricing provision and licence conditions• Atotalof33complianceinspectionswereconductedandonenoticeof


non-compliance with licence conditions was issued.• Two notices of non-compliance were issued following findings of non-compliance with the pricing provisions stipulated in clauses 1.16 and 9 of Schedule One to the Agreement.

Approval of maximum prices• The procedures and application forms for assessing applications for maximum prices of gas were approved.• Sasol Gas Ltd’s maximum gas prices for the prescribed customer categories for the period 26 March 2014 to 30 June 2017 were approved, and this marks the end of the existing Special Regulatory Dispensation Period on 25 March 2014 granted to Sasol Gas Ltd. • The Energy Regulator considered the application for maximum price of piped-gas from Spring Light Gas (Pty) Ltd and decided that Spring Light Gas (Pty) Ltd must amend its application for maximum price of piped-gas on 06 March 2013.• The Energy Regulator considered the application for maximum price of piped-gas from NOVO Energy (Pty) Ltd and decided that NOVO Energy (Pty) Ltd must amend its application for maximum price of piped-gas on 25 March 2013.

Tariffs Monitored in terms of the Pipeline AgreementApproval of transmission tariffs• NERSA approved Sasol Gas’ piped-gas transmission tariffs for the period 26 March 2014 to 30 June 2015. The tariff is split into two tariff periods aligned with the end of the Special Regulatory Dispensation Period and Sasol Gas Ltd’s financialyear.Theapprovedtransmissiontariffsareasfollows:➢ Zone 1 (Secunda–Gauteng)

− R5.09/GJfortheperiod26March2014to30June2014;and − R5.13/GJfortheperiod01July2014to30June2015.➢ Zone 2 (Witbank–Middelburg) − R14.20/GJfortheperiod26March2014to30June2014;and − R13.36/GJfortheperiod01July2014to30June2015.➢ Zone 3 (KwaZulu-Natal) − R5.61/GJfortheperiod26March2014to30June2014;and − R5.94/GJfortheperiod01July2014to30June2015.

• NERSA approved the ROMPCO transmission tariff application for the volumes above 120 million Gigajoules on 26 March 2013.• NERSA approved the preliminary assessment of the Transnet SOC Limited’s tariff application on 26 March 2013 for its gas transmission pipeline.

(e) Enforcement of Compliance• A total of 33 compliance inspections were conducted against a target of three for the year. Several instances of non-compliance were identified mainly related to non-calibration of meters, poor maintenance of specific facilities and failure to install pipeline markers to indicate the presence of gas pipelines in certain locations. Notices of non-compliance were issued to the licensees concerned requesting them to remedy the non-compliance. All the cases of non-compliancesidentifiedhavesincebeenremediedbythelicensees.• NERSA approved the Starting Regulatory Asset Base for Sasol Gas, as well as the revised Cost Allocation Manual (CAM).

(f) Other activitiesThe following workshops were conducted during the period under review:• Stakeholder workshops in Pretoria, Kempton Park and Bloemfontein


regarding the Clarification Note on Market Value Pricing were conducted. • WorkshopswithSasolGas,NOVOEnergy(Pty)Ltd,SpringLightGas (Pty) Ltd and Southdowns (Pty) Ltd to discuss the applications for the maximum price of gas and explain the Methodology to Approve the Maximum Price of Gas were conducted.• Stakeholder/customer education workshops in Pretoria, Kempton Park and Vereeniging regarding gas licensing, compliance and dispute resolution, including pipeline safety were conducted.

ThelaunchofNOVOEnergy(Pty)Ltd’snaturalgasfillingstationsinBenoniin the East Rand on 27 November 2012, following a licence issued by the Energy Regulator, represented a major milestone in the positioning of naturalgasasafuelinthemotorvehicleindustry.Thisisamongthefirstand currently one of only a few projects involving natural gas as vehicle fuel. The project should produce positive results in advancing reduction of carbon emissions and achieving the national objective to reduce greenhouse gas emissions.

NERSA approved procedures for its participation in the Competition Tribunal’s proceedings on competition matters affecting industries that it regulates.

PetroleumPipelinesIndustryRegulation

a) Licences granted, amended, renewed or withdrawnIn terms of its mandate, NERSA is responsible for granting, amending, renewing or withdrawing the licences of regulated entities in the petroleum

pipelines sector. The following licensing matters were concluded during the period under review:

A total of 28 applications to either grant new or to amend licences or to revoke existing licences were concluded. They comprised of:• four new construction licences;• seven amendments to existing licences;• thirteen revocations of existing licences; and• four new operation licences.

In many cases, the revocations by one licensee were matched by an application to operate the same facility by another party. Of special interest isanapplicationbyaTrusttobecomealicenseeforthefirsttime.Basedon the advice of Senior Counsel, the Trust was licensed.

ComplianceOne hundred and sixty facilities/activities were investigated for suspected operation of unlicensed facilities. Of these:• ten applied for licences of which only three were granted; • twenty-nine promised to apply for licences but have not done so yet;• eightsubmittedthattheyareoperatingretailsites,ofwhichthreehave submittedevidencethereof,andfivearependingverification;• tenofthefacilities/activitiesinvestigatedhaveeitherbeendecommissioned or deemed not to fall within the ambit of the Act; and• one hundred and three investigations are still ongoing (relates to interpretation of the Act).

The Regulations require NERSA to collect certain information from licensees.


The roll-out of a new all-in-one electronic submission template for data collection was completed for all but two licensees, with positive responses from licensees. As a result, compliance in reporting is expected to improve in the coming year. The current state of licensee reporting is:• twenty-fiveofthe33licenseeshavesubmittedtheirallocationmechanisms;• two licensees have submitted a list of reportable safety incidents in terms of section 24 of the Occupational Health and Safety Act, 1993 (Act No. 85 of 1993) (‘the OHS Act’);• monthly reports have been received for an average of 117 storage facilities on their average monthly volumes stored for the licensee and for third parties; and• twenty licensees have submitted their annual information regarding historically disadvantaged South Africans.

Dispute Resolution• Three informal complaints were received regarding the Transnet Ports Authority processes with regard to Petroleum Facilities. However, it was not possible to investigate these complaints since the complainants did not provide further evidence or formalise the complaints. • Acomplaintfromacompanyseekingtouseastoragetankbelongingtoanother company in the congested Durban harbour area was fully investigated. The tank in question is not licensed and since it is not in use, is therefore outside the ambitofthePetroleumPipelinesAct.Thefindingsofadesktopstudyanda site visit was completed in the year under review, and the report was tabled at theappropriatemeetinginthefollowingfinancialyear.

Threats to the petroleum pipelines infrastructure• Two incidents of disruption to Transnet’s pipelines were reported during the courseofthefinancialyear.BothincidentsconcernedtheDurban–Johannesburg

(DJP) pipeline; one was caused by pipeline mechanical failure, and the second by the unauthorised activity of a contractor digging in the pipeline servitude. • One incident, also involving pipeline mechanical failure, was reported by NATCOS for its pipeline in Durban.

(b) Tariffs or tariff structures set or approved

PipelinesThe Energy Regulator amended Transnet Limited’s licence to operate its petroleum pipeline system on 13 March 2013 by setting tariffs, as a condition of that licence, for the period 03 April 2013 to 01 April 2014. This resulted in an increase in inland petroleumproductpricesof1.4centsperlitre(c/ℓ).

Transnet had applied for a 22.6% increase in its allowable revenue, which would haveresultedina4.72c/ℓincreaseininlandpetroleumproductpriceshaditbeengranted. NERSA published the tariff application and a draft tariff determination for public comment and held a public hearing before arriving at its decision.

In arriving at its decision, NERSA considered a variety of factors, including the public interest, regulatory certainty, the New Multi-Product Pipeline (NMPP) project reaching its capital expenditure peak, and current and future debt funding. NERSA consequently set petroleum pipeline tariffs that would allow Transnet to realise an 8.53% increase in allowable revenue compared to the 2012/13 tariff period. This is an increase from R2,575.92 million in 2012/13 to R2,795.61 million in 2013/14.

An investigation and prioritisation of other pipelines for tariff setting included the investigation of four Chevron pipelines. The tariffs for these Chevron pipelines were set in November 2012. The report on other pipelines for tariff setting was


alsofinalisedandconsideredon11December2012.

StorageTwenty-three of the 58 storage and loading tariff applications were approved. The tariff applications approved were:• Total Oil SA Pty Ltd: Island View Terminal, Alrode, Bethlehem, East London, Nelspruit, Ohrigstad, Polokwane, Waltloo;• Island View Storage (Pty) Ltd: Durban, Isando, Richards Bay;• Sapref: single buoy mooring, Durban;• BP Atlantic: Caledon, Ceres, Malmesbury, Moreesburg, Rawsonville, Swellendam, Vredendal;• BP Drakensberg: Ladysmith, Pietermaritzburg, Vryheid;• BP Northwest: Scheizer-Renecke, Ottosdal, Bethlehem, Klerksdorp;• Transnet: Tarlton;• Fuel Firing Services: Prospecton, Cape Town Harbour, Brackenfell, Port Elizabeth; and• Hammertone Fuels: Durban.

The following tariff applications were not approved:• BP South Africa (Pty) Ltd: 43 Air School Port Alfred, Cape Aviation (Port Elizabeth), East London, George, Richards Bay, Rand Airport, Bulembo Bisho, Cape Town Depot, East London Depot, Klerksdorp Depot, Pretoria Depot, Langlaagte Depot;• Total Oil South Africa: Alrode, Bethlehem, East London, Nelspruit, Ohrigstad, Polokwane, Waltloo, Island View Terminal;• AirportsCompanySouthAfrica:ORTamboInternationalAirport,Cape Town International Airport, King Shaka International Airport;• Chevron SA (Pty) Ltd: East London, Waltloo; and• Easigas: Port Elizabeth.

The following documents were approved and published on the NERSA website:• Frequently Asked Questions (FAQ), which consisted of: o the second version of the FAQ on how to comply with the Petroleum Pipelines Act; and o FAQ on the setting of tariffs within the petroleum pipelines industry.• PetroleumPipelinetariffmethodologyamendmentswhichincluded: o publication of a consultation paper on proposed changes to the methodology for the setting of tariffs within the petroleum pipelines industry; o publication of notes on multi-year tariffs in terms of the Petroleum Pipelines Act; o revised list of beta proxy companies and updated beta value for tariffs applicable for 01 April 2013; o forecasts for Consumer Price Index (CPI) and Prime Rate applicable to tariffs commencing on 01 April 2013; and o guidelines for the annual assessment of storage and loading facilities’ tariff applications.

NERSA conducted fiveworkshops to provide assistance to licensees inpreparing their storage tariff applications. Although such workshops have helped considerably in improving the quality of tariff applications and thus speeding up tariff processing, NERSA is concerned that the rapid staff turnover in some licensees requires such workshops to be repeated more than once, placing pressure on NERSA’s resources.

The security of supply of petroleum products to the inland market remains a concern and focus area for NERSA. As more recent demand data has been released by the Department of Energy, it has been possible to update the


NERSA model and to brief the Petroleum Pipelines Subcommittee of the Energy Regulator on a quarterly basis.

(c) Existing position and envisaged commercial developments with respect to the petroleum pipelines industryIn general terms, the construction boom in the petroleum pipelines and storage industry is continuing. At the same time, oil companies continue to rationalise their operations by selling their storage infrastructure at smaller depots to smaller operators and resellers. These new owners will now have to apply for licences in their own names. In this process, the licences of the previous owners are revoked.

Transnet’s construction of its NMPP project is drawing to a close. The last major piece of the project, the accumulator tanks at each end of the trunk line from Durban to Jameson Park, is forecast by Transnet to be fully operational by December 2013. The trunk line has been in operation since December 2012, but only on a single product (diesel) basis. Once the accumulator tanks are complete, it is expected to switch to its design multi-product basis.

Petroline’s construction of its Maputo–Kendal pipeline is still on hold, pending the resolution of the concerns raised by Petroline with the relevant Government departments.

Reatile Energy began operating its newly constructed Liquefied PetroleumGas(LPG)storagefacilityinKrugersdorpinJanuary2013.ThisisthefirstgreenfieldsLPG storage facility licensed by the Energy Regulator.

Vopak-Reatile has been issued with a licence to construct a petroleum products storage facility next to the Transnet Pipelines accumulator facility at Jameson

Park. If built, it will be the largest of the new storage facilities licensed by NERSA. However it is facing environmental authorisation difficulties regarding the land on which it planned to build the storage facilities. If the project does go ahead, it is expected to make an important contribution to reducing the lack of storage capacity in the inland market.

Sunrise Energy is proceeding to implement the construction licence granted to it. Construction of the largest new LPG loading and storage facility licensed by NERSA is scheduled to commence in Saldanha during the 2013/2014 period, after the Build, Own, Operate, Transfer agreement between the Transnet’s Ports Authority and Sunrise Energy has been signed.

Oil Tanking Grindrod Calulo (OTGC) has been licensed to construct a petroleum storage facility in Coega port. This will be the largest such facility in the Eastern Cape, and will be considerably larger than the older facilities in Port Elizabeth that it will be replacing. In an effort to appease financiers’ concerns, it applied for a20-year indicative tariff. Although NERSA conducted a comprehensive review of the application, it found that a decision could not be made as the application lackedsufficientclarity.OTGChasalsoappliedforanoperatinglicencewhichwillbe decided on in the next reporting period. One of the challenges faced by this, and other petroleum infrastructure projects in ports, is that the authority conducting the bidding, Transnet National Ports Authority, is not the authority charged with approving the tariffs (NERSA).

Since NERSA’s inception in December 2005, the Energy Regulator has granted construction licences for 22 projects for new and additional storage capacity with a combined design capacity of 858,035 m3 and approximately R3.9bn in value. During the 2012/13 financial year, the 14 ‘active’ storage construction


projects amounted to 149 new tanks, with a combined design capacity of 703,021m3 and an estimated investment amount of R2.7bn. Eight of these projects were completed, adding 21 tanks with a combined design capacity of 82,063 m3. For a further three projects, the construction activities are still in progress, while another three projects remain in the pre-construction phase (which could not commence due to various other outstanding regulatory approvals).

Sasol Oil was granted a construction licence on 26 March 2009 for a pipeline project aiming at integrating the fuel production capabilities of Sasol Synthetics Fuels in Secunda and Natref in Sasolburg, to optimise the country’s inland fuel supply capacity. It is a 10-inch diameter, 145 km long pipeline licensed to transport petrol, diesel and synthetic aviation fuel components, as well as mixed butanes.

The project has experienced more than 20 months of delays and construction was only completed in August 2012. An operation licence was granted on 27 January 2011 to ensure that operation could commence as soon as it was ready, but commissioning problems also occurred. BeneficialoperationofthepipelinewasplannedforlateinMarch2013.

A property developer has instituted review proceedings against NERSA in an attempt to overturn NERSA’s decision to grant SFF a licence to operate its crude oil storage facility in Milnerton, Cape Town. This is a complex matter which turns on health and safety standards used by NERSA as conditions of licence and land use authorisations issued by or possibly to be issued by Cape Town municipality for Major Hazardous Installations. The matter is expected to be heard by the High Court in the next reporting period.

(d) Other ActivitiesThe Energy Regulator approved the following:• the Regulatory Financial Reports by Transnet and Engen, as well as the Regulatory Reporting Manual Implementation Plans for Shell and Total;• Engen’s revised CAM; and• a standard approach for dealing with confidential treatment of informationcontainedintariffapplicationsinordertoensureefficient processing of tariff applications.

Cross-CuttingRegulatoryMatters

NERSAhosted the first SouthAfricanEconomicRegulatorsConference(SAERC) at Emperor’s Palace in Johannesburg from 21 to 22 August 2012. The purpose of the conference was to build capacity in the areas of economic regulation as well as to establish and advance an intellectual discourse in economic regulation in South Africa. The aims of the conference were to: • share knowledge and best practice among economic regulators in South Africa with the participation of invited international economic regulators; • generate cross-fertilisation of ideas among economic regulators, intellectuals, academics and others working in the area of economic regulation; • attract interest among students, academics and practitioners in economic regulation to the area of economic regulation; and • provide an environment for dialogue between practitioners in economic regulation, researchers, policy-makers and other stakeholders around economic regulation issues.


The theme of the conference was: How can South Africa’s economic regulators contribute to cost-effective delivery of essential infrastructure in the face of key financial social and environmental pressure? Subthemes included the policy-planning-regulation interface; sources and modes of funding for future infrastructure, state-owned enterprises, public-private partnerships, and privately owned entities; tariffs and pricing: reasonable returns and their economic, social and environmental sustainability; regulating for competition and security of supply in the context of funding challenges; institutions, governance and coordination (including reporting, funding and appeal); industry restricting or unbundling of vertical integrated industries; and entry barriers for new operators.

(a) Legislative Matters NERSA commented to the Parliamentary Portfolio Committee on Energy on the Independent System and Market Operator Bill. No further proposed amendments to the policy was required.

(b) Regulatory Reporting ManualsThe implementation of the Regulatory Reporting Manuals (RRM) project is progressing;inthecurrentfinancialyeartheEnergyRegulatorhasseenprogressin terms of municipalities implementing the RRM. A number of municipalities have submitted their implementation plans and cost allocation manuals to NERSA. The Energy Regulator has also drafted three Non-Financial Information (NFI) manuals for the three industries regulated by NERSA. These manuals will cater for non-financial information data to be collected by NERSA from licensees. These manuals are currently at the public consultation stage.

(c) ResearchAn objective for the year under review was to draft a benchmark report on

regulatory decisions by category. NERSA identified national and internationalregulators against which to benchmark regulatory decisions. Components of best practiceswere identified.World-class regulators againstwhichNERSAcanbenchmark its regulatory decisions include the following:• OfficeofGasandElectricityMarkets,UnitedKingdom;• Federal Energy Regulatory Commission, United States;• British Columbia Utilities Commission, Canada;• Energy and Water Utilities Regulatory Authority, Tanzania;• National Consumer Tribunal, South Africa;• Independent Communication Authority of South Africa; and• Competition Tribunal, South Africa.

An impact assessment of regulatory decisions resulted in a draft regulatory impact assessment consultation paper, which was approved on 03 December 2012. Additional studies included an examination of new sources of energy, as well as research into the harmonisation of tariff methodologies used in setting and revising tariffs.

(d) Complaints Resolution and Proactive InvestigationsNERSA received 325 electricity-related disputes from both customers and licensees during the period under review. A resounding success of more than 80% in the resolution of disputes was achieved with 60 disputes pending. The disputes received ranged from tariffs and billing to complex technical cases. A special category of disputes received this period, was of commercial and industrial customers who requested NERSA to intervene on their behalf against municipal tariffs. These customers believed that their competitiveness in the market is threatened by high electricity tariffs charged by municipalities. They believed that if they were paying Eskom’s tariffs instead of the municipal tariffs, they would be very competitive in their respective sectors.


In pursuit of resolving disputes received, dispute resolution methods used included mediation and arbitration.

(e) Customer Education A total of 39 customer education workshops and activities were conducted in various communities to create awareness among customers/consumers about NERSA’s role and mandate. Most of the customer education workshops conducted during the review period was done in collaboration and cooperation with consumer focused forums, consumer organisations and the Provincial Consumer Affairs Departments.

AcknowledgementsThemilestones for the financial year under review couldnot havebeenachieved without the continued support and guidance of the Chairperson and my fellow Regulator Members. My thanks and appreciation is also due to the Management and Staff, without whose loyalty, dedication and service toNERSAwould not havebeenable tomeet its objectivesand fulfil itsmandate.Theirtirelesseffortshavemadethedifficulttaskofregulatingthisimportant industry much easier.

I would also like to express my deep gratitude to the Minister of Energy, Ms Dipuo Peters, the Deputy Minister of Energy, Ms Barbara Thompson, and the Director-General in the Department of Energy, Ms Nelisiwe Magubane, for their ongoing support and encouragement.

Finally, I wish to pay tribute to our stakeholders for their continued support. I believe that NERSA will continue to play an important role in transforming ordinary people’s lives, stimulating the creation of new businesses, creating jobs and making the South African energy industry more competitive internationally.

Phindile Baleni (née Nzimande)ChiefExecutiveOfficer



PART B: PERFORMANCE INFORMATION


1. STATEMENT OF RESPONSIBILITY FOR PERFORMANCE INFORMATION

Statement of Responsibility for Performance Information for the year ended 31 March 2013

The Chief Executive Officer is responsible for the preparation of NERSA’sperformance information and for the judgements made in this information.

The Chief Executive Officer is responsible for establishing, and implementinga system of internal control designed to provide reasonable assurance as to the integrity and reliability of performance information.

Inmyopinion,theperformanceinformationfairlyreflectstheactualachievementsagainst planned objectives, indictors and targets as per the approved Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2012/13 – 2014/15) of NERSA forthefinancialyearended31March2013.

NERSA’s performance information for the year ended 31 March 2013 have been examined by the external auditors and their report is presented on page 168.

The performance information of the entity set out on page 37 to page 126 were approved by the Energy Regulator.

Phindile Baleni (née Nzimande)ChiefExecutiveOfficerDate: 29 July 2013

Cecilia Khuzwayo ChairpersonDate: 29 July 2013


2. AUDITOR’S REPORT: PREDETERMINED OBJECTIVES

The Auditor-General currently performs the necessary audit procedures on the performance information to provide reasonable assurance in the form of an audit conclusion. The audit conclusion on the performance against predetermined objectives is included in the report to management, withmaterial findings being reported under thePredetermined Objectives heading in the Report on other legal and regulatory requirements section of the auditor’s report.

Refer to page 169 of the Auditor’s Report, published as Part E: Financial Information.

3. OVERVIEW OF NERSA’S PERFORMANCE

3.1. Service Delivery Environment

The National Energy Regulator of South Africa (NERSA) is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum Pipelines Act, 2003 (Act No. 60 of 2003). The structure of the Energy Regulator consistsofninemembers,fiveofwhomarepart-time,and four full-time,includingtheChiefExecutiveOfficer(CEO).

NERSA is a public entity as per the Public Finance Management Act,

1999 (Act No. 1 of 1999) (PFMA), and therefore has to comply with the requirements of this Act. In terms of Treasury Regulation 29.3.1, NERSA is responsible for establishing procedures for quarterly reporting to facilitate effective performance monitoring, evaluation and corrective action.

In August 2010, National Treasury published a Framework for Strategic Plans and Annual Performance Plans (the Framework). As a schedule 3A public entity, NERSA has to comply with the requirements of this Framework from 2012/13. NERSA’s Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2012/13 – 2014/15) have been developed in line with this Framework and have been approved by the Minister of Energy on 9 March 2012.

In line with the Framework, National Treasury is currently in the process of developing guidelines for quarterly performance reporting. These guidelineshavenotasyetbeenfinalisedandinthemeantime,thereportingformat as prescribed by the Department of Energy on 29 June 2012 is used for the development of quarterly reports. Apart from these quarterly performance reports, this report on the summary of the performance against predetermined objectives for 2012/13 is in compliance with Section 55(2)(a) of the PFMA.

NERSA is expected to contribute to Government’s twelve outcomes, which is based on Government’s Medium Term Strategic Framework (MTSF) that clearly articulates the agenda of the Government. NERSA contributes to the following six outcomes that the Minister of Energy has committed to:


Outcome2:AlongandhealthylifeforallSouthAfricans

NERSA contributes through:• Offering advice/comment with regards to cleaner fuels;• Driving renewable energy programmes and promoting the introduction of renewables and gas into the energy mix;• Facilitating universal access to electricity by setting aside 3.2c/kWh in the second Multi-Year Price Determination (MYPD2) for the Electrification Cross-subsidy;• Taking affordability into consideration when setting and/or approving tariffs and prices;• Implementing inclining block tariffs for electricity consumers; and• Regulating in a manner which facilitates security of supply.

Outcome4:Decentemploymentthroughinclusiveeconomicgrowth

NERSA contributes through:• Licensing and the setting and/or approving of tariffs and prices. In this manner NERSA creates pre-conditions towards the achievement of this outcome;• Issuing licences to eligible renewable energy operators to ensure that the socio-economic development commitments specified in the Department of Energy’s bidding process are met; and• Promoting companies that are owned and controlled by Historically Disadvantaged Individuals (HDIs) to become competitive.

Outcome6:Anefficient,competitiveandresponsiveeconomicinfrastructurenetwork

NERSA contributes through:

• Regulating in a manner which facilitates security of supply;• Settingand/orapprovingcostreflectivetariffsandpricesthatencourage investment;• Facilitating 3rd party access to facilities; • Setting rules and frameworks that facilitate the building of new infrastructure; and• Monitoring compliance through undertaking technical audits leading to regular maintenance and refurbishment of infrastructure.

Outcome8:Sustainablehumansettlementsandimprovedqualityofhouseholdlife

NERSA contributes through:• Facilitating access to electricity / energy services;• Facilitating reliability of supply;• Monitoring maintenance of infrastructure;• Compliance monitoring to licence conditions;• Creating an environment to attract investment to facilitate gas to power projects;• Taking affordability into consideration when setting and/or approving tariffs;• Implementing inclining block tariffs; and• Dispute resolution, including mediation, arbitration and handling of complaints.

Outcome 10: Environmental assets and natural resources that are wellprotectedandcontinuallyenhanced

NERSA contributes through:• Incorporating compliance with the National Environmental Management Act, 1998 (Act No. 107 of 1998) into licence conditions;


• Promoting energy efficiency in general in South Africa and in particular in the NERSA building;• Promoting the use of diverse energy sources by 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) regarding Open Cycle Gas Turbines in order to give effect to the Integrated Resource Plan (IRP); and• Facilitating the transition to a low carbon economy.

Outcome12:Anefficient,effectiveanddevelopmentorientedpublicserviceandanempowered,fairandinclusivecitizenship

NERSA contributes through:• Transparent Processes which includes the publication of relevant documents as well as inviting stakeholders to participate in the decision making process through written and oral comments; • Customer education;• Training and development of staff and stakeholders;• Clean Energy Education and Empowerment; and• Corporate Social Investment – Luvuyo House (an orphanage in Sushanguve).

NERSA believes that its services add value to the electricity, piped-gas

and petroleum pipelines industries in support of government’s economic andsocialobjectives.Valuehasbeenaddedineachofthefollowingfivestrategic outcome-oriented goals which will guide its programmes for the next 5 years: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;3. Topromotecompetitiveandefficientfunctioningoftheenergyindustry 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; and5. To position and establish NERSA as a credible and reliable regulator in order to create regulatory certainty.

The following table provides an analysis of NERSA’s performance with regards to the implementation of its key performance indicators during 2012/13. Due to the responsive nature of the business conducted by the organisation, a number of targets could not be met due to synergies with or dependencies on external parties. As NERSA does not have control over these parties, the table indicates the targets not met due to external dependencies separately.


Target metTarget not met

TotalExternal Dependencies Internal Constraints

Electricity Industry Regulation 15(79%)

4(21%)

0(0%)

19

Piped-Gas Industry Regulation 18 (86%)

1 (5%)

2 (9%)

21

Petroleum Pipelines Industry Regulation 18 (90%)

1(5%)

1(5%)

20

Cross-cutting Regulatory 7(100%)

0(0%)

0(0%)

7

Organisational 6(86%)

0(0%)

1(14%)

7

Total 64(87%)

6(8%)

4(5%)

74


From the above table it is evident that in 15 (79%) of the 19 key performance indicators in the approved NERSA Annual Performance Plan for 2012/13 relating to the regulation of the electricity industry, the targetwasmet.This signifiesan improvementof16% inperformance ifcompared to 2011/12 where 63% of targets were met. All four targets that were not met were due to external dependencies.

From the above table it is also evident that in 18 (86%) of the 21 key performance indicators in the approved NERSA Annual Performance Plan for 2012/13 relating to the regulation of the piped-gas industry, the targetwasmet.Thissignifiesanimprovementof13%inperformanceif compared to 2011/12 where 73% of targets were met. One of the targets that was not met was due to an external dependency where NERSA was waiting for feedback from the licensee on outstanding information in the tariff application. The other two targets that were not met were due to internal constraints.

From the above table it is further evident that in 18 (90%) of the 20 key performance indicators in the approved NERSA Annual Performance Plan for 2012/13 relating to the regulation of the petroleum pipelines industry, thetargetwasmet.Thissignifiesanimprovementof5%inperformanceifcompared to 2011/12 where 85% of targets were met. One of the targets that was not met was due to an external dependency and the other was due to internal constraints.

Moreover, from the table above it is evident that in all seven key performance indicators in the approved NERSA Annual Performance Plan for 2012/13 relatingtocross-cuttingregulatorymatters,thetargetwasmet.Thissignifies

an improvement of 42% in performance if compared to 2011/12 where 58% of targets were met.

Lastly, from the table above it is evident that in six (86%) of the seven key performance indicators in the approved NERSA Annual Performance Plan for 2012/13 relating to the organisational environment, the target was met. This signifies an improvement of 12% in performance ifcompared to 2011/12 where 54% of targets were met. The target that was not met was due to internal constraints.

In summary, in 64 (87%) of the 74 key performance indicators in the approved NERSA Annual Performance Plan for 2012/13, the target was met.Thissignifiesanimprovementof21%inperformanceifcomparedto2011/12 where 66% of targets were met. Six (8%) of the targets that were not met were due to external dependencies and the four (5%) were due to internal constraints.

The following table provides a comparison between NERSA’s performance on its planned activities for 2009/10, 2010/11, 2011/12 and 2012/13.

Target met

Target not met

External Dependencies

Internal Constraints

2009/10 66% 15% 19%2010/11 68% 14% 18%

2011/12 66% 9% 25%2012/13 87% 8% 5%


From the above table it is evident that NERSA’s performance during 2012/13 is comparing favourably with that of previous years. NERSA is committed to continue improvingonitsperformanceduringthe2013/14financialyear.

KEY OUTPUTS / ACHIEVEMENTS FOR THE 2012/13 FINANCIAL YEAR:

SomeofthemainachievementsforNERSAduringthe2012/13financialyearare:

Electricity Industry Regulation

Programme 1: Setting and/or approval of tariffs and prices• Approvedan averageannual price increaseof 8% forEskom for the next five years;• Received and approved 183 out of 186 (98%) municipal and private distributor tariffs applications for 2012/13; • Approved the revised Inclining Block Structure for Municipal distributors;• Approved Eskom’s retail tariffs structural adjustments for 2013/14;• The 2013/14 schedule of Eskom’s standard tariffs was approved;• The municipal tariff increase guideline and benchmarks for 2013/14 were approved;• Determined the free basic electricity rate for the compensation of Eskom for 2013/14;• Liaised with Ekurhuleni Municipality to introduce a resale tariff which was approved and implemented;• Liaised with Kouga Municipality to rezone the Loerie Farm area of supply which wasformerlyclassifiedasaruralareatoatownship.Customerswillnowbe able to convert to prepaid meters;

• Delivered a presentation to stakeholders at the Amalgamated Municipal Electricity Undertakings (AMEU) Tariff Committee meeting on the rationalisation of tariffs; and• Eskom’s Regulatory Financial Report for 2011/12 has been approved.

Programme 2: Licensing and Registration:• Thelicencesforall47IndependentPowerProducers(IPP)underthefirst(28) and second (19) phases of the Department of Energy Renewable Energy (RE) procurement programme were approved within 90 days which is less than the legislated period of 120 days;• NERSA delivered a presentation at Solar South Africa Conference where the majority of participants were Independent Power Producers;• Nine distribution licences were issued for connection facilities between the Eskom delivery point and IPP generation facilities. The licences were approved in less than the legislated period of 120 days;• Seven generation licences issued were under the Short Term Power Purchase Programme (STPPP) as part of the short term mitigation programme during maintenanceofEskomgenerationfleet.Thelicenceswereissuedinlessthan the legislated period of 120 days;

• The following electricity distribution licences were amended: o George Local Municipality to include Uniondale in its electricity supply area; and o Beaufort West Local Municipality to include Murraysburg in its electricity supply area.• Central Karoo District Municipality’s electricity distribution licence was revoked; and• Approved the Electricity Distribution Licensing Procedure.


Programme 4: Dispute resolution, including mediation, arbitration and handling of complaints:• NERSA successfully resolved a dispute between Constantia Metering and its customers (Midrand and Pretoria) where the reseller (Constantia Metering) was charging different and correct tariffs each month. The correct tariffs have since been implemented and the billing was corrected.

Programme 5: Setting of rules, guidelines and codes for the regulation of the electricity industry:• Approved the Renewable Energy Grid Code;• Approved amendments to the Grid Code Requirements for Wind Energy Facilities to be connected to the transmission and distribution systems; • Approved all received applications for amendment to the Grid Code;• Approved all received exemptions to the Grid Code;• Received Distribution Code Self Compliance Assessmen progress reports/submissions on the compliance level to the South African Grid Code from Nelson Mandela Bay, Buffalo City, Mbombela Municipalities and City of Cape Town;• Completionoftheevaluationofalltheenergyefficiencyanddemand side management (EEDSM) programs for funding under the third

Multi-Year Price Determination (MYPD3); • Completed the assessment of Eskom Integrated Demand Management (IDM) annual performance for 2011/12;• Completion of the evaluation of the distribution network planning audit in terms of evaluation of the distribution plans submitted to NERSA;• NERSA evaluated the transmission plans in order to determine the regulatory asset base of transmission for the MYPD3 determination.• Published the 1st bulletin on Monitoring of Renewable Energy Performance: Analysis of First Window Independent Power Producer Projected Performance;• Published Quarterly Electricity Regulation Newsletters; and• An energy audit of the NERSA building has been completed.

Programme6:EstablishingNERSAasanefficientandeffectiveRegulator:• NERSA participated in the Parliamentary Portfolio Committee on Energy’s public hearings on the Independent System and Market Operator Bill; and• NERSA assessed and concurred with three determinations of the Minister of Energy in terms of Section 34 of the Electricity Regulation Act, 2006 (Act No. 40 of 2006).


Piped-Gas Industry Regulation

Programme 1: Setting and/or approval of tariffs and prices• Approved the maximum prices of piped-gas for Sasol Gas in terms of section 21(1)(p) of the Gas Act, 2001(Act No. 48 of 2001), for the period 26 March 2014 to 30 June 2017;• Approved the transmission tariffs for Sasol Gas in terms of section 4(h) of the Gas Act, 2001 (Act No. 48 of 2001), for the period 26 March 2014 to 30 June 2015;• Approved the ROMPCO transmission tariff for the volumes above 120m GJ;• Approved the tariff for the Transnet Pipelines’ gas transmission pipeline from Secunda to Durban (Lily Pipeline) for 2012/13;• Approved the preliminary tariff assessment for Transnet Pipelines’ gas transmission pipeline from Secunda to Durban (Lily Pipeline) multi-year tariff determination for the periods 2013/14, 2014/15 and 2015/16;• Approved the calculation of price cap of gas as per Schedule One to the Agreement;• Approved the maximum prices in terms of clauses 9 and 10 of Schedule One to the Agreement;• Calculated aggregate prices of gas for each province for 2011;• Approved the Starting Regulatory Asset Base for Sasol Gas;• Approved the Market Value Pricing (MVP) Explanatory Note for public comments. A public hearing on the MVP Explanatory note was held;• Approved the procedures for assessing applications for maximum price of gas and the application forms;• Approved the procedures for assessing applications for transmission and storage tariff applications;

• ApprovedthefinancialanalysisofTransnetGas’halfyearlyRegulatoryFinancial Reports (RFRs) for the period ending 30 September 2012; and• Approved the revised Cost Allocation Manual for Sasol Gas.

Programme 2: Licensing and Registration:• The following licences were granted to Sasol Gas: o Licence to trade in gas in Komatipoort; o Licence to operate a gas distribution facility in the Secunda area; o Licence to trade in gas in the Secunda area; o Distribution construction licence in Rosslyn; o Distribution construction licence in Alrode; o Distribution construction licence in Isando; o Distribution construction licence in Prospecton; o Distribution construction licence in Mobeni; and o Convert a gas transmission facility in Phoenix to a gas distribution facility.• Three licences were granted to Novo MacFarlane (Pty) Ltd, Novo Sebenza (Pty) Ltd and Novo Lincoln (Pty) Ltd for the operation of storage facilities in the MacFarlane, Sebenza and Boksburg areas;• Approved 56 amendments to licence conditions; • NERSA did not approve thirty six applications by Sasol Gas for amendments to gas trading licence conditions; and• LaunchofNovoEnergy’s gas filling stations inBenoni in theEastRandon 27 November 2012 based on a licence issued by the Energy Regulator. Being amongst the first and currently few projects involving gas as vehicle fuel, the project represents a major milestone in the positioning of gas as a fuel in the motor vehicle industry and should have positive results in advancing green energy sources and the national objectives to reduce green house gas emissions.


educating stakeholders, customers and the public about gas licensing, compliance and dispute resolution requirements, including issues of safety in the operation of gas facilities.• Approved procedures for NERSA’s participation at the Competition Tribunal’s proceedings.

Petroleum Pipelines Industry Regulation

Programme 1: Setting and/or approval of tariffs and prices• Granted an increase in allowable revenue of 8.53% to Transnet Pipelines for 2013/14; • Considered 60 storage and loading facility tariffs applications;• Approved the Regulatory Financial Reports for Transnet and for Engen;• Approved the Regulatory Report Manual Implementation Plans for Shell and for Total; and• Approved Engen’s revised Cost Allocation Manual (CAM).

Programme 2: Licensing and Registration:• Approved the following storage construction licences: o Total storage construction licences at Waltloo, Ohrigstad and Polokwane; o BPSA storage construction licence at Rand Airport;• Approved the following operation licences: o Erasmus Vervoer Trust; o BPSA for operation at Rand Airport; and o Dreamworld Investments for operation at Marble Hall and Vaalwater.• Amended 7 construction and storage licences; and• Revoked 13 storage licences.

Programme 4: Compliance Monitoring and Enforcement:• Conducted nine investigations (against the target of one) and a non-compliance notice was issued in one instance;• Issued a notice of non-compliance to Sasol Gas for failure to comply with clause 9 of Schedule One to the Agreement with regards to Southdowns;• Issued a notice of non-compliance to Sasol Gas for failure to comply with clause 1.16 regarding Market Value Prices of Schedule One to the Agreement with regards to Vaal Sanitary;• Conducted compliance inspections on 23 licensed facilities in KwaZulu-Natal, exceeding the target by 22; and• ApprovedtheauditreportforROMPCOforthe2012financialyear.

Programme6:EstablishingNERSAasanefficientandeffectiveRegulator:• Thirteen stakeholder workshops were conducted. These were: o Three stakeholder workshops regarding the Clarification Note on Market Value Pricing at the NERSA Auditorium, Kempton Park and Bloemfontein; o Four workshops were held with Sasol Gas to discuss the applications for maximum price of gas and to explain the methodology to approve maximum price of gas; o Workshops were held with the following licencees to discuss the applications for maximum price of gas and to explain the methodology to approve maximum price of gas: •NOVO Energy (Pty) Ltd; •Spring Light Gas (Pty) Ltd; and •Southdowns (Pty) Ltd. o Conducted three stakeholder workshops with the purpose of


Programme 3: Compliance Monitoring and Enforcement:• Initiated investigations into 160 suspected unlicensed facilities of which 54 have been resolved and 106 are still in progress;• The roll out of the new all-in-one compliance spreadsheet to all but two licensees was completed with positive response from licensees. It is expected that compliance will improve in the coming year; and• Two meetings were held with Engen and its storage operators in order to explain the compliance reporting sheet. NERSA is anticipating compliance by Engen based on these meetings.

Cross-Cutting Regulatory

Programme6:EstablishingNERSAasanefficientandeffectiveRegulator:• NERSA held the first South African Energy Regulators Conference in August 2012. • Approved a report on the harmonisation of tariff methodologies;• Heldapublicconsultationworkshoponthenon-financialrequirementsofthe Regulatory Reporting Manuals; and• NERSA commented to the Draft National Treasury Regulations issued in terms of the Public Finance Management Act, 1999 (Act No. 1 of 1999) and to the Infrastructure Development Bill issued by the Economic Development Department.

Organisational

Programme6:EstablishingNERSAasanefficientandeffectiveRegulator:• NERSAreceivedanunqualifiedauditfor2011/12;• NERSA assisted in preparations and participated in the Regional Electricity

Regulatory Association (RERA) 10th Anniversary Celebrations in Windhoek, Namibia; and• NERSA exceeded its target of a customer satisfaction level of 67%, which is measured through structured customer satisfaction questionnaires given to participants and customer participation events, by 8.6% (75.61%).

MAIN CHALLENGES FOR THE 2012/13 FINANCIAL YEAR AND CORRECTIVE STEPS BEING TAKEN:

Some of the main challenges / lowlights for NERSA during the 2012/13 business year, with action plans to address these challenges are:


• The annual target of the approval of three Implementation Plans as part of the Regulatory Reporting Manual implementation was not achieved (only 2 were approved) o NERSA is awaiting the submission of the plans from the metros o NERSA will continue to liaise with the Metros regarding the implementation of the Regulatory Reporting Manuals• The annual target of the approval of Inclining Block Tariffs (IBTs) for 65% of licensed distributors for residential customers was not achieved (only 60% was approved) o Some Municipal distributors are still struggling with the implementation of IBTs o The Energy Regulator approved the revised IBT structure o NERSA will continue to assist Municipalities with the implementation of IBTs


• TheEskomtransmissionauditwasdeferred to the2013/14financial year on Eskom Transmission’s request in order for Eskom to accomplish compliancewithpreviousauditfindings o The Transmission audit will be conducted during the 2013/14 financialyear• Only 1 end-user forum instead of the target of 10 was established o NERSA is awaiting the Minister of Energy to prescribe the procedure to be followed in establishing end-user forums as required in terms of the Electricity Regulation Act o Licensees are consistently sensitised about the establishment of end-user forums when conducting customer education workshops / meetings


• A service provider was not appointed to conduct a study to determine the level of uncommitted capacity in gas transmission pipelines o The potential bidders requested an extension of the deadline for submissionoftheproposalsatthecompulsorybriefingsession o Thebidderwillbeappointedduringthefirstquarterof2013/14• ThenonfinancialreportingRegulatoryReportingManualrequirements wasnotfinalisedandapprovedasplanned o NERSA experienced unanticipated delays in the finalisation ofthenonfinancialreportingRRMrequirements o The non financial reporting RRM requirements will be finalised duringthefirstquarterof2013/14


• The report on infrastructure investigated in Durban could not be finalised o NERSA realised that there are some discrepancies in the information submitted by licencees. o NERSA is liaising with the licencees in order to expedite the submission of the correct information.

Organisational

• Only 88% instead of a target of 95% of the organisational structure wasfilled o Challenges were experienced with regards to the filling of some vacancies o All delayed positions to be concluded by May 2013 except for the CFO position

Significant developments external to NERSA impacting on the demand for NERSA’s services or NERSA’s ability to provide these services:

There were no significant developments external to NERSA impactingon the demand for NERSA’s services or NERSA’s ability to provide these services during the 2012/13 business year.


3.2. Organisational environment

Thetablebelowhighlightsthespecificorganisationalchallengesandmitigatingstrategies:

Organisational issues Threat posed by the factor Opportunity presented by

the factor NERSA response to the challenge

People • Ability to attract and retain requisite skills

• Loss of skills within the industries

• Need for critical and scarce skills

• Growth ceiling within the organisation, there is no room for growth for certain skilled individuals

• Employees experience working / operational environment ‘hassles’

• An opportunity exists to help employees to love their jobs and perform at an optimal level

• Development of a management, leadership style and organisational culture

• Development of key skills where possible=

• Review of exit interviews - understand where skills are going to and the reasons thereof

• Develop a uniform culture (NERSA is currently conducting a culture survey)

• Encourage internal job rotations

• Review current operations model (to amend organisational structure issues)

• Reviewoffindingsfrompeopleand/ororganisationalsurveysconductedin the past and implementing relevant recommendations

Processes • A gap exists in our institutional memory

• Supply chain / procurement processes ‘cripple’ operations and productivity

• Regulatory processes need to be reviewed

• Developabalancebetweencomplianceandprocurementefficiencies

• Undertake a business process review exercise to streamline, automate, re-engineer, document and workshop with all users

Enabling technology

• NERSA has a culture of ‘information over-load” • An opportunity exists to improve the current IT systems and integrate where possible

• Develop knowledge management processes and systems

• Automate and send documents electronically

• Adopt a resourcing policy modelConducive working environment

• NERSA has poor “hygiene factors” such as lifts, safety regulations etc.

• Develop and implement an internal workspace enhancing strategy


3.3. Key policy developments and legislative changes

There has been no major changes to relevant policies or legislation that affectedNERSA’soperationsduringthe2012/13financialyear.

Some legislation that may affect NERSA’s operations going forward is the following:• National Energy Regulator Amendment Bill;• Electricity Regulation Amendment Bill;• Gas Amendment Bill; and• Independent System and Market Operator Bill.

3.4. Strategic Outcome-Oriented Goals

NERSA believes that its services add value to the electricity, piped-gas and petroleum pipelines industries in support of government’s economic andsocialobjectives.Valuehasbeenaddedineachofthefollowingfive

strategic outcome-oriented goals which will guide its programmes for the next 5 years: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;3. Topromotecompetitiveandefficientfunctioningoftheenergyindustryin 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; and5. To position and establish NERSA as a credible and reliable regulator in order to create regulatory certainty.

The link between the five strategic outcome-oriented goals and the sixprogrammesidentifiedare:


Strategic Outcome Oriented Goal Programme

To facilitate Security of Supply in order to support sustainable economic development in South Africa Setting and/or approval of tariffs and pricesLicensing and registrationCompliance monitoring and enforcement

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

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 industriesEstablishingNERSAasanefficientandeffectiveregulator

Topromotecompetitiveandefficientfunctioningoftheenergyindustryinordertosustaineconomicdevelopment in South Africa

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

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

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

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

Dispute resolution, including mediation, arbitration and handling of complaints

Setting of rules, guidelines and codes for the regulation of the three energy industriesEstablishingNERSAasanefficientandeffectiveregulator

Details of progress made with regards to the implementation of the strategic outcome-oriented goals can be found in the section on key outputs / achievements for the 2012/13financialyearaswellasinthesectionsonthestrategicobjectivesandprogrammesbelow.


4. PERFORMANCE INFORMATION BY PROGRAMME

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

The programme purpose is to set and/or approve tariffs, prices and charges in order to ensure a fair balance between the needs of the customer and the regulated entity. While the customer needs to be protected against misuse of monopolistic powers and unnecessary price hikes, the regulated entities need to have sufficient income to ensure that they can continue operating as a going concern and have enough revenue for the maintenance and refurbishment of infrastructure.

The following table provides the strategic objectives for the programme:


Strategic Objectives

Electricity Industry Regulation To ensure municipalities are sustainable within the ring fenced electricity businessTo ensure the sustainability of Eskom and the Electricity Supply Industry (ESI)

Piped-Gas Industry Regulation To approve prices in line with the published price methodologyTo approve and monitor tariffs in line with the published tariff guidelinesTo implement pricing provisions of schedule 1 to the Agreement and the piped-gas regulations

Petroleum Pipelines Industry Regulation To set and approve tariffs in accordance / in line with published methodologyTo set and approve tariffs that facilitate affordability and accessibility whilst balancing the economic interests of all stakeholders


4.2. Programme 2: Licensing and registration

The programme purpose is to ensure the orderly development of the energy industry and to ensure that all activities related to all operations are licensed and registered as required by the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003).




Electricity Industry Regulation To control entry and ensure orderly development of the Electricity industryPiped-Gas Industry Regulation To process all licence applications within the statutory deadlines

To register gas imports and productionTodevelopthenonfinancialreportingrequirementsontheRRMTo propose an implementation strategy for the gas to power component of IRP2010ToproposetothepolicymakerimplementationstrategyforLiquefiesNaturalGas (LNG)Toresearchalternativegassourcesfromspecificallycompressednaturalgas(CNG),Shalegas,coalbedmethanegasandundergroundcoalgasification(UCG)

Petroleum Pipelines Industry Regulation To decide on licence applications for pipelines, loading and storage facilities within the statutory deadlinesTo decrease the number of unlicensed activities


4.3. Programme 3: Compliance monitoring and enforcement

The programme purpose is to ensure that all licensees in the three regulated industries fully comply with their licence conditions, including those relating to health, safety, security, environmental standards and requirements as well as any other standards and requirements prescribed by the relevant industry-specific legislation. The programme will also ensure compliance with directives to govern relations between a licensee and its end users.Compliance monitoring will be done in such a way that a fair balance between the interests of all stakeholders is encouraged and maintained.




Electricity Industry Regulation To enforce compliance to the quality and reliability level of electricity supplyToensureefficientoperationofthelicensedactivities

Piped-Gas Industry Regulation To monitor the supply of 120m GJ p.a. from Mozambique to South Africa in terms of Schedule One of the AgreementTo enforce licence conditions with regard to competitive prices and conditionsTo analyse compliance to the RRMTo determine and publish uncommitted capacity in transmission pipelines and storage facilities

Petroleum Pipelines Industry Regulation To monitor and enforce compliance with construction licence conditionsTo monitor compliance to HDSA ownership levels requirements within the petroleum pipelines industryTo monitor compliance to third party access legislation requirementsTo investigate compliance to common carrier rules


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

The programme purpose is to ensure that disputes and complaints between licensees or between licencees and customers or end-users are managed effectively and settled in a manner that is appropriate. This programme will also ensure that when needed, any mediation or arbitration required will be done within prescribed procedures.




Electricity Industry Regulation To create a fair balance between the needs of all stakeholdersPiped-Gas Industry Regulation To ensure fairness and equity in the piped-gas marketPetroleum Pipelines Industry Regulation To investigate complaints regarding non-compliance with legislation

4.5. Programme 5: Setting of rules, guidelines and codes for the regulation of the three energy industries

The programme purpose is to ensure the setting of appropriate rules, guidelines and codes of best practices in the quest to promote uniformity and standardise practices in theregulationofthethreeenergyindustries.Thiswillfacilitatethecreationofinvestorconfidenceandlessentheregulatoryburdenonlicencees.Inordertoachieveorderlyinvestorconfidenceintheenergyindustriestheremustbestandardisedpractices,whicharethesameforallparticipantsandNERSAmustmaintainandsafeguardthesestandards. This will facilitate investment in the energy industries, as investors and developers need a sound regulatory framework to ensure that they receive the expected returns for their investment.




Electricity Industry Regulation To ensure non- discriminatory access to the electricity infrastructureTo facilitate investment in the ESI

Piped-Gas Industry Regulation To provide stakeholder education and information sharingTo develop; align to relevant legislation; and implement an HDI scorecard

Petroleum Pipelines Industry Regulation To publish licensing guidelines

To publish tariff methodologies and guidelines and amend as and when required


4.6. Programme6:EstablishingNERSAasanefficientandeffectiveregulator

The programme purpose is to ensure that systems, processes, procedures and resources are in place that will put NERSA in the position to appropriately advisepolicymakersonanymatterrelatingtotheeffectiveandefficientregulationoftheelectricity,piped-gasandpetroleumpipelinesindustries,therebycontributing towards the broader government objectives aimed at the economic development of the country. The purpose includes the development of skills, both internally and externally in energy regulation.




Electricity Industry Regulation To facilitate the effectiveness of NERSA in the electricity industryPiped-Gas Industry Regulation To propose regulations and legislative review and to submit approved comments on draft legislative

amendments to the policy makersTo promote understanding of Energy Regulator decisions to stakeholders

Petroleum Pipelines Industry Regulation To investigate the bottlenecks in the petroleum pipelines infrastructure in DurbanTo maintain, update and report on inland supply forecast model - 6 monthly reportTo review legislation affecting the petroleum industry and recommend changes (where appropriate)To publish relevant industry data

Cross-Cutting Regulatory To benchmark regulatory decisions against international best practiceTo determine the impact of regulatory decisionsTo develop the research agenda for the organisation on other new sources of energyTo harmonise regulatory processes within the organisationTo empower stakeholders with relevant energy industry knowledge and informationToinfluenceenergysectorpolicydevelopmentandamendmentstolegislation

Organisational TocreateanefficientandeffectiveworldclassorganisationTo establish NERSA as an employer of choiceTo position and promote the good image of NERSAToimprovetheeffectivenessofthefinancialprocesses,systemsandprocedures


Strategicobjectives,performanceindicatorsplannedtargetsandactualachievements

Strategicobjectives



Strategic ObjectivesActual

Achievement 2011/2012

Planned Target2012/2013

Actual Achievement

2012/2013

Deviation from planned

target to Actual

Achievement for 2012/2013

Comment on deviations

To ensure municipalities are sustainable within the ring fenced electricity business

Removed 80% of municipalities are sustainable Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the NERSA Annual Performance Plan as the sustainability of the municipalities falls outside of NERSA’s control

96% of tariff applications of all licensed distributors set and approved

100% of tariff applications of all licensed distributors set and approved.

Target met None

Approved Regulatory Reporting Manual (RRM) implementation plan of 1 metro

Approved implementation plan for an additional 3 Municipalities

The Minister of Energy approved on 12 February 2013 that this target be changed from 100% of municipalities implementing the 10% RRM requirements to what is indicated, as the management of the municipalities is different from the management of licensees in the other industries regulated by NERSA. Therefore a review of the approach for dealing with the municipalities was necessary

Target not met Only 2 implementation plans were approved instead of the target of 3

Externally delayed – NERSA is awaiting the submission of the plans from the metros



Strategic Objectives Actual Achievement 2011/2012


Actual Achievement

2012/2013


target to Actual Achievement for 2012/2013


Approved Inclining Block Tariffs (IBTs) for 56% of licensed distributors for residential customers


The Minister of Energy approved on 12 February 2013 that this target be changed from 100% of licensed distributors implementing IBTs for their residential customers to what is indicated, as the approved percentage of licensed distributors implementing IBTs is impossible to achieve due to challenges faced by municipalities in the 2012/13 financialyear.

Target not met Only 60% of Municipal IBTs approved instead of the target of 65%

Externally delayed - some Municipal distributors are still struggling with the implementation of IBTs





Actual Achievement

2012/2013




To ensure the sustainability of Eskom and the Electricity Supply Industry (ESI)

Approved Eskom MYPD2

Eskom’s application for the MYPD 3 evaluated for implementation

Target met None

Removed Determine baseline for interest cover ratiofromEskomauditedfinancialstatements

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the NERSA Annual Performance Plan as it is covered under the new target of Approved Eskom’s annual Regulatory Reports (see below)

Removed Determine baseline for Weighted Average Cost of Capital as determined from Eskom audited financialstatements





Actual Achievement 2011/2012


Actual Achievement

2012/2013




Removed Determine baseline for debt equity ratiofromEskomauditedfinancialstatements


No target during 2011/12

MYPD 2 impact analysis report submitted


Approved Eskom retail tariffs (ERTSA) for 2012/13

Eskom’s application of adjusted retail tariffs assessed for implementation

Target met None

The free basic electricity rate for the compensation of Eskom determined for 2012/13

The free basic electricity rate for the compensation of Eskom determined

Target met None

Approved Regulatory Reporting Manual (RRM) implementation plan of Eskom

Approved Regulatory Financial Reports for 2011/12 for Eskom

Target met The Minister of Energy approved on 12 February 2013 that this target be added to the approved Annual Performance Plan as Eskom submit its regulatoryfinancialreportsattheendofthefirstquarterandthetargetistohave them analysed and approved by the end of the second quarter


Programme 2: Licensing and Registration



Actual Achievement

2012/2013


target to Actual Achievement for

2012/2013


To control entry and ensure orderly development of the Electricity industry

80% of licence applications processed within 120 days from application

75% of licence applications processed in 120 days (statutory time frame) from application

The Minister of Energy approved on 12 February 2013 that this target be changed from 100% of licence applications processed within statutory time frames to what is indicated as the 120 days statutory time frame to complete a licence application is more than the 90 days (quarter) required to report the processing of a licence application. The 120 days consists of one quarter and an additional 30 days. Therefore it stands to reason that after 90 days (completion of a quarter) only 75% of the application will be processed. The remaining 25% will be completed in the next month of the following quarter. For ease of reference it is assumed that all licence application(s) will be received at the beginning of every quarter

Target Exceeded None




Actual Achievement

2011/2012


Actual Achievement

2012/2013


target to Actual



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

10 audit reports on the state of compliance of licensees with licence conditions

10 audit reports on the state of licensees’ compliance with licence conditions

The Minister of Energy approved on 12 February 2013 that this target be changed from 10 licensees selected per annum to check their level of compliance with licence conditions through an audit to what is indicated in order to provide more clarity as to the required outcome

Target exceeded

None

Removed 100% of corrective action plans implemented through re-enforcement from previous non-compliant licensees

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the approved Annual Performance Plan as it falls outside of the mandate of NERSA as the licensees are expected to implement the corrective action plans and not NERSA. NERSA can only report on the status of compliance with licence conditions and recommend possible corrective action plans. These corrective action plans will be monitoredinthenextfinancialyear

To ensure efficientoperation of the licensed activities

Removed 100% compliance to 80% of prescribed conditions for previously audited licensees

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the approved Annual Performance Plan as it falls outside of the mandate of NERSA as the licensees are expected to implement the corrective action plans and not NERSA. NERSA can only report on the status of compliance with licence conditions and recommend possible corrective action plans. These corrective action plans will be monitoredinthenextfinancialyear






Actual Achievement

2012/2013


target to Actual



To create a fair balance between the needs of all stakeholders

70% of complaints processed within 120 days from receipt

70% of complaints processed in 120 days from receipt

The Minister of Energy approved on 12 February 2013 that this target is changed from 100% of complaints processed within statutory timelines to what is indicated as the 120 days statutory time frame to process complaints and disputes is more than the 90 days (quarter) required reporting the processing of complaints and disputes. The 120 days consists of one quarter and an additional 30 days. Therefore, after 90 days (completion of a quarter) only 75% of the complaints and disputes will be processed. The remaining 25% will be completed in the next month of the following quarter. However some of the complaints and disputes from end-users and customers involve resellers (traders) who are outside the radar of the Electricity Regulation Act, 2006 (Act No 40 of 2006)andassuchitisextremelydifficulttoresolvethesetypes of complaints and disputes as the resellers (traders) are uncooperative. Therefore 5% has been deducted to cater for these types of complaints and disputes involving resellers (traders). [75% - 5% = 70%]

Target exceeded None

New target for 2012/13

Report showing the status of complaints and disputes in the electricity supply industry

Target met None The Minister of Energy approved on 12 February 2013 that this target be added to the approved Annual Performance Plan as it is a key activity of NERSA that was accidentally left off


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



Actual Achievement

2012/2013

Deviation from planned target to

Actual Achievement for 2012/2013


To ensure non- discriminatory access to the electricity infrastructure

100% attendance and chairing of the Grid Code Advisory Committee’s quarterly meetings

100% attendance and chairing of the Grid Code Advisory Committee’s quarterly meetings – thus enabling Independent Power Producers (IPPs) to constructively participate at all meetings including the Industry Expert Team workgroup sessions

Target met None

100% completion of applications received from IPPs relating to fair and equitable access to electricity infrastructure requiring amendment of the Grid code processed within set timelines

100% completion of applications received from IPPs relating to fair and equitable access to electricity infrastructure requiring amendment of the Grid code processed within set timelines.

Target met None




Actual Achievement

2011/2012


Actual Achievement

2012/2013



2012/2013


To facilitate investment in the ESI(cont)

To commence in 2012/13

100% of transmission development plans evaluated

Target not met Eskom’s development plans not evaluated

Externally delayed - The transmission audit was deferred to the 2013/14 financialyearonEskomTransmission’srequest in order for Eskom to accomplish compliancewithpreviousauditfindings

Removed 100% of rules relating to IRP developed and published through a consultation process within the required time frame

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the approved Annual Performance Plan due to changes in energy policy and the revised New Generation Regulations that was published by the Minister of Energy

Identificationof rules to be published

Development and publication of rules (standard offer programme) for the implementation of EEDSM through a consultation process within the required time frame

Target met None

Framework for Monitoring Renewable Energy Performance

Two (2) bulletins on renewable energy performance

The Minister of Energy approved on 12 February 2013 that this target be changed from 100% development and publication of renewable energy and co-generation rules through a consultation process within the required time frame to what is indicated due to changes in energy policy and revised New Generation Regulations published by the Minister of Energy

Target met None





Actual Achievement

2012/2013

Deviation from planned target to

Actual Achievement for 2012/2013


To facilitate investment in the ESI

Published guideline for municipal tariff increases and benchmarks for 2012/13


Target met None The Minister of Energy approved on 12 February 2013 that this target be added to the approved Annual Performance Plan as the guidelines for municipal tariff increase and benchmarks has been identifiedasaseparatetarget

100% of Eskom regional distribution development plans evaluated

100% of selected distribution Development Plans evaluated.

Target met None The Minister of Energy approved on 12 February 2013 that this target be added to the approved Annual Performance Plan as some targets for this strategic objective was removed due to changes in energy policy and the New Generation Regulations published by the Minister of Energy. This has resulted in NERSA having the capacity to add this target to the Annual Performance Plan




Actual Achievement

2011/2012


Actual Achievement

2012/2013


target to Actual



To facilitate the effectiveness of NERSA in the electricity industry

None as NERSA was awaiting the Minister of Energy to give effect to legislation

10 end user forums established in alignment with compliance issues

Target not met Only 1 end user forum established

Externally delayed – NERSA is awaiting the Minister of Energy to prescribe the procedure to be followed in establishing end-user forums as required in terms of the Electricity Regulation Act




Actual Achievement

2011/2012


Actual Achievement

2012/2013




To approve prices in line with the published price methodology

Developed a methodology to approve maximum prices of gas

80% of maximum prices approved within 90 days from the date of publishing the price application





Actual Achievement

2011/2012


Actual Achievement

2012/2013




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

Approved Transnet tariff for 2011 and 2012 within 120 days from the date of publication of the tariff application

80% of transmission and storage tariffs approved within 90 days from the date of publishing the tariff application

Target not met NERSA achieved 67% instead of the target of 80%

Externally delayed – the transmission tariff for one licensee could not be approved within 90 days of publication of the application due to the time it took for the licensee to respond on outstandingmattersidentifiedbyNERSA in the tariff application. NERSA couldnotfinalisetheapplicationbeforethe information was received

To implement pricing provisions of schedule 1 to the Agreement and the piped-gas regulations

Report on Sasol Gas compliance with all pricing provisions in terms of Schedule One to the Agreement was approved within 150 days after receiving the information

Report on Sasol Gas compliance with all pricing provisions in terms of Schedule One to the Agreement to be completed within 120 days after receiving the information

Target met None

Only commenced in 2012/13

Calculate aggregate prices of gas for each province within 4 months after receiving the information

Target met None






Actual Achievement

2012/2013




To process all licence applications within the statutory deadlines

95% of licence applications were processed within the statutory deadlines in 2011/12

Tofinalise50%ofalllicenceapplicationsaccording to licensing procedures

The Minister of Energy approved on 12 February 2013 that this target be changed from 97% of all licences processed within statutory deadlines to what is indicated due to information requested from licencees during the processing of licence applications often not received on time, leading to delays of important milestones towards completion of an application. Therefore the target of 97% for completion of licence applications within statutory time frames has proved to have been too high


Implemented 90% of decisions within 14 days from date of decision

20 days to implement licensing decision

The Minister of Energy approved on 12 February 2013 that this target be changed from 13 days to implement licensing decision to what is indicated to allow for all internal processes to the concluded







Actual Achievement

2012/2013


target to Actual



To register gas imports and production

No investigations took place – registration of applications continued

Publish notices in newspapers calling for registration

The Minister of Energy approved on 12 February 2013 that this target be changed from 20% of the industry will be investigated to identify unregistered imports and production activities to what is indicated as the publication of notices in newspapers will be more effective in alerting persons engaged in the operations referred to in section 28 of the Gas Act to register such operations as required by the Act

Target met None

All applications were processed within 90 days in 2011/12

All applications are processed within 60 days


To develop the non financialreportingrequirements on the RRM

Development only commenced in 2012/13

ApprovednonfinancialreportingRRM requirements

Target not met Nonfinancialreporting RRM requirements not yet approved

Delayed due to NERSA experiencing unanticipateddelaysinthefinalisationofthenonfinancialreportingRRMrequirements






Actual Achievement

2012/2013


target to Actual



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

IRP2010 was published in 2011/12

Approved implementation strategy

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the 2012/13 Annual Performance Plan as activities will only commenceduringthe2013/14financialyear as this target has been overtaken by theRequestforInformationforgasfiredpower stations that was published by the Department of Energy

To propose to the policy maker implementation strategyforLiquefiesNatural Gas (LNG)

Removed Draft strategy and outputs of consultation with relevant stakeholders

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the 2012/13 Annual Performance Plan as activities will only commenceduringthe2013/14financialyear as this target has been overtaken by theRequestforInformationforgasfiredpower stations that was published by the Department of Energy

To research alternative gas sourcesfromspecificallycompressed natural gas (CNG), Shale gas, coal bed methane gas and underground coal gasification(UCG)

Increased research initiatives with emphasis on CNG, Shale gas and UCG

Approved research study on the results of gas exploration activities in South Africa and Mozambique

Target met None






Actual Achievement

2012/2013


target to Actual



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

Assessed monthly volume balance reports

Assessed 12 monthly volume balance reports

Target met None

Conducted 2 audits on the ROMPCO pipeline

Conduct 2 audits on the ROMPCO pipeline

Target met None

To enforce licence conditions with regard to competitive prices and conditions

Initiated investigations

3 investigations conducted and non-compliance notices issued (if and when necessary)


To analyse compliance to the RRM

Quarterly Compliance reports

Quarterly Compliance reports Target met None

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

Enquired about licensees guidelines/criteria for determination of uncommitted capacity in transmission and storage facilities

Appoint a service provider to conduct a study and determine the level of uncommitted capacity in gas transmission pipelines

The Minister of Energy approved on 12 February 2013 that this target be changed from Report on uncommitted capacity in the Lilly pipeline to what is indicated

Target not met Service provider not yet appointed

Delayed - Prospective bidders requested an extension to the period for submission of bids






Actual Achievement

2012/2013



2012/2013


To ensure fairness and equity in the piped-gas market

Investigated all complaints

50% of received complaint investigations completed within 6 months

The Minister of Energy approved on 12 February 2013 that the target be changed from 50% of received complaint investigations completed within 4 months to what is indicated as a decision was made that licencees should be provided the opportunity tocommentonthefindingbeforefinalisationby NERSA. This step adds another 2 months to the time frame for completion of complaints


Initiated 2 investigations

50% of initiated investigations completed within 12 months

The Minister of Energy approved on 12 February 2013 that the target be changed from 50% of initiated investigations completed within 4 months to what is indicated as investigations into initiated complaints take longer to investigate as NERSA needs to source all relevant information from all parties



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




Actual Achievement

2012/2013


target to Actual



To provide stakeholder education and information sharing

4 stakeholder workshops / meetings held

4 stakeholder workshops Target exceeded None

To develop; align to relevant legislation; and implement an HDI scorecard

Removed Development of scorecard and consult with stakeholders

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the 2012/13 Annual Performance Plan as activities will only commence during the 2013/14 financialyearasthelicenceeshave not submitted the required information to NERSA needed in order to develop the scorecard






Actual Achievement

2012/2013



2012/2013


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

Consolidated information on impediments to investments in gas infrastructure and made proposals to DoE on solutions for incorporation into Gas Amendment Bill

Legislative benchmark conducted and proposed amendments submitted to the policy maker

Target met None


Approved comments on draft legislative amendments submitted to the policy makers (as and when required)

Target met None

To promote understanding of Energy Regulator decisions to stakeholders


Conduct 1 stakeholder workshop Target exceeded None


Petroleum Pipeline Industry Regulation





Actual Achievement

2012/2013


target to Actual



To set and approve tariffs in accordance / in line with published methodology

Transnet pipeline tariffs approved

Decision on Transnet pipeline tariffs application

Target met None

No other pipeline applied for tariff approval

Investigation and prioritisation of other pipelines for tariff setting

Target met None

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

Published storage tariffs

Storage and loading facilities tariffs approved for 30% of facilities

Target not met Even though NERSA considered in excess of 30% of storage and loading facility tariffs, not all were approved

Delayed - NERSA considered in excess of 30% of storage and loading facility tariffs, but not all were approved

RRM phase 1 implemented - Regulatory Financial Reports only due in 2012/13

Approved RRM phase 1 licensees (X3) Regulatory Financial Reports

Target met None

Phase 2 of RRM only to be implemented in 2012/13

Approved RRM phase 2 licensee (X1) Implementation Plan (IP) and Cost Allocation Matrix






Actual Achievement

2012/2013


target to Actual



To decide on licence applications for pipelines, loading and storage facilities within the statutory deadlines

80% licences approved within statutory deadlines


Target not met One licence was not approved within statutory deadlines

Delayed – public hearing was twice postponed

To decrease the number of unlicensed activities

3 suspected unlicensed facilities investigated






Actual Achievement

2012/2013


target to Actual



To monitor and enforce compliance with construction licence conditions

80% of reports analysed and ready for noting within 60 days


Target met None

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

0% of licensees HDSA submissions analysed and ready for noting within 60 days



To monitor compliance to third party access legislation requirements

0% of 3rd party compliance status reported on

3rd party compliance status for 50% of licensees reported on


To investigate compliance to common carrier rules

0% of common carriers investigated


Target met None






Actual Achievement

2012/2013


target to Actual



To investigate complaints regarding non-compliance with legislation

100% of complaints received investigated and concluded within 60 days


Target met None

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




Actual Achievement

2012/2013


target to Actual



To publish licensing guidelines No guidelines published

Publicationoffirstversionofguidelines

Target met None

To publish tariff methodologies and guidelines and amend as and when required

Reviewed annual tariff guidelines for storage facilities

Review annual tariff guidelines for storage facilities

Target met None

Only applicable from 2012/13

Investigate guidelines for the Starting Regulatory Asset Base (SRAB) of storage facilities

Target met None






Actual Achievement

2012/2013


target to Actual



To investigate the bottlenecks in the petroleum pipelines infrastructure in Durban

Terms of Reference finalisedand DoE consulted

Infrastructure investigated and reported on

Target not met No report on infrastructure

Externallydelayed–insufficientinformation from licencees

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

Annual report on the inland supply forecast

Petroleum Pipelines Subcommittee to consider the report on the inland supply forecast

Target met None

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


Report on outcome of review and make recommendations

Target met None

To publish relevant industry data

Storage tariffs published

Publish storage tariffs Target met None

Publication of financialandtariffinformation on NERSA website

Publicationoffinancialandtariffinformation on NERSA website

Target met None







Actual Achievement

2012/2013


target to Actual



To benchmark regulatory decisions against international best practice


Report on:• NERSA reasons for decision per

category(withspecificreferencetoconsistency and standardisation among the 3 industries); and

• best practice reasons for decision among world class regulators

The Minister of Energy approved on 12 February 2013 that this target be changed from Benchmark report on regulatory decisions by category to what is indicated in order to provide more clarity on what is intended and remove any misunderstanding

Target met None

To determine the impact of regulatory decisions


Regulatory Impact Assessment (RIA) consultation paper

The Minister of Energy approved on 12 February 2013 that this target be changed from Impact assessment report to what is indicated as it was realised that it would be improper and against NERSA’s principle of transparency to go straight to the impact assessment process without consulting affected stakeholders on the areas to be covered in the assessment

Target met None






Actual Achievement

2012/2013


target to Actual



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


Research report on new sources of energy

The Minister of Energy approved on 12 February 2013 that this target be changed from Research Agenda to what is indicated in order to ensure alignment

Target met None

To harmonise regulatory processes within the organisation


Research report on harmonisation of tariff methodologies

The Minister of Energy approved on 12 February 2013 that this target be changed from Harmonised regulatory processes to what is indicated in order to ensure alignment

Target met None

To empower stakeholders with relevant energy industry knowledge and information

Quarterly newsletters published

Quarterly newsletters published Target met None

Stakeholder engagement and education programmes undertaken

Undertake 20 stakeholder engagement and education programmes


Toinfluenceenergysectorpolicy development and amendments to legislation

Approved comments on draft policy amendments

Approved proposals / comments on policy changes (if and when necessary)

Target met None


Organisational





Actual Achievement

2012/2013


target to Actual



Tocreateanefficientand effective world class organisation

Removed 78% successful implementation of the business plan

Removed The Minister of Energy approved on 12 February 2013 that this target be removed from the NERSA Annual Performance Plan as NERSA does not have a Business Plan anymore. There is a target talking to the % of targets in the Annual Performance Plan that has been met which is the relevant indicator (see below). This target was approved before the full impact of the Framework for Strategic Plans and Annual Performance Plans was understood

66% of targets met

68% of targets met (Determined in 2012/13 based on 2011/12 performance)


To establish NERSA as an employer of choice

95% staff retention

95% staff retention Target met None

87% of organisational structurefilled

95% of organisational structure filled

Target not met Only 88% of organisational structurefilled

Delayed – challenges were experiencedwithregardstothefillingof some vacancies

50% of staff undergoing training and development








Actual Achievement

2012/2013


target to Actual



To position and promote the good image of NERSA

57% customer satisfaction


The Minister of Energy approved on 12 February 2013 that this target be changed from 57% customer satisfaction to what is indicated in order to ensure alignment


To improve the effectiveness ofthefinancialprocesses,systems and procedures

Unqualifiedaudit Unqualifiedaudit Target met None75% of creditors paid within 30 days after all relevant documentation have been received

90% of creditors paid within 30 days after all relevant documentation have been received



Keyperfomanceindicators,plannedtargetsandactualachievements

Electricity Industry Regulator


Performance IndicatorActual



Actual Achievement

2012/2013


target to Actual



% of municipalities that are sustainable within the ring fenced electricity business

Removed 80% of municipalities are sustainable

Removed The Minister of Energy approved on 12 February 2013 that this performance indicator be removed from the NERSA Annual Performance Plan as the sustainability of the municipalities falls outside of NERSA’s control

% of tariff applications of all licensed distributors set and approved

96% of tariff applications of all licensed distributors set and approved

100% of tariff applications of all licensed distributors set and approved.

Target met None






Actual Achievement

2012/2013


target to Actual



Implementation of RRM requirements by municipalities

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from % RRM requirements implemented by 100% of municipalities to what is indicated, as the management of the municipalities is different from the management of licensees in the other industries regulated by NERSA. Therefore a review of the approach for dealing with the municipalities was necessary

Approved Regulatory Reporting Manual (RRM) implementation plan of 1 metro

Approved implementation plan for an additional 3 Municipalities

The Minister of Energy approved on 12 February 2013 that this target be changed from 100% of municipalities implementing the 10% RRM requirements to what is indicated, as the management of the municipalities is different from the management of licensees in the other industries regulated by NERSA. Therefore a review of the approach for dealing with the municipalities was necessary

Target not met Only 2 implementation plans were approved instead of the target of 3

Externally delayed – NERSA is awaiting the submission of the plans from the metros






Actual Achievement

2012/2013


target to Actual



To ensure low-income households are protected from rising electricity prices

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from % of licensed distributors implementing IBTs for their residential customers to what is indicated, as the approved percentage of licensed distributors implementing IBTs is impossible to achieve due to challenges faced by municipalities in the currentfinancialyear



The Minister of Energy approved on 12 February 2013 that this target be changed from 100% of licensed distributors implementing IBTs for their residential customers to what is indicated, as the approved percentage of licensed distributors implementing IBTs is impossible to achieve due to challenges faced by municipalities in the 2012/13 financialyear.

Target not met Only 60% of Municipal IBTs approved instead of the target of 65%

Externally delayed – some Municipal distributors are still struggling with the implementation of IBTs






Actual Achievement

2012/2013


target to Actual



Eskom’s revenue requirements and prices approved

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from Eskom’s revenue requirements and prices determined to what is indicated, as to clarify NERSA’s role in the MYPD3

Approved Eskom MYPD2

Eskom’s application for the MYPD 3 evaluated for implementation

Target met None






Actual Achievement

2012/2013


target to Actual



Interest cover ratio achieved by Eskom

Removed Determine baseline for interest cover ratio from Eskom audited financialstatements

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the NERSA Annual Performance Plan as it is covered under the new Performance Indicator of Approved Eskom’s annual Regulatory Reports (see below)

% Weighted Average Cost of Capital achieved by Eskom

Removed Determine baseline for Weighted Average Cost of Capital as determined from Eskomauditedfinancialstatements


Debt: Equity ratio achieved by Eskom

Removed Determine baseline for debt equity ratio from Eskom auditedfinancialstatements


The impact of Eskom’s revenue and price determinations analysed

Removed MYPD 2 impact analysis report submitted







Actual Achievement

2012/2013


target to Actual



Approved Eskom’s annual retail tariffs (ERTSA)

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from Eskom’s retail tariffs assessed for implementation to what is indicated, as to clarify NERSA’s role in the process

Approved Eskom retail tariffs (ERTSA) for 2012/13

Eskom’s application of adjusted retail tariffs assessed for implementation

Target met None

The Free Basic Electricity (FBE) rate for the compensation of Eskom approved on time for implementation in line with the legal requirements.

The free basic electricity rate for the compensation of Eskom determined for 2012/13

The free basic electricity rate for the compensation of Eskom determined

Target met None

Eskom’s annual regulatory reports approved

Approved Regulatory Reporting Manual (RRM) implementation plan of Eskom

Approved Regulatory Financial Reports for 2011/12 for Eskom

Target met The Minister of Energy approved on 12 February 2013 that this Performance Indicator be added to the approved Annual Performance Plan as Eskom submit its regulatory financialreportsattheendofthefirstquarterandthetargetis to have them analysed and approved by the end of the second quarter






Actual Achievement

2012/2013


target to Actual



% of licence applications processed in 120 days (statutory time frame) from application

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from % of licence applications processed within statutory time frames to what is indicated in order to provide more clarity on the statutory deadlines

80% of licence applications processed within 120 days from application

75% of licence applications processed in 120 days (statutory time frame) from application

The Minister of Energy approved on 12 February 2013 that this target be changed from 100% of licence applications processed within statutory time frames to what is indicated as the 120 days statutory time frame to complete a licence application is more than the 90 days (quarter) required to report the processing of a licence application. The 120 days consists of one quarter and an additional 30 days. Therefore it stands to reason that after 90 days (completion of a quarter) only 75% of the application will be processed. The remaining 25% will be completed in the next month of the following quarter. For ease of reference it is assumed that all licence application(s) will be received at the beginning of every quarter

Target Exceeded None






Actual Achievement

2012/2013


target to Actual



Number of audit reports on the state of licensees’ compliance with licence conditions

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from Number of selected licensees per annum to check their level of compliance with licence conditions to what is indicated in order to provide more clarity as to the required outcome

10 audit reports on the state of compliance of licensees with licence conditions

10 audit reports on the state of licensees’ compliance with licence conditions

The Minister of Energy approved on 12 February 2013 that this target be changed from 10 licensees selected per annum to check their level of compliance with licence conditions through an audit to what is indicated in order to provide more clarity as to the required outcome


% of corrective action plans implemented through re-enforcement from previous non-compliant licensees

Removed 100% of corrective action plans implemented through re-enforcement from previous non-compliant licensees

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the approved Annual Performance Plan as it falls outside of the mandate of NERSA as the licensees are expected to implement the corrective action plans and not NERSA. NERSA can only report on the status of compliance with licence conditions and recommend possible corrective action plans. These corrective action plans will be monitored in thenextfinancialyear






Actual Achievement

2012/2013


target to Actual



% of compliance by selected licencees with 80% of prescribed conditions

Removed 100% compliance to 80% of prescribed conditions for previously audited licensees

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the approved Annual Performance Plan as it falls outside of the mandate of NERSA as the licensees are expected to implement the corrective action plans and not NERSA. NERSA can only report on the status of compliance with licence conditions and recommend possible corrective action plans. These corrective action plans will be monitored in thenextfinancialyear






Actual Achievement

2012/2013


target to Actual



% of complaints processed in 120 days from receipt

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from % of complaints processed within statutory timelines to what is indicated in order to provide more clarity on the time frame for the processing of the complaints

70% of complaints processed within 120 days from receipt

70% of complaints processed in 120 days from receipt

The Minister of Energy approved on 12 February 2013 that this target is changed from 100% of complaints processed within statutory timelines to what is indicated as the 120 days statutory time frame to process complaints and disputes is more than the 90 days (quarter) required reporting the processing of complaints and disputes. The 120 days consists of one quarter and an additional 30 days. Therefore, after 90 days (completion of a quarter) only 75% of the complaints and disputes will be processed. The remaining 25% will be completed in the next month of the following quarter. However some of the complaints and disputes from end-users and customers involve resellers (traders) who are outside the radar of the Electricity Regulation Act, 2006 (ActNo40of2006)andassuchitisextremelydifficultto resolve these types of complaints and disputes as the resellers (traders) are uncooperative. Therefore 5% has been deducted to cater for these types of complaints and disputes involving resellers (traders). [75% - 5% = 70%]



New target for 2012/13


Target met None The Minister of Energy approved on 12 February 2013 that this Performance Indicator be added to the approved Annual Performance Plan as it is a key activity of NERSA that was accidentally left off






Actual Achievement

2012/2013


target to Actual



% attendance and chairing of the Grid Code Advisory Committee’s quarterly meetings – thus enabling IPPs to constructively participate at all meetings including the Industry Expert Team workgroup sessions

100% attendance and chairing of the Grid Code Advisory Committee’s quarterly meetings

100% attendance and chairing of the Grid Code Advisory Committee’s quarterly meetings – thus enabling Independent Power Producers (IPPs) to constructively participate at all meetings including the Industry Expert Team workgroup sessions

Target met None

% completion of applications received from IPPs relating to fair and equitable access to electricity infrastructure requiring amendment of the Grid code processed within set timelines.

100% completion of applications received from IPPs relating to fair and equitable access to electricity infrastructure requiring amendment of the Grid code processed within set timelines

100% completion of applications received from IPPs relating to fair and equitable access to electricity infrastructure requiring amendment of the Grid code processed within set timelines.

Target met None

% of transmission development plans evaluated


100% of transmission development plans evaluated

Target not met Eskom’s development plans not evaluated

Externally delayed - The transmission audit was deferred to the 2013/14financialyearonEskomTransmission’s request in order for Eskom to accomplish compliance withpreviousauditfindings






Actual Achievement

2012/2013


target to Actual



% of rules developed relating to IRP and publicised through a consultation process within the required time frame

Removed 100% of rules relating to IRP developed and published through a consultation process within the required time frame

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the approved Annual Performance Plan due to changes in energy policy and the revised New Generation Regulations that was published by the Minister of Energy

% development and publication of rules (standard offer programme) for the implementation of EEDSM through a consultation process within the required time frame

Identificationof rules to be published

Development and publication of rules (standard offer programme) for the implementation of EEDSM through a consultation process within the required time frame

Target met None






Actual Achievement

2012/2013


target to Actual



% development and publication of bulletins on the renewable energy performance

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from % development and publication of renewable energy rules through a consultation process within the required time frame to what is indicated due to changes in energy policy and revised New Generation Regulations published by the Minister of Energy

Framework for Monitoring Renewable Energy Performance

Two (2) bulletins on renewable energy performance

The Minister of Energy approved on 12 February 2013 that this target be changed from 100% development and publication of renewable energy and co-generation rules through a consultation process within the required time frame to what is indicated due to changes in energy policy and revised New Generation Regulations published by the Minister of Energy

Target met None






Actual Achievement

2012/2013


target to Actual



% development and publication of co-generation rules through a consultation process within the required time frame

Removed 100% development and publication of co-generation rules through a consultation process within the required time frame

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the approved Annual Performance Plan due to changes in energy policy and the revised New Generation Regulations that was published by the Minister of Energy

Guidelines for municipal tariff increase and benchmarks



Target met None The Minister of Energy approved on 12 February 2013 that this Performance Indicator be added to the approved Annual Performance Plan as the guidelines for municipal tariff increase and benchmarks hasbeenidentifiedasaseparatetarget

% Selected distribution development plans evaluated

100% of Eskom regional distribution development plans evaluated

100% of selected distribution Development Plans evaluated.

Target met None The Minister of Energy approved on 12 February 2013 that this Performance Indicator be added to the approved Annual Performance Plan as some targets for this strategic objective was removed due to changes in energy policy and the New Generation Regulations published by the Minister of Energy. This has resulted in NERSA having the capacity to add this target to the Annual Performance Plan






Actual Achievement

2012/2013


target to Actual



Number of end-user forums established

None as NERSA was awaiting the Minister of Energy to give effect to legislation

10 end user forums established in alignment with compliance issues

Target not met Only 1 end user forum established

Externally delayed – NERSA is awaiting the Minister of Energy to prescribe the procedure to be followed in establishing end-user forums as required in terms of the Electricity Regulation Act






Actual Achievement

2012/2013


target to Actual



% of maximum prices approved within 90 days from the date of publishing the price application

Developed a methodology to approve maximum prices of gas

80% of maximum prices approved within 90 days from the date of publishing the price application







Actual Achievement

2012/2013


target to Actual



% of transmission and storage tariffs approved within 90 days from the date of publishing the tariff application

Approved Transnet tariff for 2011 and 2012 within 120 days from the date of publication of the tariff application

80% of transmission and storage tariffs approved within 90 days from the date of publishing the tariff application

Target not met NERSA achieved 67% instead of the target of 80%

Externally delayed – the transmission tariff for one licensee could not be approved within 90 days of publication of the application due to the time it took for the licensee to respond to outstanding matters identifiedbyNERSAinthetariffapplication. NERSA could not finalisetheapplicationbeforethe information was received

Number of days for completing the calculation of prices and for providing a report on Sasol Gas compliance with all pricing provisions of Schedule One to the Agreement

Report on Sasol Gas compliance with all pricing provisions in terms of Schedule One to the Agreement was approved within 150 days after receiving the information

Report on Sasol Gas compliance with all pricing provisions in terms of Schedule One to the Agreement to be completed within 120 days after receiving the information

Target met None

Number of days for completing the calculation of aggregate prices of gas for each province

Only commenced in 2012/13

Calculate aggregate prices of gas for each province within 4 months after receiving the information

Target met None






Actual Achievement

2012/2013


target to Actual



% of all licences applications processed according to licensing procedures

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from % of all licences processed within statutory deadlines to what is indicated due to information requested from licencees during the processing of licence applications often not received on time, leading to delays of important milestones towards completion of an application. Therefore the target of 97% for completion of licence applications within statutory time frames has proved to have been too high

95% of licence applications were processed within the statutory deadlines in 2011/12

Tofinalise50%ofalllicenceapplications according to licensing procedures

The Minister of Energy approved on 12 February 2013 that this target be changed from 97% of all licences processed within statutory deadlines to what is indicated in line with the approved amendment to the Performance Indicator


Number of days of implementing licensing decision

Implemented 90% of decisions within 14 days from date of decision

20 days to implement licensing decision

The Minister of Energy approved on 12 February 2013 that this target be changed from 13 days to implement licensing decision to what is indicated to allow for all internal processes to the concluded







Actual Achievement

2012/2013


target to Actual



Register operations in terms of Section 28 of the Gas Act

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be changed from % of gas industry investigated to identify unregistered import and production to what is indicated as the publication of notices in newspapers will be more effective in alerting persons engaged in the operations referred to in section 28 of the Gas Act to register such operations as required by the Act

No investigations took place – registration of applications continued

Publish notices in newspapers calling for registration

The Minister of Energy approved on 12 February 2013 that this target be changed from 20% of the industry will be investigated to identify unregistered imports and production activities to what is indicated in line with the approved amendment to the Performance Indicator

Target met None

Number of days taken to process registration application

All applications were processed within 90 days in 2011/12

All applications are processed within 60 days Target exceeded None

Todevelopthenonfinancialreporting requirements on the RRM

Development only commenced in 2012/13

ApprovednonfinancialreportingRRMrequirements

Target not met Nonfinancialreporting RRM requirements not yet approved

Delayed due to NERSA experiencing unanticipateddelaysinthefinalisationofthenonfinancialreportingRRMrequirements






Actual Achievement

2012/2013


target to Actual



Approved implementation strategy for the gas to power component of IRP2010

IRP2010 was published in 2011/12

Approved implementation strategy

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the 2012/13 Annual Performance Plan as activities will only commence during the 2013/14 financialyearasthistargethasbeen overtaken by the Request forInformationforgasfiredpowerstations that was published by the Department of Energy

Approved implementation strategy for LNG

Removed Draft strategy and outputs of consultation with relevant stakeholders

Removed

The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the 2012/13 Annual Performance Plan as activities will only commence during the 2013/14 financialyearasthistargethasbeen overtaken by the Request forInformationforgasfiredpowerstations that was published by the Department of Energy

Approved research report on alternative gas sources from specificallycompressednaturalgas, Shale gas, coal bed methane gas and underground coalgasification

Increased research initiatives with emphasis on CNG, Shale gas and UCG

Conduct one research study on the results of gas exploration activities in South Africa and Mozambique

Target met None






Actual Achievement

2012/2013


target to Actual



Number of monthly volume balance reports assessed

Assessed monthly volume balance reports

Assessed 12 monthly volume balance reports

Target met None

Number of audits on the ROMPCO pipeline conducted

Conducted 2 audits on the ROMPCO pipeline

Conduct 2 audits on the ROMPCO pipeline

Target met None

Number of investigations conducted and non-compliance notices issued

Initiated investigations

3 investigations conducted and non-compliance notices issued (if and when necessary)


Quarterly monitoring reports of RRM Compliance

Quarterly Compliance reports

Quarterly Compliance reports Target met None






Actual Achievement

2012/2013


target to Actual



To investigate and publish availability of uncommitted capacity in gas transmission pipelines

The Minister of Energy approved on 12 February 2013 that this indicator be changed from Published reports on uncommitted capacity in transmission pipelines and storage facilities to what is indicated as prior to publishing any reports on the availability of uncommitted capacity in any gas transmission pipeline, it is necessary to determine the availability of such capacity through a study based on the existing gas transmission pipelines in the country

Enquired about licensees guidelines/criteria for determination of uncommitted capacity in transmission and storage facilities

Appoint a service provider to conduct a study and determine the level of uncommitted capacity in gas transmission pipelines

The Minister of Energy approved on 12 February 2013 that this target be changed from Report on uncommitted capacity in the Lilly pipeline to what is indicated in line with the amendment to the Performance Indicator

Target not met Service provider not yet appointed

Delayed - Prospective bidders requested an extension to the period for submission of bids






Actual Achievement

2012/2013


target to Actual



% of all received complaint investigations completed within 6 months

The Minister of Energy approved on 12 February 2013 that the Performance Indicator be changed from % of all received complaint investigations completed within 4 months to what is indicated as a decision was made that licencees should be provided the opportunity to comment on thefindingbeforefinalisationbyNERSA. This step adds another 2 months to the time frame for completion of complaints

Investigated all complaints

50% of received complaint investigations completed within 6 months

The Minister of Energy approved on 12 February 2013 that the target be changed from 50% of received complaint investigations completed within 4 months to what is indicated as a decision was made that licencees should be provided the opportunity to comment on the findingbeforefinalisationbyNERSA.This step adds another 2 months to the time frame for completion of complaints







Actual Achievement

2012/2013


target to Actual



% of all initiated complaints completed within 12 months

The Minister of Energy approved on 12 February 2013 that the Performance Indicator be changed from % of all initiated complaints completed within 4 months to what is indicated as investigations into initiated complaints take longer to investigate as NERSA needs to source all relevant information from all parties

Initiated 2 investigations

50% of initiated investigations completed within 12 months

The Minister of Energy approved on 12 February 2013 that the target be changed from 50% of initiated investigations completed within 4 months to what is indicated as investigations into initiated complaints take longer to investigate as NERSA needs to source all relevant information from all parties







Actual Achievement

2012/2013


target to Actual



Number of stakeholder workshops held


4 stakeholder workshops Target exceeded None

Developed, approved and implemented HDI scorecard

Removed Development of scorecard and consult with stakeholders

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the 2012/13 Annual Performance Plan as activities will only commence during the 2013/14 financialyearasthelicenceeshavenotsubmitted the required information to NERSA needed in order to develop the scorecard






Actual Achievement

2012/2013


target to Actual



Proposed amendments to existing legislation submitted to the policy maker


Legislative benchmark conducted and proposed amendments submitted to the policy maker

Target met None

Approved comments on draft legislative amendments (as and when required)


Approved comments on draft legislative amendments submitted to the policy makers (as and when required)

Target met None

Number of stakeholder workshops


Conduct 1 stakeholder workshop Target exceeded None







Actual Achievement

2012/2013


target to Actual



Pipeline tariffs set Transnet pipeline tariffs approved

Decision on Transnet pipeline tariffs application

Target met None

No other pipeline applied for tariff approval

Investigation and prioritisation of other pipelines for tariff setting

Target met None

Percentage of storage and loading facilities tariff applications approved

Published storage tariffs

Storage and loading facilities tariffs approved for 30% of facilities

Target not met Even though NERSA considered in excess of 30% of storage and loading facility tariffs, not all were approved

Delayed - NERSA considered in excess of 30% of storage and loading facility tariffs, but not all were approved

Approvedfinancialreportsfromphase 1 RRM licensees

RRM phase 1 implemented - Regulatory Financial Reports only due in 2012/13

Approved RRM phase 1 licensees (X3) Regulatory Financial Reports

Target met None

Progress reports on phase 2 RRM licensees

Phase 2 of RRM only to be implemented in 2012/13

Approved RRM phase 2 licensee (X1) Implementation Plan (IP) and Cost Allocation Matrix







Actual Achievement

2012/2013


target to Actual



% of licences approved within statutory deadlines



Target not met One licence was not approved within statutory deadlines

Delayed – public hearing was twice postponed

Number of suspected unlicensed facilities investigated









Actual Achievement

2012/2013


target to Actual



% of reports analysed and ready for noting within 60 days



Target met None

% of licensees HDSA submissions analysed and ready for noting within 60 days




% of licensees whose 3rd party compliance status are reported on

0% of 3rd party compliance status reported on

3rd party compliance status for 50% of licensees reported on


% of common carriers investigated


30% of common carriers investigated Target met None






Actual Achievement

2012/2013


target to Actual



% of complaints received investigated and concluded within 60 days



Target met None





Actual Achievement

2012/2013


target to Actual



Approved licensing guidelines published

No guidelines published

Publicationoffirstversionofguidelines

Target met None

Published tariff guidelines for storage facilities

Reviewed annual tariff guidelines for storage facilities

Review annual tariff guidelines for storage facilities

Target met None

Approved guidelines to determine the SRAB of storage facilities

Only applicable from 2012/13

Investigate guidelines for the Starting Regulatory Asset Base (SRAB) of storage facilities

Target met None






Actual Achievement

2012/2013


target to Actual



Infrastructure investigated and reported on in Durban

Terms of Reference finalisedandDoEconsulted

Infrastructure investigated and reported on

Target not met No report on infrastructure

Externallydelayed–insufficientinformation from licencees

Report on the inland supply forecast

Annual report on the inland supply forecast

Petroleum Pipelines Subcommittee to consider the report on the inland supply forecast

Target met None

Report on the review of legislation for the petroleum pipelines industry


Report on outcome of review and make recommendations

Target met None

Published storage tariffs Storage tariffs published

Publish storage tariffs Target met None

Publicationoffinancialandtariffinformation

Publication of financialandtariffinformation on NERSA website

Publicationoffinancialandtariffinformation on NERSA website

Target met None







Actual Achievement

2012/2013


target to Actual



Benchmark report on regulatory decisions by category


Report on:• NERSA reasons for decision per

category(withspecificreferencetoconsistency and standardisation among the 3 industries); and

• best practice reasons for decision among world class regulators

The Minister of Energy approved on 12 February 2013 that this target be changed from Benchmark report on regulatory decisions by category to what is indicated in order to provide more clarity on what is intended and remove any misunderstanding

Target met None

Report on the impact of regulatory decisions


Regulatory Impact Assessment (RIA) consultation paper

The Minister of Energy approved on 12 February 2013 that this target be changed from Impact assessment report to what is indicated as it was realised that it would be improper and against NERSA’s principle of transparency to go straight to the impact assessment process without consulting affected stakeholders on the areas to be covered in the assessment

Target met None






Actual Achievement

2012/2013


target to Actual



Research reports on new sources of energy


Research report on new sources of energy

The Minister of Energy approved on 12 February 2013 that this target be changed from Research Agenda to what is indicated as the performance indicator does not talk to the approved quarterly targets, hence the alignment of the quarterly targets to the performance indicator

Target met None

Harmonised regulatory processes


Research report on harmonisation of tariff methodologies

The Minister of Energy approved on 12 February 2013 that this target be changed from Harmonised regulatory processes to what is indicated as the approved targets is not aligned to the quarterly deliverables, hence the alignment of the programme indicator with the quarterly deliverables

Target met None

Published quarterly newsletters Quarterly newsletters published

Quarterly newsletters published Target met None

Number of stakeholder engagement and education programmes conducted

Stakeholder engagement and education programmes undertaken

Undertake 20 stakeholder engagement and education programmes


Approved proposals / comments on policy changes

Approved comments on draft policy amendments

Approved proposals / comments on policy changes (if and when necessary)

Target met None


Organisational





Actual Achievement

2012/2013


target to Actual



% successful implementation of the annual business plan

Removed 78% successful implementation of the business plan

Removed The Minister of Energy approved on 12 February 2013 that this Performance Indicator be removed from the NERSA Annual Performance Plan as NERSA does not have a Business Plan anymore. There is a target talking to the % of targets in the Annual Performance Plan that has been met which is the relevant indicator (see below). This target was approved before the full impact of the Framework for Strategic Plans and Annual Performance Plans was understood

% of targets in the Annual Performance Plan met

66% of targets met

68% of targets met (Determined in 2012/13 based on 2011/12 performance)


% of staff retention 95% staff retention

95% staff retention Target met None

% of organisational structurefilled

87% of organisational structurefilled

95% of organisational structure filled

Target not met Only 88% of organisational structurefilled

Delayed – challenges were experienced withregardstothefillingofsomevacancies

% of staff undergoing training and development









Actual Achievement

2012/2013


target to Actual



Level of (%) customer satisfaction



The Minister of Energy approved on 12 February 2013 that this target be changed from 57% customer satisfaction to what is indicated in order to ensure alignment


Result of annual audit Unqualifiedaudit Unqualifiedaudit Target met None% of creditors paid within 30 days after all relevant documentation have been received





Strategytoovercomeareasofunderperformance

All of the targets where the target was not met are listed below with reasons for delays and corrective actions to be taken:


• The annual target of the approval of three Implementation Plans as part of the Regulatory Reporting Manual implementation was not achieved (only 2 were approved) o NERSA is awaiting the submission of the plans from the metros o NERSA will continue to liaise with the Metros regarding the implementation of the Regulatory Reporting Manuals• The annual target of the approval of Inclining Block Tariffs (IBTs) for 65% of licensed distributors for residential customers was not achieved (only 60% was approved) o Some Municipal distributors are still struggling with the implementation of IBTs o The Energy Regulator approved the revised IBT structure o NERSA will continue to assist Municipalities with the implementation of IBTs• TheEskomtransmissionauditwasdeferred to the2013/14financial year on Eskom Transmission’s request in order for Eskom to accomplish compliancewithpreviousauditfindings o The Transmission audit will be conducted during the 2013/14 financialyear• Only 1 end-user forum instead of the target of 10 was established o NERSA is awaiting the Minister of Energy to prescribe the procedure

to be followed in establishing end-user forums as required in terms of the Electricity Regulation Act o Licensees are consistently sensitised about the establishment of end-user forums when conducting customer education work shops / meetings


• One transmission tariff (33%) was not finalised within 90 days of the publication of the tariff application. This meant that only 67% of the transmission tariffs were finalised within 90 days of the publication of the tariff application instead of the target of 80%. o The transmission tariff for one licensee could not be approved within 90 days of publication of the application due to the time ittookforthelicenseetorespondonoutstandingmattersidentified byNERSA in the tariff application.NERSA could not finalise the application before the information was received o NERSA will amend the Procedures for tariff applications to ensure that the Procedures state clearly when the counting of the days to approval of the tariff starts as it can only commence once all outstanding information has been obtained and NERSA has made a preliminary assessment• A service provider was not appointed to conduct a study to determine the level of uncommitted capacity in gas transmission pipelines o The potential bidders requested an extension of the deadline forsubmissionoftheproposalsatthecompulsorybriefingsession o Thebidderwillbeappointedduringthefirstquarterof2013/14• ThenonfinancialreportingRegulatoryReportingManualrequirements


wasnotfinalisedandapprovedasplanned o NERSA experienced unanticipated delays in the finalisation of the non financialreportingRRMrequirements o ThenonfinancialreportingRRMrequirementswillbefinalisedduringthefirst quarter of 2013/14


• ThereportoninfrastructureinvestigatedinDurbancouldnotbefinalised o NERSA realised that there are some discrepancies in the information submitted by licencees. o NERSA is liaising with the licencees in order to expedite the submission of the correct information

Organisational

• Only88%insteadofatargetof95%oftheorganisationalstructurewasfilled o Challengeswereexperiencedwithregardstothefillingofsomevacancies o All delayed positions to be concluded by May 2013 except for the CFO position

Changes to planned targets

All amendments to the performance indicators and targets are highlighted in the tablesabovewithdetailedreasonsfortheamendments.Allamendmentsreflectedhave been approved by the Minister of Energy on 12 February 2013.

Linking performance with budgets

Thefollowingtablesprovidesalinkbetweentheplannedtargetsandthefinancialresources (please note that the Framework for the development of Strategic Plans and Annual Performance Plans as published by National Treasury only came into effectforSchedule3APublicEntitiesin2012/13.Thereforecomparativefiguresfor2011/12 cannot be provided as NERSA’s operations were not consolidated under the six programmes before 2012/13):



Programme2012/2013

Budget (R) Actual Expenditure (R) (Over)/Under Expenditure (R)


39 677 686 29 297 676 10 380 010

Programme 2: Licensing and Registration 39 677 686 37 874 408 1 803 278Programme 3: Compliance monitoring and enforcement 19 838 843 18 937 204 901 639

Programme 4: Dispute resolution including mediation, arbitration and the resolution of complaints

13 225 895 12 624 802 601 093


13 225 895 12 285 110 940 785

Programme6:EstablishingNERSAasanefficientandeffective regulator

7 204 566 6 264 840 939 726

Total Electricity 132 850 571 117 284 040 15 566 531



Programme2012/2013


Programme 1: Setting and/or approval of tariffs and prices 12 325 642 11 203 927 1 121 715Programme 2: Licensing and Registration 12 325 642 9 484 423 2 841 219Programme 3: Compliance monitoring and enforcement 9 860 514 7 312 418 2 548 096Programme 4: Dispute resolution including mediation, arbitration and the resolution of complaints

7 395 385 6 722 356 673 029


4 930 257 4 481 571 448 686

Programme6:EstablishingNERSAasanefficientandeffectiveregulator 1 913 695 1 601 835 311 860Total Piped-Gas 48 751 135 40 806 529 7 944 606



Programme2012/2013


Programme 1: Setting and/or approval of tariffs and prices 17 410 128 16 393 281 1 016 847Programme 2: Licensing and Registration 17 410 128 9 513 779 7 896 349Programme 3: Compliance monitoring and enforcement 4 974 322 4 683 794 290 528Programme 4: Dispute resolution including mediation, arbitration and the resolution of complaints

- - -


4 974 322 4 683 794 290 528


4 879 890 3 962 163 917 727

Total Petroleum Pipelines 49 648 790 39 236 812 10 411 978


Total NERSA

Programme2012/2013


Programme 1: Setting and/or approval of tariffs and prices 69 413 456 56 894 884 12 518 572Programme 2: Licensing and Registration 69 413 456 56 872 610 12 540 846Programme 3: Compliance monitoring and enforcement 34 673 679 30 933 416 3 740 263Programme 4: Dispute resolution including mediation, arbitration and the resolution of complaints

20 621 280 19 347 158 1 274 122

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

23 130 474 21 450 475 1 679 999

Programme6:EstablishingNERSAasanefficientandeffectiveregulator 13 998 151 11 828 837 2 169 314Total NERSA 231 250 496 197 327 381 33 923 115


5. SUMMARY OF FINANCIAL INFORMATION

5.1. Revenue Collection

Sources of Revenue2012/2013 2011/2012

Estimate (R) Actual Amount Collected (R)

(Over)/Under Collection (R) Estimate (R) Actual Amount

Collected (R)(Over)/Under Collection (R)

Licence fees from Electricity 116 425 312 106 105 805 10 319 507 73 408 045 67 837 403 5 570 642Licence fees from Piped-Gas 47 063 616 56 065 272 (9 001 656) 40 496 714 42 173 143 (1 676 429)Licence fees from Petroleum Pipelines 49 471 329 42 053 336 7 417 993 33 503 616 31 626 431 1 877 185Interest received and other income 5 100 000 4 822 046 277 954 7 500 000 4 932 120 2 567 880Total 218 060 257 209 046 459 9 013 798 154 908 375 146 569 097 8 339 278


Licence fees from the Electricity Industry

The levy imposed on the electricity industry is in respect of electricity generated for supply by licensed electricity generators. The under collection is due to the lower volumes of electricity generated by licensed electricity generators.

Licence fees from the Piped-Gas Industry

The levy imposed on the piped-gas industry is in respect of the amount of gas, measuredinGigajoules,deliveredbyimportersandproducerstotheinletflangesoftransmission or distribution pipelines and are paid by the person holding the title to thegasattheinletflange.Theovercollectionisduetothehighervolumesdeliveredbyimportersandproducerstotheinletflanges.

Licence fees from the Petroleum Pipelines Industry

The levy imposed on the petroleum pipeline industry is in respect of the amount of petroleum, measured in litres, delivered by importers, refiners and producers to the inlet flanges of petroleum pipelines and are paid by the person holding the title to the petroleum immediately after it has entered the inlet flange. The under collection is due to the including of slugs of jet fuel and the need to pump slower due to the pipeline integrity.

The net under collection of revenue do not have an impact on service delivery as it is not directly related.

5.2. Programme Expenditure

The details of the programme expenditure can be found in the tables provided under the heading Linking performance with budgets above.

5.3. Capital investment, maintenance and asset management plan

During the year under review, the Energy Regulator took a decision to refurbish its Building. This decision was based on an option analysis report presented to the Energy Regulator on whether NERSA should relocate to another premises or stay at its current location. The report recommended that it would be more cost effective to stay in the current building on condition that some major upgrades are conducted to restore the condition of the building as well as to restructure theofficelay-outforfuturegrowthoftheorganisation.Theprojectisatplanningstagewiththeimplementationexpectedtobegininthe2013/14financialyear.Provision has been made in the budget for 2013/14 for part of the refurbishment cost. It is expected that the refurbishment will be completed in phases over a period of time.

NERSA owns the following types of assets, being Land and Buildings, OfficeFurniture and Equipment, Computer Hardware and Motor Vehicles. In terms of our Asset Management Plan, a budget has been set aside for the ongoing maintenance of the building. During 2012/13 some improvements were done on the NERSA building. These improvements were capitalised into the value of the property. Furthermoreasalreadymentionedabove,plansarebeingfinalisedtoconductafullrefurbishmentoftheNERSAbuildinginthe2013/14financialyear.


Capital Investment, maintenance and asset management plan

Infrastructure projects2012/2013 2011/2012

Budget (R’000)Actual Expenditure (R’000)

(Over)/Under Expenditure (R’000)

Budget (R’000)Actual Expenditure (R’000)

(Over)/Under Expenditure (R’000)

Land - - - - - -Buildings 6 725 1 791 4 934 250 - 250Motor Vehicles 230 399 (169) 230 - 230OfficeEquipment 335 441 (106) 5 410 6 5 404Computer Hardware 521 2 351 (1 830) 4 631 900 3 731Computer Software 1 200 892 308 1 910 1 405 505Total 9 011 5 874 3 138 12 431 2 311 10 120

AnAssetRegisterismaintainedwithdetailsofalltheOfficeFurnitureandEquipment,ComputerHardwareandMotorVehiclesownedbyNERSA.Theusefullifeoftheseassetsisassessedannuallyduringtheassetverificationprocessandadjustmentsareeffectedwherenecessary.Intheeventwheresome assets are found to be obsolete or redundant, a disposal process is initiated.



PART C: GOVERNANCE


Committees therefore also scheduled meetings with the entities who report to the Department of Energy. The Parliamentary Portfolio Committee on Energy has oversight on NERSA.During the reporting period, NERSA engaged and briefed the following Portfolio Committees:• Parliamentary Portfolio Committee on Energy (PPC)• Select Committee on Economic Development • Parliamentary Portfolio Committee on Trade and Industry• Joint Portfolio Committee on Energy and Co-operative Governance and Traditional Affairs

Parliamentary Portfolio Committee on Energy (PPC)NERSA held five briefing meetings with the Portfolio Committee on the following:• The outcomes of Eskom’s Multi-Year Price Determination 3 (MYPD3) application (presented on 01 August 2012). The Portfolio Committee raised a concern regarding whether NERSA’s approval of the Eskom MYPD3 will affect Eskom’s overall performance in terms of their capital expenditure and whether Eskom will be able to ensure security of supply. NERSA ensured that Eskomismoreefficient,withoutcuttingtheirrequirements.• Eskom’s MYPD3; Sasol Gas Transmission Tariff Application and NERSA’s decision on the Transnet Pipelines Tariff application for 2013/14 (presented on 26 March 2013). The Portfolio Committee commended NERSA for its handling of the tariff determination for Eskom with regard to its public hearing processes undertaken throughout the country. Some of the members attended and presented at the public hearings.

The Portfolio Committee also raised concerns around security of supply and the cost of

1. INTRODUCTION

The Energy Regulator is committed to ensuring good corporate governance. To this end, the Energy Regulator adopted the Corporate Governance Handbook containing corporate governance rules and prescripts.

The provisions of the National Energy Regulator Act, 2004 (Act No. 40 of 2004), the Public Finance Management Act (PFMA) and the principles contained in the King 111 Report on Corporate Governance are included in the Corporate Governance Handbook and are adhered to where possible by NERSA.

In complying with the National Energy Regulator Act, 2004 (Act No. 40 of 2004) read with the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), all Regulator Members are required to declare their interests, if any, before the start of each meeting of the Energy Regulator. In addition, Regulator Members are required, on their appointment, to declare to the Minister of Energy any interest in the three regulated industries. Further, Regulator Members must declare gifts, shares and hospitality that they may receive from the regulated energy industry.

In its quest to adhere to best practices and sound governance principles, the Energy Regulator subjects itself to an annual assessment on the effectiveness of the Energy Regulator and its Committees.

2. PORTFOLIO COMMITTEES

The Parliamentary Portfolio Committees exercise oversight over the service delivery of State Owned Entities. During the Financial Year 2012/13, the Portfolio


The Portfolio Committee commended NERSA on its role as a facilitator, as well as its forward thinking on the gas pricing process and the gas pricing compliance to enforce certainty.

• Electricity Pricing Policy and Impact of Multi-Year Price Determination (presented on 01 August 2012). The Portfolio Committee raised concerns that any changes to the Electricity Pricing Policy will result in regulatory uncertainty because the duration of the policy is less than five years. NERSA explained that the current policy has enough flexibilitytoimplementtheforeseenchanges.

On the revaluation of assets, NERSA would not index the Asset Base. Regarding movement towards cost reflective tariffs, NERSA undertook toclarifytheelectricitypricepaththatwouldresulttocostreflectivitywithinthenextfiveyears.

Select Committee on Economic Development (presented on 05 June 2012)• Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2013/14 – 2015/16). NERSA had to be responsive and established six programmes to deal with regulatory challenges, as well as cross- cutting and organisational challenges. According to Section 13 of the National Energy Regulator Act, all accounts for the three regulated industries have to be ring-fenced. The common cost allocation ratio for electricity, piped-gas and petroleum pipelines industries is 58%:21%:21%. Therefore, the budget per programme and per sector is provided.

Parliamentary Portfolio Committee on Trade and Industry (presented on 06 March 2013)

the New Multi-Product Pipeline (NMPP). NERSA strengthened their monitoring strategies to ensure that there are no shortages. The crisis is due to a lack of storage capacity inland. NERSA is a member of the Task Team on Petroleum Products Security of Supply of the Department of Energy.

Other areas of concern raised were regarding the consultation process, as well as determining maximum prices and whether they would result in excessive prices for other customers. NERSA conducted an additional public hearing on maximum prices for gas methodology. NERSA also requested Sasol to provide a schedule of price increases for all customers and that those increasing by more than 45% must be phased in over a two-year period.

• NERSA Annual Report 2011/12 (presented on 16 October 2012). No issues were raised by the PPC:E• Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2013/14 – 2015/16) (presented on 25 April 2013). The strategic out comeorientedgoalsofNERSAareinlinewithitsmandateandreflect the 12 National Outcomes. Other Government Strategies which had notbeencompletedatthetimeofthefinalisationoftheStrategicPlan (2012/13 – 2016/17) include the National Development Plan (NDP), Industrial Policy Action Plan (IPAP) and the Strategic Infrastructure Programme (SIP). NERSA will consider these in the new planning cycle starting in June 2013.

The Portfolio Committee highlighted the importance and significance ofregulation in the energy sector. They also raised concerns that entities could withhold information. Their concern was regarding how accurate energy planning can be done without the necessary information being submitted.


2012 – submitted on 30 January 2013. No comments were received.• Fourth Quarter Performance Report for the period 01 January to 31 March 2013 – submitted on 30 April 2013. No comments were received.• Midterm Review Report of the implementation of the Annual Performance Plan (2012/13 – 2014/15) – submitted on 30 October 2012.No comments were received and the revised Annual Performance Plan was approved by the Minister of Energy on 12 February 2013.• The Annual Report (2011/12) was submitted to the Minister of Energy, Minister of Finance and Auditor-General on 31 August 2012 as required in terms of Section 32 (a) of the Public Finance Management Act (Act No. 1 of 1999 as amended by Act 29 of 1999) and Section 14 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004).

4. THE ACCOUNTING AUTHORITY/ENERGY REGULATOR

IntroductionThe Energy Regulator as the accounting authority retains full and effective control over NERSA. The Energy Regulator provides leadership and is responsible for monitoring the implementation by management of its decisions and strategies. The Energy Regulator ensures that NERSA adheres to good governance practices and that it complies with all relevant laws, regulations and codes of practice.

TheroleoftheEnergyRegulatorisasfollows:The role, functions and powers of the Energy Regulator are determined by law, corporate governance best practice and decisions and policies approved by the Energy Regulator. The functions of the Energy Regulator include: • definingandensuringcompliancewiththevaluesandobjectivesofNERSA;• establishing policies and plans to achieve the objectives;

• Colloquium on the Impact of Administered Prices, including energy, on the Manufacturing Sector. NERSA was requested by the committee to put pressure on municipalities to get their tariffs in line so that no harm is done to the industry.

Joint Portfolio Committee on Energy and Cooperative Governance and Traditional Affairs (presented on 14 February 2012)• Public Hearings on the Electricity Distribution Industry (EDI). The Portfolio Committee raised issues around the limitations of current regulatory systems and proposals of rectifying the situation. NERSA indicated to the Committee that it will ensure compliance and enforce corrective action. Municipalities who are not in compliance will be ‘named and shamed’ and funds that were not used for the intended purposes will be clawed back.

3. EXECUTIVE AUTHORITY

The following reports were submitted to the Executive Authority:• Strategic Plan (2012/13 – 2016/17) and Annual Performance Plan (2013/14 – 2015/16).Thefirstdraftwassubmittedon31August2012,theseconddraftwas submitted on 30 November 2012 and the final draft was submitted on 31 January 2013. No comments were received and it was approved by the Minister of Energy on 10 March 2013.• First Quarter Performance Report for the period 01 April to 30 June 2012 – submitted on 30 July 2012. No comments were received. • Second Quarter Performance Report for the period 01 July to 30 September 2012 – submitted on 30 October 2012. No comments were received.• Third Quarter Performance Report for the period 01 October to 31 December


• approving the strategic plan, budget and accounts;• conferring upon the CEO and executive managers sufficient authority to carry out their responsibilities;• establishing and overseeing a framework of delegation and systems of control;• makingdecisionsonallmattersthatmightcreatesignificantfinancial or other risks to NERSA; and• monitoring NERSA’s performance in relation to its plans, budgets, control and decisions.

EnergyRegulatorCharterThe Energy Regulator adopted the Corporate Governance Handbook as part of its commitment to adopt an approach to internationally accepted standards and best practices for corporate governance towards ensuring proper levels of accountability, transparency and responsibility. It sets out policies to guide the Energy Regulator Members and staff towards effective discharge of their functions and provides a comprehensive framework to protect the interests of NERSA.

The Corporate Governance Handbook contains:• the demarcation of roles, responsibilities and powers of the Energy Regulator, the Chairperson, the Regulator Members, the CEO, the RegulatorSecretaryandotherofficialsofNERSA;• powers delegated to the various committees of the Energy Regulator;• mattersreservedforfinaldecision-makingbytheEnergyRegulator;• roles and procedures of meetings of the Energy Regulator and its committees; and• policies and practices of the Energy Regulator in respect of corporate governance, including a code of ethics and rules pertaining to declarationsofinterestsandconflictofinterest.

NERSA complies with the Corporate Governance Handbook and ensures regular review of the various chapters contained therein.


Mrs Cecilia Khuzwayo Chairperson

Part-Time Regulator Member

Mr Joe LesejaneDeputy Chairperson


Ms Phindile Baleni (née Nzimande)ChiefExecutiveOfficer

Full-Time Regulator Member

THE ENERGY REGULATOR AND ITS MEMBERS

The Minister of Energy appoints Members of the Energy Regulator, comprising Part-Time (Non-Executive) and Full-Time(Executive)RegulatorMembers,includingtheChiefExecutiveOfficer(CEO).TheEnergyRegulatoris supported by staff under the direction of the CEO. The Energy Regulator consisted of the following Regulator Members for the period 01 April 2012 to 31 March 2013:


Mr Oupa KomanePart-Time Regulator Member

Ms Ethèl TeljeurFull-Time Regulator Member: Piped-Gas

Ms Khomotso MthimunyePart-Time Regulator Member

Ms Gillian Whittington BandaPart-Time Regulator Member

Mr Thembani BukulaFull-Time Regulator Member:

Electricity Regulation

Dr Rod CromptonFull-Time Regulator Member:

Petroleum Pipelines


CompositionoftheEnergyRegulator

Name Designation (in terms of the Public Entity Board structure)

Date appointed Date resigned Qualifications Area of Expertise

BoardDirectorships (List the entities)

Other Committees (e.g: Audit committee)

No. of Meetings attended

Mrs C Khuzwayo

Chairperson(Part-Time Regulator Member)

1 January 2010 n/a B.Comm (Economics, Private Law and Business Economics)

Human Resources

GEPF (trustee),Bhabha Mvelase Khuzwayo & Associates

Petroleum Pipelines Subcommittee, Audit and Risk Committee, Finance Committee and Human Resources and Remuneration Committee

40

Mr J Lesejane Deputy Chairperson(Part-Time Regulator Member)

1 January 2010 n/a B.Comm; Hons B Compt; CA (SA); Fellow Chartered Management Accountant (UK);Certificatein Control Self Assessment (CCSA)

Financial Export Credit Insurance Corporation Ltd,Mokwalo Training and Consulting Services,Mokwalo Securities and Investments Audit Committee member:National Treasury,Small Enterprise Development Agency

Finance Committee, Piped-Gas Subcommittee and Electricity Subcommittee

42







Ms P Baleni (née Nzimande)

Chief ExecutiveOfficer(Full-Time Regulator Member)

1 May 2011 n/a B.Proc; LLB Law Common Purpose,Wits University Council

Regulator Executive Committee, Piped-Gas Subcommittee, Petroleum Pipelines Subcommittee, Electricity Subcommittee, Finance Committee, Audit and Risk Committee and Human Resources and Remuneration Committee

116

Mr T Bukula Full-Time Regulator Member: Electricity Regulation

Re-appointed on 1 April 2011, initially appointed on 1 October 2005

n/a BSc (Eng); Post Graduate Dip (Engineering Business Management

Engineering National Methodology Institute of SA

Electricity Subcommittee, Petroleum Pipelines Subcommittee, Piped-Gas Subcommittee, Human Resources and Remuneration Committee and Regulator Executive Committee

117







Dr R Crompton Full-Time Regulator Member: Petroleum Pipelines


n/a BA Hons; HED; PhD (Humanities)

Regulatory None Petroleum Pipelines Subcommittee, Electricity Subcommittee, Piped-Gas Subcommittee and Regulator Executive Committee

118

Mr O Komane Part-Time Regulator Member

1 November 2011 n/a MSc in Engineering Business Management (Diplomas in Business Management, Supervisory Management and Effective Directorship)

Engineering None Human Resources and Remuneration Committee, Audit and Risk Committee, Piped-Gas Subcommittee and Electricity Subcommittee

60







Ms K Mthimunye Part-Time Regulator Member

1 January 2010 n/a BComm; BCompt (Hons); CA (SA); Higher Diploma in Tax Law

Financial HatfieldGroup,Council for Geoscience,OCE SA,MINOLCOCecil Nurse

Audit and Risk Committee, Piped-Gas Subcommittee and Electricity Subcommittee

67

Ms E Teljeur Full-Time Regulator Member: Piped-Gas


31 March 2013 BA Hons; MSc (Economics)

Economics None Piped-Gas Subcommittee, Petroleum Pipelines Subcommittee, Electricity Subcommittee, Finance Committee and Regulator Executive Committee

121

Ms G WhittingtonBanda


1 January 2010 n/a MA (Modern History); MBA

Regulatory None Petroleum Pipelines Subcommittee, Finance Committee and Human Resources and Remuneration Committee

65


ExternalMembersofCommittees

NameDesignation Date appointed Date resigned Area of Expertise Other Committees No. of Meetings

attended

Ms M Joubert External Member 1 March 2010 n/a Auditing Audit and Risk Committee

4

Ms N Joubert External Member 1 March 2010 n/a Human Resources Human Resources and Remuneration Committee

7

Mr M Nkhabu External Member 1 March 2010 7 September 2012 Auditing Audit and Risk Committee

3

Mr J Mabaso External Member 1 March 2010 15 October 2012 Human Resources Human Resources and Remuneration Committee

4

Subcommittees

SubcommitteeNo. of meetings held No. of members Name of members

1. Electricity Subcommittee (ELS)11 6 1. Mr T Bukula – Chairperson

2. Ms P Baleni (née Nzimande)3. Dr R Crompton4. Mr O Komane (from 3rd to 4th quarter)5. Ms E Teljeur6. Ms K Mthimunye 7. Mr J Lesejane (from 1st to 3rd quarter)

2. Piped-Gas Subcommittee (PGS) 14 6 1. Ms E Teljeur – Chairperson2. Ms P Baleni (née Nzimande)3. Mr T Bukula4. Dr R Crompton5. Ms K Mthimunye8. Mr O Komane (from 3rd to 4th quarter)6. Mr J Lesejane (Alternate from 1st to 3rd quarter)


SubcommitteeNo. of meetings held No. of members Name of members

3. Petroleum Pipelines Subcommittee (PPS) 10 6 1. Dr R Crompton – Chairperson2. Ms P Baleni (née Nzimande)3. Mr T Bukula4. Ms E Teljeur5. Ms G Whittington Banda6. Mrs C Khuzwayo

Committees

CommitteeNo. of meetings held No. of members Name of members

1. Regulator Executive Committee (REC)25 4 1. Ms P Baleni (née Nzimande) – Chairperson

2. Mr T Bukula3. Dr R Crompton4. Ms E Teljeur

2. Audit and Risk Committee (ARC) 4 6 1. Ms K Mthimunye – Chairperson2. Mr O Komane3. Mr M Nkhabu (External Member from 1st to 2nd quarter)4. Mrs C Khuzwayo (Invitee)5. Ms P Baleni (née Nzimande) (Invitee)6. Ms M Joubert (External Member)7. Vacant from 3rd quarter (External Member)

3. Finance Committee (FIC 11 5 1. Mr J Lesejane – Chairperson2. Ms P Baleni (née Nzimande)3. Ms E Teljeur4. Ms G Whittington Banda5. Mrs. C Khuzwayo (Invitee from 3rd quarter)6. Vacant (External Member)


CommitteeNo. of meetings held No. of members Name of members

4. Human Resources & Remuneration Committee (HRRC)

9 7 1. Mr O Komane - Chairperson2. Mrs C Khuzwayo 3. Ms P Baleni (née Nzimande)4. Mr T Bukula5. Ms G Whittington Banda6. Ms N Joubert (External Member)7. Mr J Mabaso (External Member from 1st to 3rd quarter)8. Vacant from 3rd quarter (External Member)

Subcommittee’spublichearings

Subcommittee No. of public hearings held No. of members Name of members

1. Electricity Subcommittee (ELS) 24 6 1. Mr T Bukula – Chairperson2. Ms P Baleni (née Nzimande)3. Dr R Crompton4. M. O Komane (from 3rd to 4th quarter)5. Ms E Teljeur6. Ms K Mthimunye 7. Mr J Lesejane (from 1st to 3rd quarter)


Subcommittee No. of public hearings held No. of members Name of members

2. Piped-Gas Subcommittee (PGS) 6 6 1. Ms E Teljeur – Chairperson2. Ms P Baleni (née Nzimande)3. Mr T Bukula4. Dr R Crompton5. Ms K Mthimunye6. Mr O Komane (from 3rd to 4th quarter)7. Mr J Lesejane (Alternate from 1st to 3rd quarter)

3. Petroleum Pipelines Subcommittee (PPS) 3 6 1. Dr R Crompton – Chairperson2. Ms P Baleni (née Nzimande)3. Mr T Bukula4. Ms E Teljeur5. Ms G Whittington Banda6. Mrs C Khuzwayo

4. Regulator Executive Committee (REC) 13 4 1. Ms P Baleni (née Nzimande) – Chairperson2. Mr T Bukula3. Dr R Crompton4. Ms E Teljeur


EnergyRegulator’sworkshops

SubcommitteeNo. of workshops held No. of members Name of members

Energy Regulator (ER) 5 9 1. Mrs C Khuzwayo – Chairperson2. Mr J Lesejane – Deputy Chairperson3. Ms P Baleni (née Nzimande) – CEO4. Mr T Bukula 5. Dr R Crompton6. Ms E Teljeur7. Ms K Mthimunye 8. Ms G Whittington Banda

Electricity Subcommittee (ELS) 4 6 1. Mr T Bukula – Chairperson2. Ms P Baleni (née Nzimande)3. Dr R Crompton4. Mr. O Komane (from 3rd to 4th quarter)5. Ms E Teljeur6. Ms K Mthimunye 7. Mr J Lesejane (from 1st to 3rd quarter)

Petroleum Pipelines Subcommittee (PPS) 2 6 1. Dr R Crompton – Chairperson2. Ms P Baleni (née Nzimande)3. Mr. T Bukula4. Ms E Teljeur5. Ms G Whittington Banda6. Mrs C Khuzwayo

Regulator Executive Committee (REC) 5 4 1. Ms P Baleni (née Nzimande) – Chairperson2. Mr T Bukula3. Dr R Crompton4. Ms E Teljeur


RemunerationofEnergyRegulatorMembers

The remuneration of Energy Regulator Members is determined by the Minister of Energy with the concurrence of the Minister of Finance. The Full-Time Regulator Members receive an annual remuneration package in accordance with their contracts of employment, while Part-Time Regulator Members are remunerated per meeting attended in accordance with the annual directive of the Minister of Energy.

External members of governance committees of the Energy Regulator are similarly remunerated per meeting in accordance with the annual directive of the Minister of Energy.

Regulator Members are reimbursed for expenses incurred on NERSA business, including travel expenses, subsistence allowance, and other out-of- pocket expenses.

Name Remuneration

R

Back pay Car allowance

R

Re-imbursements and other

allowancesR

Medical Pension Contributions

and UIF

Total

R

Ms P Baleni (née Nzimande) 1 915 501 15 767 120 000 131 449 - 234 754 2 417 471

Mr T Bukula 1 775 110 372 855 50 000 148 126 88 881 175 299 2 610 270

Dr R Crompton 1 766 290 301 240 36 360 78 228 35 787 173 489 2 391 395

Ms E Teljeur 1 784 437 301 240 54 000 109 751 - 173 489 2 422 918

Thefollowingbonuseswerepaid(inthe2012/13financialyear)toFull-TimeRegulatormemberswithregardtothe2011/12financialyear:

Ms P Baleni (née Nzimande) 153 785

Mr T Bukula 155 011

Dr R Crompton 147 011

Ms E Teljeur 147 011


Name Remuneration

R

Back pay Car allowance

R

Re-imbursements and other

allowancesR

Medical Pension Contributions

and UIF

Total

R

NERSA Part-Time Regulator Members

Mrs C Khuzwayo 448 846 - 16 500 40 033 - - 505 379

Mr J Lesejane 293 308 - 14 020 12 852 - - 320 180

Mr O Komane 335 474 - 65 026 55 179 - - 455 679

Ms K Mthimunye 333 914 - - 44 644 - - 378 558Ms G Whittington Banda 442 722 - 39 928 27 352 - - 510 002NERSA Part-Time External Regulator Members

Ms M Joubert 11 972 - - - - - 11 972

Ms N Joubert 43 920 - - 1 010 - - 44 930

Mr J Mabaso 21 960 - - 1 920 - - 23 880

Mr M Nkhabu 16 470 - - 192 - - 16 662


5. RISK MANAGEMENT

NERSA is a Public Entity as per the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), and therefore has to comply with the requirements of this Act.

In compliance with the requirements of the PFMA, the Energy Regulator approved a Risk Management Policy for the organisation. As part of the requirements of the approved Risk Management Policy, a complete risk identification and ranking exercise is conducted every three years todetermineandranktherisksfacingtheorganisation.Thisriskidentificationiscarried out as part of the strategic planning process within the organisation. Risksareidentifiedatdifferentlevels,namely:• Electricity Industry Risks;• Piped-Gas Industry Risks;• Petroleum Pipelines Industry Risks;• Cross-Cutting Risks; and• Organisational Risks (which include fraud and information technology risks).

The ranking of the risks based on the impact that the occurrence of the risk would have on the organisation as well as the likelihood of the risk happening, are done taking into account all current strategies to militate againsttheoccurrenceoftheidentifiedrisks.

Once the risks have been identified and ranked, the risk appetite (thebroad-based amount of risk an organisation is willing to accept in pursuit

of its mission or vision) and risk tolerance (the acceptable variation relative to the achievement of objectives) for every risk is determined. In line with the risk appetite and risk tolerance, additional strategies to militateagainst theoccurrenceof therisksare identified. In linewith therecommendations from the King III report on good governance, primary risk owners as well as secondary risk owners (assurance providers) are also identified.

Inthetwoyearsbetweenthepreviousandthenewriskidentificationandranking,aconfirmationofthestrategicriskregisterisundertaken.

The top 10 risks facing the organisation are:1. Compliance with Legislation, Regulations and Rules by NERSA;2. Independence of Energy Regulator;3. Leadership and Management of NERSA;4. Remuneration of NERSA Employees;5. Electricity Generation Reserve Margins;6. NERSA Business Continuity and Disaster Recovery;7. Electricity Distribution Infrastructure Maintenance;8. NERSA Image;9. NERSA Talent Management (Recruitment, Development, Retention, Deployment and Separation); and10. NERSA Operations Model, Integration and TBNS Implementation (Governance Structure and Clarity).

Thefollowinggraphillustratesthestatusofimplementationoftheidentifiedstrategies to militate against the occurrence of risk.


Graph 1: Summary of the status of implementation of agreed strategies to militate against the occurrence of identified strategic risks

From the graph it is evident that of the 125 agreed mitigation strategies, implementation of agreed action plans in 54% (68) is ongoing and in 31% (38) have been completed; 8% (10) are on track (action plan not yet fully implemented but the due date for completion has not yet passed); and 7% (9) have been delayed (action plan not yet fully implemented but the due date has already passed).


6. INTERNAL CONTROL UNIT

During the review period, the Internal Audit Unit adopted the Committee of Sponsoring Organizations of the Treadway Commission’s Internal Control – Integrated Framework (COSO framework) to provide assurance on the effectiveness of internal control, risk management and governance processes. Detailed internal audit reviews and testing was undertaken in order to assess the adequacy and effectiveness of controls relating to the specificauditactivities,ensuringthatmanagement’scontrolstrategiesareconsistent with the activities and objectives. Recommendations relating to theadequacyandeffectivenessweremadewhererequired.AllsignificantfindingswerereportedtotheAuditandRiskCommitteeformonitoring.

There is constant communication between the risk management and the internal audit functions to ensure that risks identified are utilised byinternal audit during audit planning and execution to provide assurance that mitigation strategies and controls are implemented by management.

7. INTERNAL AUDIT AND AUDIT AND RISK COMMITTEES

7.1 Internal Audit Key activities and objectives of Internal AuditInaccordancewiththedefinitionofinternalauditingandtheauthoritytoestablishand maintain an internal audit function as contained in the Public Finance Management Act (Act No. 1 of 1999 as amended by Act 29 of 1999) (PFMA) and its Treasury Regulations, the objective of the NERSA internal audit function is to:

• provide professional, independent and objective assurance and consulting activity designed to add value and improve the operations of NERSA; and• assist NERSA in accomplishing its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

The key activities of Internal Audit are:• to develop and implement a rolling three-year annual audit plan based on NERSA’s key areas of risks, including any risks or control concerns identifiedbymanagement,andsubmittheplantotheAuditandRisk Committee for review and approval as well as periodic updates;• to build a professional audit staff with sufficient knowledge, skills, andexperienceandprofessionalcertificationstomeettherequirements of this Charter;• to consider the scope of work of the external auditors and other assurance providers, as appropriate, for the purpose of providing optimal audit coverage;• to provide an independent assurance over governance, risk management and systems of internal control, as well as over combined assurance framework;• to provide a written assessment of the effectiveness of the company’s system of internal control, performance and risk management to the Energy Regulator; and• to perform an objective assessment of the adequacy and effectiveness of risk management and all other elements of the internal control framework.


During the review period, the Internal Audit Unit completed 24 planned audits, and there were no fraud investigations.

7.2 Audit and Risk Committee

Key activities and objectives of the Audit and Risk CommitteeThe objective of the Audit and Risk Committee is to provide oversight and assistance to the Energy Regulator on control, governance and risk management processes.

The key activities of the Audit and Risk Committee are:• toobtainandreviewtheannualfinancialstatements;• to ensure that the annual financial statements are prepared in accordance

with the reporting requirements as set out in the PFMA and related Treasury Regulations or applicable accounting framework;• to review the Risk Policy and ensure it complies with Best Practice;• to review Risk Management Process to ensure it is effective and efficient andidentifiespriorityrisks;• to review the Institution’s compliance with the performance management and reporting systems;• to review and approve the Internal Audit Plan, its scope and any major changes to it, ensuring that it covers the key risks and that there is appropriate coordination with the External Auditor (Auditor-General SA); and• to review and approve the external auditors’ proposed audit scope, approach and audit fees for the year.


Attendance of Audit and Risk Committee meetings by Audit and Risk Committee membersThe table below discloses relevant information on the Audit and Risk Committee Members

NameQualifications Internal or external If internal, position in

the public entity Date appointed Date resigned No. of meetings attended

Ms K Mthimunye B Compt (Hons), CA (SA); Higher Diploma in Tax Law

Internal Regulator Member 01 January 2010 n/a 4

Mr O Komane MSc (Engineering Business Management)

Internal Regulator Member 01 November 2011

n/a 3

Ms M Joubert BCom, CIA External 01 March 2010 n/a 3

Mr M Nkhabu CA (SA), MCom External 01 March 2010 15 October 2012

2

8. COMPLIANCE WITH LAWS AND REGULATIONS

NERSA reports on compliance with the Public Finance Management Act, 1999 (Act No. 1 of 1999) and Treasury Regulations in its quarterly reports submitted to the Department of Energy. All policies and procedures approved by the Energy Regulator are maintained in the Corporate Governance Handbook and are complied with.

A comprehensive compliance framework which will define the compliance universe and will provide for compliance monitoring and reporting is under development. While a formal compliance framework is not in place as yet, the Audit and Risk Committee of the Energy Regulator maintains oversight over the status of compliance with legislation and regulations.

Compliance with the Promotion of Access to Information ActFourteen requests for information were received and were dealt with within the time period allowed for by the Promotion of Access to Information Act, 2000 (Act No 2 of 2000) (PAIA). The report on the requests was compiled and submitted to the South African Human Rights Commission (SAHRC), as required in terms of Section 32 of PAIA.


11. CODE OF CONDUCT

The code of ethics as contained in the Corporate Governance Handbook provides a summary of the key obligations of Regulator Members and employees to uphold NERSA’s core values of transparency and integrity in executing its mandate.

The Code of Conduct requires Regulator Members and employees to act in the best interest of NERSA and provides for standards of conduct in exercising their respective functions and duties. It requires disclosure of financial interests andrequires Regulator Members to withdraw from proceedings of the Energy Regulator when a matter in which a member may have an interest is considered.

Any breach of the code of ethics is dealt with as misconduct in terms of NERSA’s disciplinary code.

12. HEALTH SAFETY AND ENVIRONMENTAL ISSUES

NERSA cares for its employees and their work environment and seeks to ensure, as far as it is reasonably possible, the health and safety of all employees in the workplace and all other persons conducting business on its premises.

NERSA is committed to the fulfilment of the requirements stipulated in theOccupational Health and Safety Act, 1993 (Act No. 85 of 1993) and to this end, has established a Health and Safety Committee that will monitor the health and safety of employees and their work environment and remove or reduce existing and potential health and safety threats.

9. FRAUD AND CORRUPTION

A fraud policy and a fraud prevention plan are in place and were approved by the Energy Regulator.

A Fraud Hotline is in place which is operated by an external service provider and guarantees the anonymity of any person calling in to report suspected fraud, corruption or misuse of public resources. No cases of fraud were reported during thefinancialyear.Afraudawarenessworkshopwasconductedto informallstaff on how fraud cases are reported and what actions are taken.

10. MINIMISING CONFLICT OF INTEREST

NERSA has implemented the Supply Chain Management framework as required by the PFMA. The Supply Chain Management policy has also been approved by the Energy Regulator. The Bid Adjudication Committee has also been duly appointed by the CEO in line with the delegation of authority matrix approved by the Energy Regulator as the Accounting Authority. All Individuals who are involved in the bidding processes (evaluation and adjudication of bids) are required to declare any interest prior to proceeding with the process. Any individual who might beconflictedisexcusedfromtheprocessofeitherevaluatingoradjudicatingonthebid.Any individual who participates in the evaluation of a bid is not allowed to adjudicate on the same bid if they happen to be a member of the Bid Adjudication Committee.

The Human Resources division also keeps a record of interests declared by staff members on an annual basis. In the event that a staff member is found to have interest that is not declared, this is considered a contravention of NERSA policies and disciplinary measures are taken against the individual.


13. REGULATOR SECRETARY

The Regulator Secretary is responsible for administering all meetings of the Energy Regulator and its committees, including preparation of agenda packs, attendance of meetings and preparation of minutes of meeting proceedings. The Secretary has to ensure that meeting rules are followed.

The Secretary will also ensure that the levels of remuneration and expenses of Regulator Members are in accordance with those approved by the Minister of Energy. Further, the Secretary will ensure that a Register of Interests is established to formally record all declarations of interests of Regulator Members.

14. SOCIAL RESPONSIBILITY

NERSA does not have a Social Responsibility Policy.


15. REPORT OF THE AUDIT AND RISK COMMITTEE

Wearepleasedtopresentourreportforthefinancialyearended31March2013.

Audit and Risk Committee Members and AttendanceThe Audit and Risk Committee consists of the members listed hereunder and should meet four times per annum as per its terms of reference. During the year under review, four meetings were held.

MEMBER STATUS MEETINGS HELD MEETINGS ATTENDED

Ms K Mthimunye Chairperson 4 4Mr O Komane Member 4 3Ms M Joubert External Member 4 3Mr M Nkhabu External Member (From 1st to 2nd quarter) 4 2

Audit and Risk Committee ResponsibilitiesThe Audit and Risk Committee reports that it has complied with its responsibilities arising from section 27.1 of the Public Finance Management Act and paragraph 3.1.13 of the Treasury Regulations.

The Committee also reports that it has adopted appropriate formal terms of reference as its Audit and Risk Committee charter, has regulated its affairs in compliance with the charter and has discharged all its responsibilities as contained therein.

Corporate GovernanceWe are of the opinion that NERSA continues to strive towards complying with sound principles of corporate governance. We are not aware of issues of non-compliance with corporate governance.

ComplianceDuringthe2012/13financialyear,theCommitteemonitoredandwascomfortablewiththecompliancewiththevariouslegislationimpactingNERSA.TheCommitteeisnot aware of any areas of non-compliance.


Effectiveness of Internal ControlsEffectiveness of Internal Controls The systems of controls are designed to provide cost effective assurance that assets are safeguarded and that liabilities and working capital are effectively managed. In line with the Public Finance Management Act, 1999 (Act No.1 of 1999) (PFMA) and King III Report on Corporate Governance requirements, Internal Audit provides the Audit and Risk Committee with assurance that the internal controls are appropriate and effective. This is achieved by means of the riskmanagementprocess,aswellastheidentificationofcorrectiveactionsand suggested enhancement to the internal controls and processes.

From the various reports of the Internal Auditors, the Audit Report on financialstatements,and themanagement letterof theAuditorGeneralSouthAfrica, itwasnotedthatnosignificantormaterialnoncompliancewith prescribed policies and procedures have been reported other than those reported in the management letter. Accordingly, we can report that thesystemsofinternalcontrolfortheperiodunderreviewwereefficientand effective.

Performance ManagementThe Audit and Risk Committee is of the opinion that the performance management system was fully functional during the period under review and this has resulted in NERSA being in a position to accurately measure andreflecttheperformanceagainstpredeterminedobjectivesasrequiredby the legislation.

The quality of quarterly management reports submitted in terms of the PFMA and Treasury RegulationsTheAuditandRiskCommitteeissatisfiedwiththecontentandqualityofquarterly reports prepared and issued by the Energy Regulator during the year under review.

Evaluation of Financial Statements

The Audit and Risk Committee has:• reviewed and discussed the audited financial statements to be included in the annual report, with the AGSA and the Energy Regulator;• reviewed the AGSA management letter and management’s response thereto;• reviewed changes in accounting policies and practices; and• reviewedsignificantadjustmentsresultingfromtheaudit.

The Audit and Risk Committee concurs and accepts the conclusions of theAuditor-GeneralSA(AGSA)ontheannualfinancialstatements,andisoftheopinionthattheauditedannualfinancialstatementsbeacceptedand read together with the report of the AGSA.

Khomotso MthimunyeChairperson of the Audit and Risk Committee



PART D: HUMAN RESOURCE MANAGEMENT


1. INTRODUCTION

The NERSA Human Resources Division function involves activities undertaken to attract, develop and retain an effective workforce within the organisation. The Division aims to position itself as a partner and co-ordinate services and provide immediate support for key organisational activities.

Its mandate is to implement Human Resources Policies, Procedures, Programmes, Systems and Processes to attract, develop and retain requisite skills within NERSA through effective recruitment and selection processes, facilitation of training and development, transparent performance management processes, attractive remuneration and effective payroll system, employment equity and diversity management, a healthy and safe work environment and skills development through Learnership and Internship Programmes.

In establishing NERSA as an employer of choice, the priorities are to retain staff at a rateof95%,filltheorganisationalstructureatarateof95%andupskillemployeesthrough training and development interventions at a rate of 70%.

NERSA is forecasting its future demands in the context of the business planning process in accordance with its strategic objectives and programmes to get the right people, with the right skills, in the right place at the right time. This is done through providingcompetitiveremunerationandtraininganddevelopmentspecificallyintheengineeringandfinancefields.

NERSA has a performance management system that provides standards on which the performance of individual employees is monitored and measured to allow for management of performance, the rewarding of deserving employees and dealing

withpoorperformanceinamannerthatwillenhanceefficiencyandeffectivenessinorder to achieve improved service delivery.

NERSA cares about the health and well-being of its employees and also recognises that a variety of problems (such as personal, family, social and work-related) can disrupt their personal and work lives and negatively affect job performance. NERSA is providing a comprehensive, integrated Employee Wellness Programme that focuses on health promotion and psychological assistance to its employees. A service provider, Careways facilitates the programme.

NERSA employees participated in the following wellness programmes during the reporting period:• 702 Walk the Talk;• NERSA Cancer Day;• 2012 Wellness Day;• 16 Days of Activism for No Violence Against Women and Children Abuse campaign; and • 2012 World Aids Day commemoration outreach programme.

The following Policies were developed: • Performance Management Policy;• Remuneration Policy; and• Internship and Job Shadowing Policy.

The Performance Management Policy integrates and manages correlation of organisational and individual staff performance with the view to translate the NERSA strategy into implementable programmes and projects. NERSA’s performance management philosophy emphasises and encourages superior and sustainable


long-term performance. Recognition and rewarding of superior performance motivates employees to perform beyond the required standard with the vision of excellence, quality and retention of talent inside NERSA. The aims of NERSA’s remuneration policy are to:• attractandretainhighlyqualifiedstaff• motivate and reward performance excellence; and• supportandreinforceacultureofbelonging,performanceandaffinity.

The shortage of skills, especially scarce and critical skills, is a major challenge that can be addressed through internships, among other programmes. In line with the Skills Development Act, NERSA views the internship programme as an ideal opportunity to provide for the development andmoulding ofNERSA-specific skillswith the view of preparing futureregulators. Furthermore, NERSA also offers job shadowing to students to expose them to the working environment.

Highlight achievements95% staff retention was achieved, and 75% of staff underwent training (both local and international).

Challenges Like any international knowledge intensive organisation, NERSA faces stiff competition in a difficultmarket of attracting and retaining highly scarceskills in the country. Similarly retention of these critical and scarce skills against competitors particularly the regulated entities remains a challenge.

Future HR plans /goalsNERSA conducted a review of the Human Resources function in order to determine the adequacy and effectiveness of the HR Processes and Systems and identify gaps that exist. The assessment was performed to ensureNERSAhaseffectiveandefficienthumanresourcesmanagementand enhance service delivery.

The revision of the Human Resources Strategy will provide a roadmap for creating a unique competitive advantage by outlining how the organisation will leverage its human capital to address business challenges and achieve business objectives.

Staff Development and TrainingA Training and Development Plan to address the skill requirements of new and existing staff was completed and submitted to the Energy and Water Sector Education and Training Authority (EWSETA). In the review period, 75% of employees attended local and international courses.

Skills Development Training ProgrammeThe second group of 12 learners was appointed during January 2013 to participate in NERSA’s Learnership Programme. This Programme, which startedin2011,wasapprovedbytheSouthAfricanQualificationsAuthority(SAQA) and registered with the EWSETA at NQF level 5. Candidates will receiveaNationalCertificate inEnergyRegulationoncompletionof theProgramme.


The Learnership Programme is aimed at providing young graduates from further education and training institutions and universities with access to theoretical and on-the-job training, in order to prepare them for future employment opportunities, as well as to create a pool of potential candidates for employment by the Energy Regulator.

NERSA also has a Job Shadowing Programme which is aimed at exposing young female learners to different careers within the energy industry. The programme startedduring2012withanintakeoffivelearnersfrompreviouslydisadvantagedgroups. NERSA presents this programme in partnership with Uweso Consulting and the Department of Women, Children and People with Disabilities.

Pension FundThe NERSA Pension Fund is a standalone defined contribution fund.A decision was made to transfer the fund to an Umbrella Fund (Sanlam Umbrella Fund).

A general trend in the retirement industry is that smaller standalone private funds are merging into Umbrella Funds. Umbrella Funds are managed by a Board of Trustees consisting of professional trustees and a Principal Officer who are usually practitioners in the retirement fund industry. Participation in Umbrella Funds allows the fund to benefit from economies of scale and yields valuable benefits in cost reduction for both administration fees as well as insured benefits costs. Umbrella Funds have flexible investment strategies and most funds offer individual investment choices as well as optional Flexible Risk benefits, thus allowing the member an option to increase cover should circumstances demand. Employee Representative BodyThe National Education Health and Allied Workers Union (Nehawu) is the only recognised union within NERSA, with 60% of staff in the bargaining unit being members.


2. HUMAN RESOURCE OVERSIGHT STATISTICS

PersonnelCostbyprogramme

Programme Total Expenditure for the entity (R’000)

Personnel Expenditure (TCTC) (R’000)

Personnel exp. as a % of total exp. (R’000)

No. of employees

Average personnel cost per employee (R’000)

Setting and/or approval of tariffs and prices 57 114 36 443 64% 55 663Licensing and Registration 56 674 36 443 64% 55 663Compliance monitoring and enforcement 30 859 17 980 58% 29 620Dispute resolution including medition, arbitration and the resolution of complaints

19 274 10 544 55% 16 659

Setting of rules, guides and codes for regulation 21 522 12 094 56% 18 672EstablishingNERSAasanefficientandeffectiveorganisation

12 926 8 335 64% 11 758

TOTAL 198 369 121 839 61% 184 662

Personnelcostbysalaryband

LEVEL Personnel Expendure (R'000)

% of personnel exp. to total personnel cost

No of employees Average personnel cost per employee (R'000)

Top Management 11 209 9.2% 4 R2 802Senior Management 8 285 6.8% 9 R921Professionalqualified 66 890 54.9% 71 R942Skilled 26 926 22.1% 58 R464Semi Skilled 8 163 6.7% 40 R204Unskilled 366 0.3% 2 R183TOTAL 121 839 100.0% 184 R662


PerformanceRewards

Performance Rewards(R’000)

Personnel Expenditure(R’000)

% of perfomance rewards to total personnel cost (R’000)

Top Management R1 900 R11 209 17%Senior Management R1 034 R8 285 12%ProfessionalQualified R6 516 R66 890 10%Skilled R2 744 R26 926 10%Semi Skilled R831 R8 163 10%Unskilled R44 R366 12%TOTAL R13 069 R121 839 11%

TrainingCosts

Directorate/ Business Unit

Personnel Expenditure (R’000) Training Expenditure(R’000)

Training Expenditure as a % of Personnel Cost.

No. of employees trained

Avg training cost per employee

Specialised Support Unit R20 489 R600 2.9% 20 R30 000ChiefFinanceOffice R9 889 R349 3.5% 13 R26 846ChiefHumanCapitalOffice R6 051 R146 2.4% 5 R29 200Corporate Services Division R20 845 R535 2.6% 21 R25 476Electricity Regulation Division R39 603 R2 267 5.7% 36 R62 972Petroleum Pipelines Division R14 062 R249 1.8% 10 R24 900

Piped-Gas Regulation Division R10 900 R556 5.1% 13 R42 769TOTAL R121 839 R4 702 118 R39 847


Employmentandvacancies

Programme 2012/2013 No. of Employees

2012/2013 Approved Posts

2012/2013No. of Employees

2012/2013 Vacancies

% of Vacancies

Setting and/or approval of tariffs and prices 27 30 27 3 10%Licensing and registration 26 29 26 3 10%Compliance monitoring and enforcement 12 13 12 1 7.6%Dispute resolution, including mediation, arbitration and handling of complaints

6 7 6 1 14%

Setting of rules, guidelines and codes for the regulation of the piped-gas industry

4 7 4 3 43%

EstablishingNERSAasanefficientandeffective regulator

84 94 84 10 10.6%

TOTAL 159 180 159 21 11.6%

Currently159positionsarefilledpermanently(includingthreeFTRMs)andthereare21vacancies.Numbersabovereflectingtotalpersonnelandvacanciesare split according to programme and budgetary requirements.

Programme 2012/2013 No. of Employees

22012/2013 Approved Posts

2012/2013 No. of Employees

2012/2013 Vacancies

% of Vacancies

Top Management 4 4 4 0 0Senior Management 5 6 5 1 16.6%Professionalqualified 65 76 65 11 14.4%Skilled 60 68 60 8 11.8%Semi-skilled 23 24 23 1 4%

Unskilled 2 2 2 0 0TOTAL 159 180 159 21 11.6%

The total of 180 shown as approved posts, includes the three FTRMs.


Filling of Senior positions with internal candidatesThe CFO position has been re-advertised to get the most suitable candidate. No applications were received from internal candidates.

PeriodtakentofillvacantpositionsVacancies take a minimum of six months due to offers rejected at the last minute; talent competition with other related sectors; protractedprocesses within the organisation.

Measures taken to successfully attract and retain staff.To retain staff, NERSA offers market related salaries; Invests in employees through Training and Development Programmes.

Employmentchanges

Salary Band Employment at beginning of period Appointments Terminations Employment at end of the

period

Top Management 4 0 0 4Senior Management 3 2 0 5Professionalqualified 62 10 6 66Skilled 58 8 7 59Semi-skilled 21 2 0 23

Unskilled 2 0 0 2TOTAL 150 22 13 159

*The no of terminations excludes the employee whose contracts ended


Reasonsforstaffleaving

ReasonNumber % of total no. of staff leaving

Death 1 0.62%Resignation 13 8%Dismissal 0Retirement 0Ill health 0

Expiry of contract 2 1%Other -TOTAL 16 10%

LabourRelations:Misconductanddisciplinaryaction

Nature of Disciplinary ActionNumber

Verbal Warning 0Written Warning 0Final Written warning 1Dismissal 0


EquityTargetandEmploymentEquityStatus

Levels MALE

African Coloured Indian White

Current Target Current Target Current Target Current Target

Top Management 1 1 0 0 0 0 1 0Senior Management 2 1 0 0 0 1 1 0Professionalqualified 35 36 0 2 1 1 2 3Skilled 17 20 1 2 1 1 3 3Semi-skilled 4 4 0 1 0 1 0 0Unskilled 0 0 0 0 0 0 0TOTAL 59 62 1 2 2 4 7 6

Levels FEMALE

African Coloured Indian White

Current Target Current Target Current Target Current Target

Top Management 1 0 0 0 0 0 1 0Senior Management 2 4 0 0 0 1 0 0Professionalqualified 16 17 0 2 1 1 6 5Skilled 32 34 0 2 0 0 2 0Semi-skilled 19 15 0 1 0 0 0 0Unskilled 2 2 0 0 0 0 0 2TOTAL 72 72 0 5 1 2 7 7


Levels DISABLED STAFF

African Coloured

Current Target Current Target

Top Management 0 0 0 0Senior Management 0 0 0 0Professionalqualified 0 0 0 0Skilled 0 0 0 0Semi-skilled 2 2 0 0Unskilled 0 0 0 0TOTAL 2 2 0 0

There are no major variances between the targets set in the Employment Equity Plan and the current staff compliment. The target set for Top Managementhasbeensurpassed.ThedisabilitytargetsaspertheEEplanwasachievedbutintherevisedplanwillreflectthenationalnormtobeachieved. Note should be taken that the current Employment Equity Plan will be revised as the approved Staff compliment is 177 as opposed to 168 as a result of organisational restructuring. The current Employment Equity plan lapses on the 30th of October 2013.

ThefiguresindicatedaboveareasperthesubmissiontotheDepartmentofLabourfortheperiod01October2011to31September2012.



PART E: FINANCIAL INFORMATION


1. STATEMENT OF RESPONSIBILITY

The Energy Regulator is responsible for the maintenance of adequate records as well as the preparation and integrity of the financial statements and related information. The Annual Financial Statements present the state of affairs of the National EnergyRegulator of SouthAfrica (NERSA), its financial results and itsfinancial position at the end of the financial year. The financial statements are prepared in accordance with South African Standards of Generally Recognised AccountingPractices.Thefinancialstatementsarebasedonappropriateaccounting policies consistently applied and supported by reasonable and prudent judgments and estimates.

The Energy Regulator has set standards and implemented systems of internal control and risk management that are designed to provide reasonable, but not absolute assurance against material misstatements and losses.

NERSAmaintainsinternalfinancialcontrolstoprovideassuranceregarding:• the maintenance of proper accounting records; and • the reliability of financial information used within the business or for publication.

These standards and control systems are contained in the Corporate Governance Handbook of NERSA, which is reviewed and amended periodically.

TheEnergyRegulatorhasreviewedNERSA’sassets,liabilitiesandcashflowsforthe period ended 31 March 2013. On the basis of this review, and in light of the currentfinancialposition, theEnergyRegulatorhasevery reason tobelieve that

NERSA will be a going concern in the foreseeable future. For this reason, the Energy Regulator adopted the going concern basis in preparing the financial statements.

The Energy Regulator has reviewed NERSA’s systems of internal control and risk management for the period from 01 April 2012 to 31 March 2013. The Energy Regulator believes that NERSA’s systems of internal control and risk management were effective for the period under review.

TheannualfinancialstatementswereapprovedbytheEnergyRegulatorintermsofsection 51(1)(f) of the Public Finance Management Act, 1999 (Act No. 1 of 1999) on 31 July 2013 and are signed on its behalf by:

Phindile Baleni (née Nzimande)ChiefExecutiveOfficerDate: 29 July 2013

Cecilia Khuzwayo ChairpersonDate: 29 July 2013


2. REPORT OF THE CHIEF EXECUTIVE OFFICER

GeneralfinancialreviewofNERSANERSAmaintainsahealthyfinancialmanagementsystem.Theorganisationhasatrackrecordofreceivingunqualifiedauditreports.Themainsourceoffunding for NERSA is levies from licensees in the three regulated industries, being Petroleum Pipelines, Piped-Gas and Electricity. These levies are proposed by the Energy Regulator and approved annually by the Minister of Energy in consultation with the Minister of Finance.

Forthe2012/13financialyear,NERSAmanagedtocollect96.6%ofthebudgeted levies. The under-collection was mainly due to lower-than-projected volumes for the petroleum pipelines industry. NERSA also managed to spend 85.4% of the budget for operational expenditure. The remainderofthebudgetwasnotspentduetounfilledpositionsanddelaysinfinalisingtheprocurementprocessesforsomeoftheprojects.

Supply Chain ManagementNERSA has for a number of years continued with the implementation of and improvements on its Supply Chain Management (SCM) processes. The first SCM policy was approved by the Energy Regulator in 2009.The policy was reviewed and the changes were approved by the Energy

Regulator in 2010. This policy is earmarked for another review during the 2013/14 financial year with the aim of aligning to some of the recentlyissued National Treasury practice notes and instructions.

During the year under review, various bids for goods and services were advertised and awarded. NERSA also acquired a new system to automate some of the procurement processes in order to minimise human intervention and improve the turnaround time. The system is expected to go live during 2013/14.

One of the major challenges with SCM is the lack of capacity in the unit itself. To this end, NERSA is currently busy with the re-engineering of support services process, including SCM. It is expected that once completed, this process will inform the organisation on the correct and appropriate structure for Supply Chain Management.

Prior year Audit ReportsAlthough NERSA received an unqualified audit report from the Auditor-General, attention still had to be paid to matters raised in the Management Report. In response to such matters, action plans had to be compiled and these were monitored both at Executive Management level as well as by the Audit and Risk Committee.


3. REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE NATIONAL ENERGY REGULATOR OF SOUTH AFRICA

REPORT ON THE FINANCIAL STATEMENTS

Introduction 1. I have audited the financial statements of the National Energy Regulator of South Africa set out on pages 179 to 207, which comprise the statement of financial position as at 31 March 2013, the statement of financial performance, statement of changes in net assets, the cash flow statement and the statement of comparison of budget and actual amounts of for the year then ended, and the notes, comprising a summary of significantaccountingpoliciesandotherexplanatoryinformation.

TheAccountingAuthority’sresponsibilityforthefinancialstatements2. Theaccountingauthorityisresponsibleforthepreparationofthesefinancial statements in accordance with South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor-General’s responsibility 3. My responsibility is to express an opinion on these financial statements

based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the General Notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements and plan and performtheaudittoobtainreasonableassuranceaboutwhetherthefinancial statements are free from material misstatement.4. An audit involves performing procedures to obtain audit evidence abouttheamountsanddisclosuresinthefinancialstatements.Theprocedures selected depend on the auditor’s judgement, including the assessment of the risks ofmaterial misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internalcontrolrelevanttotheentity’spreparationofthefinancialstatements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentationofthefinancialstatements.5. IbelievethattheauditevidenceIhaveobtainedissufficientandappropriate to provide a basis for my audit opinion.

Opinion6. Inmyopinion,thefinancialstatementspresentfairly,inallmaterialrespects, thefinancialpositionoftheNationalEnergyRegulatorofSouthAfricaasat 31March2013,and itsfinancialperformance,cashflows, thestatementof comparison of budget and actual amounts for the year then ended in accordance with SA Standards of GRAP and the requirements of the PFMA.


Emphasis of matter 7. I drawattention to thematter below.Myopinion is notmodified in respect of this matter.

Restatementofcorrespondingfigures8. Asdisclosedinnote24tothefinancialstatements,thecorresponding figuresfor2012havebeenrestatedasaresultoferrorsdiscovered during2013inthefinancialstatementsofNERSAat,andfortheyear ended, 31 March 2013.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

9. In accordance with the PAA and the General Notice issued in terms thereof,Ireportthefollowingfindingsrelevanttoperformanceagainst predetermined objectives, compliance with laws and regulations and internal control, but not for the purpose of expressing an opinion.

Predetermined objectives 10. I performed procedures to obtain evidence about the usefulness and reliability of the information in the Annual Performance Report as set out on pages 37 to 126 of the annual report. 11. The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and reliability. The usefulness of information in the annual performance report relates to whether it is presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance is consistent with the planned objectives. The usefulness of information

further relates to whether indicators and targets are measurable (i.e.welldefined,verifiable,specific,measurableandtimebound)and relevant as required by the National Treasury Framework for managing programme performance information. The reliability of the information in respect of the selected programmes isassessedtodeterminewhetheritadequatelyreflectsthefacts(i.e. whether it is valid, accurate and complete).12. TherewerenomaterialfindingsontheAnnualPerformanceReport concerning the usefulness and reliability of the information.

Compliance with laws and regulations 13. I performed procedures to obtain evidence that the entity has complied with applicable laws and regulations regarding financial matters, financial management and other related matters. My findings on materialnon-compliancewithspecificmattersinkeyapplicablelaws and regulations as set out in the General Notice issued in terms of the PAA are as follows:

Annualfinancialstatements14. Thefinancialstatementssubmitted forauditingwerenotsupported by full and proper records as required by section 55(1) (a) and) (b) of the PFMA. Material misstatements of non-current assets, expenditure and disclosure items identified by the auditors in the submittedfinancialstatementweresubsequentlycorrected,resulting inthefinancialstatementsreceivinganunqualifiedauditopinion.


Assets management15. Proper control systems to safeguard and maintain assets were not implemented, as required by section 51(1)(c) of the Public Finance Management Act.

Internal control 16. Iconsideredinternalcontrolrelevanttomyauditofthefinancialstatements, annual performance report and compliance with laws and regulations. The matters reported below under the fundamentals of internal control are limited tothesignificantdeficienciesthatresultedinthefindingsoncompliancewith laws and regulations included in this report.

Financial and performance management17. Lack of controls over the daily and monthly processing and reconciling of transactions. 18. Lackofcontrols toensure regular,accurateandcompletefinancial reports that are supported and evidenced by reliable information are prepared. 19. Lack of review and monitor of compliance with applicable laws and regulations.

OTHER REPORTS

Investigations20. Two investigations were conducted during the year, the one relating to possible irregularities in the supply chain management system which is still in process and one relating to Employee cost which have been concluded during thefinancialyear.

Pretoria31 July 2013


4. ACCOUNTING AUTHORITY’S REPORT

4.1. Introduction

TheEnergyRegulatorpresentsitsannualfinancialstatementsthatformspartoftheannualreportoftheNationalEnergyRegulatorofSouthAfrica (NERSA) for the year ended 31 March 2013.

The National Energy Regulator (NERSA) is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum Pipelines Act, 2003 (Act No. 60 of 2003). It is listed as a national public entity in terms of the schedule 3A of the Public Finance Management Act (PFMA), 1999 ( Act No. 1 of 1999).

4.2. Regulator Members and Secretary of NERSA

TheEnergyRegulatorconsistsofnineRegulatorMembers,fiveofwhomarepart-timeandfourofwhomarefull-time(includingtheCEO),asappointed bytheMinisterofEnergy.Thepart-timeandfull-timeRegulatorMembersareappointedforaperiodoffourandfiveyearsrespectively.

The current Regulator Members are:

Mrs C Khuzwayo Appointed 1 January 2010 Chairperson

Mr J Lesejane Appointed 1 January 2010 Deputy Chairperson

Ms P Baleni (née Nzimande) Appointed 1 May 2011 Full-time Member : CEO

Mr T Bukula Re-appointed 1 April 2011 Full-time Member : Electricity Regulation

Dr R Crompton Re-appointed 1 April 2011 Full-time Member : Petroleum Pipelines Regulation

Ms E Teljeur Re-appointed 1 April 2011 Full-time Member : Piped-Gas Regulation

Ms K Mthimunye Appointed 1 January 2010 Part-time Member

Ms G Whittington Banda Appointed 1 January 2010 Part-time Member

Mr O Komane Appointed 1 November 2011 Part-time Member

In addition to the Regulator Members the Energy Regulator has appointed the following external members to its governance committees:

Ms M Joubert Re-appointed 1 March 2010 External Member: Audit and Risk Committee


Ms N Joubert Re-appointed 1 March 2010 External Member: Human Resources Committee

Mr J Mabaso * Re-appointed 1 March 2010 External Member: Human Resources Committee

Mr M Nkhabu ** Re-appointed 1 March 2010 External Member: Audit and Risk Committee

* Resigned 15 October 2012 ** Resigned 07 September 2012

The Secretary of NERSA is Mrs. Karen Brits and her business and postal addresses are as follows:

Business Address: Kulawula House 526 Madiba Stree Arcadia Pretoria 0007

Postal Address: P O Box 40343 Arcadia Pretoria

4.3. Organisational structure The Minister of Energy appoints both Part-Time and Full-Time Regulator members. The Energy Regulator acts independently and reports to

Parliament, and the Minister of Energy in terms of the Public Finance Management Act, 1999 (Act no. 1 of 1999). The Full-Time Regulator Members consist of the CEO, the member primarily responsible for Electricity Regulation, the member primarily responsible for Piped-Gas Regulation and the member primarily responsible for Petroleum Pipelines Regulation.

4.4. Principal Activities The Energy Regulator is the regulatory authority over the energy industry, and currently regulates electricity, piped-gas and petroleum

pipeline’sindustries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum pipelines Act, 2003(Act No. 60 of 2003) respectively.


4.5. Operating results and review of operations Thesurplus/(netdeficit)forNERSAfortheyearamountedtoR10.7million.Thesummaryfinancialresultsaredetailedbelow.

Relevantfinancialinformation

Actual Budget Variance R R R

Levy income 204,224,414 211,926,003 (7,701,589) Finance income 4,348,198 5,100,000 (751,802) Other income 473,848 - 473,848 Expenditure (198,369,815) (232,304,744) 32,934,929 Surplus/(NetDeficit) 10,676,644 (14,278,740) 24,955,384 Capital Expenditure (6,102,500) (9,281,158) 3,178,658

4.6. NERSA Accumulated Surplus 2013 2012 R R Accumulated Surplus 101,774,385 91,097,742

The surplus reported as at 31 March 2013 consists of the following: 2013 2012

101,774,385 91,097,742 Approved Commitments 15,124,169 7,017,933 Cash Flow Mitigating Reserve 28,369,791 25,374,450 Reserves Accumulated by National Electricity Regulator over ten year period refunded equally to the Electricity industry in 2012/13 and 2013/14 13,432,314 26,864,629 Unallocated surplus to be refunded to the industries in 2012/2013 - 3,102,255 Unallocated surplus to be refunded to the industries in 2013/14 to 2015/16 28,706,769 28,706,769 Unallocated surplus to be refunded to the industries in 2014/15 to 2016/17 16,141,342 31,706


The accumulated surplus reflected above relates to the underspending by the Energy Regulator in previous financial periods. This is mainly due to the existing vacancies in the approved structure contributing to the underspending of remuneration. The surplus will be refunded to the relevant industries through a reduction of levy payable for period 2013/2014 to 2016/2017.

SURPLUS TO BE REFUNDED PER INDUSTRY 2014/2015 + 2013/2014 2012/2013 TotalElectricity reserves from NER 13,432,314 13,432,314 26,864,628 Electricity 2,342,552 Piped-Gas 379,852 3,102,255 Petroleum Pipeline 379,851 Electricity 6,285,318 Piped-Gas * 7,253,722 7,253,722 28,706,769 Petroleum Pipeline 7,914,007 Electricity 6,299,249 Piped-Gas * 7,931,413 16,141,342 Petroleum Pipeline 1,910,680

23,395,064 34,885,361 16,534,569

* Surplus funds will be refunded to the Piped-Gas Industry on the 50/30/20 principle. 50% refund in the 1st year, 30% in the 2nd year and 20% in the last year.


4.7. Levies

NERSA is funded as follows to cover its expenditure :

Electricity A levy is imposed on the holders of the title to electricity as it enters the system licensed by NERSA in terms of Section 5B of the Electricity Act, 1987 (No. 41 of 1987). This levy is based on Megawatt hours.

Piped-Gas A levy is imposed on the holders of the title to gas as it enters the system licensed by NERSA in terms of Section 2 of the Gas Regulator Levies Act (No. 75 of 2002).This levy is based on Giga Joules.

Petroleum Pipelines A levy is imposed on the holders of the title to petroleum as it enters the system licensed by NERSA in terms of Section 2 of the

Petroleum pipelines Levies Act (No. 28 of 2004). This levy is based on litres.

The above levies are approved as part of the annual budget process.

4.8. Materialityandsignificanceframework

Amaterialityandsignificanceframeworkpolicyhasbeendeveloped for reporting any act of misconduct, losses, irregular and fruitless and wasteful expenditure, as well as for significant transactions envisaged per section 54 (2) of the PFMA that requires Ministerial approval.

4.9. Events after balance sheet date

The Energy Regulator is not aware of any material event which occurred subsequent to the compiling of the annual financial statements which may significantly affect the position of the organisation or the results of its operations.


5. ANNUAL FINANCIAL STATEMENTS

Statement of Financial Position as at 31 March 2013Figures in Rand Note(s) 2013 2012

(Restated)AssetsCurrent AssetsInventory 5 220 253 188 412

Receivables from exchange transactions 6 1 478 677 405 199

Receivables from non-exchange transactions 7 18 394 504 13 446 619Cash and cash equivalents 8 84 063 549 82 811 078

104 156 983 96 851 308Non-Current Assets

Property, plant and equipment 2 39 113 026 37 724 662Intangible assets 3 4 431 126 5 662 995

43 544 152 43 387 657Total Assets 147 701 135 140 238 965LiabilitiesCurrent LiabilitiesPayables from exchange transactions 10 25 099 255 28 740 966

Payables from non-exchange transactions - 427 238 -

25 526 493 28 740 966

Total Liabilities 25 526 493 28 740 966Net Assets 122 174 642 111 497 999ReservesRevaluation reserve 20 400 257 20 400 257

Accumulated surplus 101 774 385 91 097 742Total Net Assets 122 174 642 111 497 999

National Energy Regulator of South AfricaFinancial Statements for the year ended 31March2013


Statement of Financial PerformanceFigures in Rand Note(s) 2013 2012Revenue 11 204 224 414 141 636 976Other income 12 473 848 189 536Operating expenses (198 368 594) (179 425 455)

Operatingsurplus/(deficit) 6 329 668 (37 598 945)Finance income 4 348 198 4 742 585Interest paid 15 (1 222) (356)

Surplus(deficit)fortheyear 10 676 644 (32 856 714)

Attributable to:Owners of the controlling entity 10 676 644 (32 856 714)

Statement of Changes in Net AssetsFigures in Rand Revaluation reserve Accumulated surplus Total net assets

Opening balance as previously reported 20 400 257 123 905 710 144 305 967AdjustmentsPrior year adjustments ( Note 24) - (2 810) (2 810)

Balance at 01 April 2011 as restate 20 400 257 123 902 900 144 303 157Changes in net assetsFair valuing of assets - 17 040 17 040Prior year adjustment - 34 516 34 516Net income (losses) recognised directly in net assets - 51 556 51 556Deficitfortheyear - (32 856 714) (32 856 714)Total recognised income and expenses for the year - (32 805 158) (32 805 158)

Total changes - (32 805 158) (32 805 158)Balance at 01 April 2012 20 400 257 91 097 741 111 497 998Changes in net assetsSurplus for the year - 10 676 644 10 676 644 Total changes - 10 676 644 10 676 644Balance at 31 March 2013 20 400 257 101 774 385 122 174 642



Cash Flow StatementFigures in Rand Note(s) 2013 2012

Cashflowsfromoperatingactivities

ReceiptsCash receipts from customers 198 676 899 147 813 805Interest received 4 348 198 4 742 585

203 025 097 152 556 390Payments

Cash paid to suppliers and employees (195 668 904) (166 501 152)Interest paid (1 222) (356)

(195 670 126) (166 501 508)Netcashflowsfromoperatingactivities 18 7 354 971 (13 945 118)

Cashflowsfrominvestingactivities

Purchase of property, plant and equipment (4 911 958) (841 485)

Proceeds from sale of property, plant and equipment - 47 720Purchase of other intangible assets (1 190 542) (1 404 967)Netcashflowsfrominvestingactivities (6 102 500) (2 198 732)

Net increase/(decrease) in cash and cash equivalents 1 252 471 (16 143 850)Cash and cash equivalents at the beginning of the year 82 811 078 98 954 928Cash and cash equivalents at the end of the year 8 84 063 549 82 811 078



Statement of Comparison of Budget and Actual AmountsBudget on Cash Basis

Figures in Rand Approved budget Adjustments Final Budget Actual amounts on comparable basis

Difference between finalbudgetandactual

Reference

Statement of Financial Performance

Revenue

Revenue from exchangetransactionsOther income - - - 473 848 473 848Interest received - investment 5 100 000 - 5 100 000 4 348 198 (751 802)Total revenue from exchange 5 100 000 - 5 100 000 4 822 046 (277 954)transactions

Revenue from non-exchangetransactionsLevies 211 926 003 - 211 926 003 204 224 414 (7 701 589) Note 29Total revenue from non-exchange transactions 211 926 003 - 211 926 003 204 224 414 (7 701 589)

Total revenue 217 026 003 - 217 026 003 209 046 460 (7 979 543)



Statement of Comparison of Budget and Actual Amounts (Continues)ExpenditureFigures in Rand Approved budget Adjustments Final Budget Actual amounts on

comparable basisDifference between finalbudgetandactual

Reference

Personnel (144 296 529) - (144 296 529) (121 839 451) 22 457 078Depreciation and amortisation - - - (5 823 396) (5 823 396)Finance costs - - - (1 222) (1 222)Loss on disposal of assets - - - (139 649) (139 649)General expenses (87 008 215) - (87 008 215) (70 566 098) 16 442 117Total expenditure (231 304 744) - (231 304 744) (198 369 816) 32 934 928Operating surplus (14 278 740) - (14 278 740) 10 676 644 24 955 384Refund of surplus funds 16 534 568 - 16 534 568 - (16 534 568)Rolloverofcashflowmitigation 6 755 330 - 6 755 330 - (6 755 330)

reserve

23 289 898 - 23 289 898 - (23 289 898)Surplus before taxation 9 011 158 - 9 011 158 10 676 644 1 665 486Actual Amount on Comparable 9 011 158 - 9 011 158 10 676 644 1 665 486Basis as Presented in theBudget and ActualComparative StatementReconcilation



Accounting Policies1. Presentation of Annual Financial Statements The Annual Financial Statements have been prepared in accordance

with the Standards of Generally Recognised Accounting Practice (GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board.

The Annual Financial Statements have been prepared on an accrual basis of accounting and are in accordance with historical cost conventionunlessspecifiedotherwise.TheyarepresentedinSouthAfrican Rand.

Asummaryof thesignificantaccountingpolicies,whichhavebeenconsistently applied, are disclosed below.

The accounting policies are consistent with the previous period.

1.1 Ring-fencing methodology Section 13 (2) and (3) of the National Energy Regulator Act, 2004

(Act No.40 2004) requires that the Energy Regulator keep separate accounts for the electricity, piped-gas and petroleum pipelines reg-ulatory functions and that the costs of the Energy Regulator must be shared between the electricity, piped-gas and petroleum pipeline regulatory industries in proportion to the costs incurred by the Energy Regulator in respect of each of those regulatory functions.

All costs of the Energy Regulator are shared between electricity, piped-gas and petroleum pipelines industries using a ring fencing methodology. The primary accounting principles upon which the ring-fencing methodology is based, are the following:


• Costs that can be directly attributable to a specific regulatory industry will be charged directly to that industry.

• Costs that are not directly attributable to a specific regulatory industry, but are incurred as common costs in order to support the three regulatory industries, will be allocated between the three regulatory industries using a basis of allocation that fairly distributes the costs. During the year under review the distribution of these costs was as follows:

o Electricity 58% o Piped-Gas 21% o Petroleum Pipelines 21%

1.2 Property, plant and equipment Property, plant and equipment are tangible non-current assets that

are held for use in the production or supply of goods or services, rental to others, or for administrative purposes, and are expected to be used during more than one period.

The cost of an item of property, plant and equipment is recognised as an asset when:

• itisprobablethatfutureeconomicbenefitsorservicepotentialas sociatedwiththeitemwillflowtotheentity;and

• the cost of the item can be measured reliably.

Property, plant and equipment is initially measured at cost.

The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Trade discounts and rebates are deducted in arriving at the cost.



Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses except for Land and Buildings which is carried at revalued amount being the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Revaluationsaremadewithsufficientregularitysuchthatthecarryingamountdoes not differ materially from that which would be determined using fair value at the end of the reporting period.

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

Any increase in an asset’s carrying amount, as a result of a revaluation, is credited directly to a revaluation surplus. The increase is recognised in surplus ordeficit to theextent that it reversesa revaluationdecreaseof the sameassetpreviouslyrecognisedinsurplusordeficit.

Any decrease in an asset’s carrying amount, as a result of a revaluation, is recognisedinsurplusordeficitinthecurrentperiod.Thedecreaseisdebiteddirectly to a revaluation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

Therevaluationsurplusinequityrelatedtoaspecificitemofproperty,plantand equipment is transferred directly to retained earnings when the asset is derecognised.

The amount transferred is equal to the difference between depreciation based on the revalued carrying amount and depreciation based on the original cost of the asset.

Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimated residual value.

Land is not depreciated. The building is depreciated on the straight line method to allocate the revalued amount over the estimated the useful life of the building. The last revaluation was done in March 2011. According to the revaluation report the building has a total life of 50 years, while the remaining useful life was determined to be 24 years.

NERSA has reviewed the residual value used for the purpose of depreciation calculations. The effect of the review, where applicable have been included in thefinancialstatements.

The average useful lives of items of property, plant and equipment have been assessed as follows:

Officefurnitureandequipment 10years

Computer hardware 3 years

Motor vehicles 5 years

Building 50 years


1.3 Intangible assets An intangible asset is recognised when: • itisprobablethattheexpectedfutureeconomicbenefitsorservice

potentialthatareattributabletotheassetwillflowtotheentity;and • the cost or fair value of the asset can be measured reliably.

Intangible assets are initially recognised at cost.

Intangible assets are carried at cost less any accumulated amortisa-tion and any impairment losses.

The amortisation period and the amortisation method for intangible assets are reviewed at each reporting date.

Amortisation is provided to write down the intangible assets, on a straight line basis as follows:

Item Useful life Computer software 2 years

Intangible assets are derecognised: • on disposal; or • whennofutureeconomicbenefitsorservicepotentialareexpected

from its use or disposal.

1.4 Financial instruments A financial instrument is any contract that gives rise to a financial

asset of one entity and a financial liability or a residual interest ofanother entity.

Afinancialassetis: • cash; •a residual interest of another entity; or

• a contractual right to: - receivecashoranotherfinancialassetfromanotherentity;or - exchangefinancialassetsorfinancial liabilitieswithanother

entity under conditions that are potentially favourable to the entity.

Afinancialliabilityisanyliabilitythatisacontractualobligationto: • delivercashoranotherfinancialassettoanotherentity;or • exchangefinancialassetsorfinancialliabilitiesunderconditions

that are potentially unfavourable to the entity.

1.5 Tax Tax expenses

No provision for South African normal taxation has been made as NERSA is exempted in terms of section 10 (1) (CA) (1) of the Income Tax Act.

1.6 Leases Aleaseisclassifiedasafinanceleaseifittransferssubstantiallyall

the risksand rewards incidental toownership.A lease isclassifiedas an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Operating leases - lessor Operating lease revenue is recognised as revenue on a straight-line

basis over the lease term.

Operating leases - lessee Operating lease payments are recognised as an expense on a

straight-line basis over the lease term.




1.7 Inventory Inventory is initially measured at cost except where inventory is acquired

through a non-exchange transaction, then it’s costs is the fair value as at the date of acquisition.

Subsequently inventory is measured at the lower of cost and net realisable value.

Inventory is measured at the lower of cost and current replacement cost where it is held for use:

• distribution at no charge or for a nominal charge; or • consumption in the production process of goods to be distributed at no

charge or for a nominal charge.

Current replacement cost is the cost the entity incurs to acquire the asset on the reporting date.

Thecostof inventory isassignedusing thefirst-in,first-out (FIFO) formula.The same cost formula is used for all inventory having a similar nature and use to the entity.

1.8Employeebenefits

Short-termemployeebenefits Thecostof short-termemployeebenefits (thosepayablewithin12months

after the service is rendered, such as paid vacation leave and sick leave, bonuses,andnon-monetarybenefitssuchasmedicalcare)arerecognisedinthe period in which the service is rendered and are not discounted.

The expected cost of surplus sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

Definedcontributionplans NERSA operates a define contribution plan, which is adminstered by the

Sanlam Pension Fund. The plan is funded by payments from the employer and the employees.

During the year under review a decision was made to transfer the fund to an Umbrella Fund (Sanlam Umbrella Fund).

Umbrella Funds are managed by Boards of Trustees consisting of professional trusteesandaPrincipalOfficerwhoareusuallypractionersintheretirementfund industry.

Paymentstodefinedcontributionretirementbenefitplansarechargedasanexpense as they fall due.

1.9 Provisions and contingencies Provisions are recognised when: • the entity has a present obligation as a result of a past event; • itisprobablethatanoutflowofresourcesembodyingeconomicbenefitsor

service potential will be required to settle the obligation; and • a reliable estimate can be made of the obligation.

The amount of a provision is the best estimate of the expenditure expected to be required to settle the present obligation at the reporting date.

Provisions are reviewed at each reporting date and adjusted to reflect thecurrent best estimate. Provisions are reversed if it is no longer probable that anoutflowofresourcesembodyingeconomicbenefitsorservicepotentialwillbe required, to settle the obligation.

A provision is used only for expenditures for which the provision was originally recognised.


If an entity has a contract that is onerous, the present obligation (net of recoveries) under the contract is recognised and measured as a provision.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 20.

1.10 Revenue recognition Revenue is recognised on an accrual basis in accordance with the

substance of the relevant agreements based on the provisions of the National Energy Regulator Act, 2004 (Act No.40 of 2004).

ThefollowingActshavespecificreferenceinthisregard: • Section 5B of the Electricity Act, 1987 (No.41 of 1987) • Section 2 of the Gas Regulator Levies Act, 2002 (No. 75 of 2002) • Section 2 of the Petroleum Pipelines Levies Act, 2004 (No. 28

of 2004) • Revenue is measured at the fair value of the consideration

received or receivable and comprises of the net invoiced values funded from levies imposed by and other services rendered in terms of the National Energy Regulator Act.

1.11 Revenue from non-exchange transactions Revenuecomprisesgross inflowsofeconomicbenefitsorservice

potential received and receivable by an entity, which represents an increase in net assets, other than increases relating to contributions from owners.

Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange.

Stipulations on transferred assets are terms in laws or regulation, or a binding arrangement, imposed upon the use of a transferred asset by entities external to the reporting entity.

Recognition Aninflowofresourcesfromanon-exchangetransactionrecognised

as an asset is recognised as revenue, except to the extent that a liabilityisalsorecognisedinrespectofthesameinflow.

Measurement Revenue from a non-exchange transaction is measured at the

amount of the increase in net assets recognised by the entity.

1.12 Investment income Investment income is recognised on a time-proportion basis using

the effective interest method.

1.13 Translation of foreign currencies Foreign currency transactions A foreign currency transaction is recorded, on initial recognition in

Rands, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.




1.14Comparativefigures Where necessary, comparative figures have been reclassified to conform

to changes in presentation in the current year.

1.15 Fruitless and wasteful expenditure Fruitless expenditure means expenditure which was made in vain and could

have been avoided had reasonable care been exercised.

All expenditure relating to fruitless and wasteful expenditure is recognised as an expense in the statement of financial performance in the year that theexpenditurewas incurred.Theexpenditure isclassified inaccordance with the nature of the expense, and where recovered, it is subsequently accountedforasrevenueinthestatementoffinancialperformance.

1.16 Irregular expenditure Irregular expenditure as defined in section 1 of the PFMA is expenditure

other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a requirement of any applicable legislation, including:

(a) this Act; or (b) the State Tender Board Act, 1968 (Act No. 86 of 1968), or any regulations

made in terms of the Act; or (c) any provincial legislation providing for procurement procedures in that

provincial government.

National Treasury practice note no. 4 of 2008/2009 which was issued in terms of sections 76(1) to 76(4) of the PFMA requires the following (effective from 1 April 2008):

Irregular expenditure that was incurred and identified during the current financial year and which was condoned before year end and/or before

finalisation of the Annual Financial Statements must also be recordedappropriately in the irregular expenditure register. In such an instance, no further action is required with the exception of updating the note to the Annual Financial Statements.

Irregular expenditure that was incurred and identified during the currentfinancialyearandforwhichcondonationisbeingawaitedatyearendmust be recorded in the irregular expenditure register. No further action is required with the exception of updating the note to the Annual Financial Statements.

Whereirregularexpenditurewasincurredinthepreviousfinancialyearandisonlycondonedinthefollowingfinancialyear,theregisterandthedisclosurenote to the Annual Financial Statements must be updated with the amount condoned.

Irregular expenditure that was incurred and identified during the currentfinancialyearandwhichwasnotcondonedbytheNationalTreasuryortherelevant authority must be recorded appropriately in the irregular expenditure register. If liability for the irregular expenditure can be attributed to a person, a debt account must be created if such a person is liable in law.

Immediate steps must thereafter be taken to recover the amount from the person concerned. If recovery is not possible, the accounting officer oraccounting authority may write off the amount as debt impairment and disclose such in the relevant note to the Annual Financial Statements. The irregular expenditure register must also be updated accordingly. If the irregular expenditure has not been condoned and no person is liable in law, the expenditure related thereto must remain against the relevant programme/expenditureitem,bedisclosedassuchinthenotetothefinancialstatementsand updated accordingly in the irregular expenditure register.


Some of the irregular expenditure awaiting condonation is under investigation. Once the investigation is finalised, the irregularexpenditure will be submitted for condonation by the applicable authority.

1.17 Budget information NERSA’s budget is reviewed and approved annually by the Minister

of Energy in concurrance with the Minister of Finance.

The approved budget is prepared on a cash basis and presented by economic classification linked to performance outcome objectives.

Theapprovedbudgetcoversthefiscalperiod1Aprilto31March.

The Annual Financial Statements and the budget are not on the same basis of accounting therefore a reconciliation between thestatementoffinancialperformanceand thebudgethavebeen includedintheannualfinancialstatements.




Notes to the Annual Financial StatementsFigures in Rand2. Property, plant and equipment

2013 2012

Cost / ValuationAccumulated depreciation

and accumulated impairmentCarrying value Cost / Valuation

Accumulated depreciation and accumulated impairment

Carrying value

Land 10 300 000 - 10 300 000 10 300 000 - 10 300 000

Buildings 28 324 771 (6 391 787) 21 932 984 26 534 159 (5 428 752) 21 105 407Motor vehicles 1 265 454 (567 425) 698 029 926 357 (405 495) 520 862Officeequipment 7 781 338 (4 885 382) 2 895 956 7 728 531 (4 546 727) 3 181 804

IT equipment 6 603 068 (3 317 011) 3 286 057 6 381 985 (3 765 396) 2 616 589Total 54 274 631 (15 161 605) 39 113 026 51 871 032 (14 146 370) 37 724 662Reconciliation of property, plant and equipment - 2013

Opening balance Additions Disposals Revaluations Depreciation TotalLand 10 300 000 - - - - 10 300 000Buildings 21 105 407 1 790 612 - - (963 035) 21 932 984Motor vehicles 520 862 339 096 - - (161 929) 698 029Officeequipment 3 181 804 424 237 (86 052) 17 041 (641 074) 2 895 956Computer hardware 2 616 589 2 358 013 (53 597) - (1 634 948) 3 286 057

37 724 662 4 911 958 (139 649) 17 041 (3 400 986) 39 113 026Reconciliation of property, plant and equipment - 2012

Opening balance Additions Disposals Revaluations Depreciation TotalLand 10 300 000 - - - - 10 300 000Buildings 22 025 000 - - - (919 593) 21 105 407Motor vehicles 710 159 - - - (189 297) 520 862Officeequipment 3 891 817 5 600 (4 852) 17 040 (727 801) 3 181 804Computer hardware 3 641 989 899 962 (30 167) - (1 895 195) 2 616 589

40 568 965 905 562 (35 019) 17 040 (3 731 886) 37 724 662

RevaluationsThe land and buildings are situated at 526 Madiba Street, Arcadia, Pretoria and are stated at the revalued amount. The last revaluation was done by an independent sworn appraiser on 31March2011.Basedonthemarketconditions,marketrental,officespaceandconditionofimprovements,thevalueofthelandandbuildingsamountedtoR32,325,000.


Notes to the Annual Financial StatementsFigures in Rand3. Intangible assets

2013 2012

Cost / Valuation

Accumulated depreciation

and accumulated impairment

Carrying value Cost / Valuation

Accumulated depreciation and

accumulated impairment

Carrying value

Computer software 12 576 538 (8 145 412) 4 431 126 13 674 956 (8 011 961) 5 662 995

Reconciliation of intangible assets - 2013

Opening balance Additions Amortisation TotalComputer software 5 662 995 1 190 542 (2 422 411) 4 431 126

Reconciliation of intangible assets - 2012Opening balance Additions Amortisation Total

Computer software 8 706 142 1 404 967 (4 448 114) 5 662 995

4. New accounting pronouncementAt the date of authorisation of the Annual Financial Statements, there are standards and interpretations in issue but not yeteffective. These include the following Standards

thatareapplicabletoNERSAandhaveanimpactonfuturefinancialstatements

Related party GRAP 20 Not yet effective

An entity shall apply Standards of GRAP for Annual Financial Statements covering periods beginning on or after a date to be determined by the Minister of Finance in a

regulation to be published in accordance with section 9(1)(b) of the PFMA

GRAP 20 RELATED PARTYThisstandardprescribesthedisclosureofinformationrelevanttodrawattentiontothepossibilitythatentityfinancialpositionandsurplus/deficitmayhaveaffectedbythe

existenceofrelatedparties.Itisnotexpectedthatthisstandardwillsignaficantlyimpactfuturedisclosures.

The followingStandardsand Interpretationshavebeen issuedbutarenotyeteffectiveandnotapplicable toNERSAandwillnothavean impacton futurefinancial

statements.




Segment Reporting GRAP 18 Not yet effectiveTransfer of function between entities under common control GRAP 105 Not yet effectiveTransfer of function between entities not under common control GRAP 106 Not yet effectiveMergers GRAP 107 Not yet effective

Figures in Rand 2013 20125. InventoryStationery 220 253 188 412

6. Receivables from exchange transactions

Employee costs in advance 1 373 -Prepayments 1 477 304 404 764Other receivables - 435

1 478 677 405 1997. Receivables from non-exchange transactions

Other receivables 364 643 277 143Levies 17 908 759 12 878 037Accrued income 51 313 6 404Staff debtors 69 789 285 035

18 394 504 13 446 6198. Cash and cash equivalents

Cash and cash equivalents consist of:

Petty cash 4 092 4 398Standard Bank Current Account 7 479 144 10 055 371Reserve Bank - Corporation for Public Deposits 76 580 313 72 751 309

84 063 549 82 811 078


Figures in Rand 2013 20129. Operating lease obligation

Minimum lease payments due- within one year 2 085 780 3 400 111-insecondtofifthyearinclusive 2 085 780 8 019 595Present value of minimum lease payments 4 171 560 11 419 706

This lease obligation relates to a rental agreement for the use of photocopy machines. The lease term is 36 months with no escalation or interest.

10. Payables from exchange transactions

Trade Creditors 120 475 1 306 054Nominated Bonu 197 536 219 400Leave Pay 4 114 001 3 672 439Performance Bonus 15 024 915 14 938 087Creditors 5 642 328 8 604 986

25 099 255 28 740 966The leave pay accrual relates to NERSA’s estimated liability arising as a result of services rendered by employees

The performance bonus relates to performance bonuses payable to NERSA employees for services rendered by them from 1 April 2012 to 31 March 2013.

11. Revenue

License fees from Electricity 106 105 805 67 837 403Levies from Piped-Gas 56 065 272 42 173 143Levies from Petroleum Pipelines 42 053 337 31 626 430

204 224 414 141 636 976

12. Other income

Sundry income 473 848 189 536




Figures in Rand 2013 201213. General expenses

Advertising 12 815 521 7 538 925

Assessment rates & municipal charges 649 958 580 441Auditors remuneration 1 661 727 1 597 999Bank charges 56 996 48 192Consulting and professional fees 13 074 294 17 029 497Entertainment 1 159 544 746 694Insurance 604 217 528 719Conferences and seminars 1 250 095 1 025 123Motor vehicle expenses 204 967 115 839Postage and courier 201 812 112 907

Printing and stationery 1 713 580 1 970 165

Operating lease charges 2 085 790 3 007 411Software expenses 2 038 789 1 292 742Staff welfare 597 383 694 846Subscriptions and membership fees 765 192 805 650Telephone and fax 1 130 941 1 118 466Training 4 702 736 3 894 362Travel - local 14 891 720 10 786 827Electricity 2 120 573 1 713 593Learnership progamme 410 597 836 062National/International Initiatives 949 376 -Knowledge Centre 1 450 950 1 125 252Public hearings 2 085 173 328 349Study fees 711 021 1 117 558Officeoperations 810 626 1 100 122Repairs and maintenance 2 416 520 1 787 213Bad debts written off 6 000 9 923

70 566 098 60 912 877


Figures in Rand 2013 201214. Employee related costs

Basic 93 745 366 82 500 360Bonus 13 069 026 13 337 019Medical aid - company contributions 3 907 214 3 763 273UIF 277 394 247 874Leave pay provision charge 901 085 1 138 603Post-employmentbenefits-Pension-Definedcontributionplan 9 864 581 9 284 817Overtime payments 49 285 35 634Long-service awards 25 500 25 000

121 839 451 110 332 580

15. Interest paid

Other interest paid 1 222 356

16. Auditors’ remuneration

External auditors 1 661 727 1 597 999

17. Operating lease income

The minimum future lease receipts are in respect of the use of NERSA premises and amount to:1 year or less 48 537 58 6462 - 5 years 219 662 264 587

268 199 323 233




Figures in Rand 2013 201218. Cash generated from (used in) operationsSurplus(deficit) 10 676 644 (32 856 714)Adjustments for:Depreciation and amortisation 5 823 396 8 179 998Loss/(profit)ondisposalofassets 139 649 (35 016)Fair value adjustments on assets (17 041) 17 040Proceedsfrominsuranceincludedunderfinancingactivities - (47 720)Donation income non-cash - (11 080)Fair value adjustment on assetsInventory (31 841) (22 920)Receivables from exchange transactions (1 073 478) 6 301 487Other receivables from non-exchange transactions (4 947 885) -Payables from exchange transactions (3 641 711) 4 529 807Payables from non-exchange transactions 427 238 -

7 354 971 (13 945 118)

19. CommitmentsCapital commitmentsAlready contracted for but not delivered•Computerhardware 112 347 77 045•Software 1 717 648 601 177

1 829 995 678 222

Operating commitments•Operatingexpenditurealreadycontractedbutnotdelivered 13 179 007 6 339 710

20. ContingenciesTheclaimfor2011/12financialyearrelatedtoacourtcasethatwaspendingaftertheserviceprovidertookNERSAtocourtduetodissatisfactionwiththeoutcomeofatenderprocess.Thisclaimwasfinalisedin2012/13infavourofNERSA.

2013 TotalClaims against NERSA - 1 000 000


Figures in Rand21. Related parties -

The Executive Authority to whom NERSA reports is the Minister of Energy. No transactions took place between NERSA and the Department of Energy for the period under review.

22. Remuneration of Regulator Members and Executive ManagementFull-time Regulator Members

2013Salary Backpay Car allowance Reimbursive and

other allowancesMedical Pension contributions

and UIFPerformance

Bonus*Total

P Baleni (née Nzimande) 1 915 501 15 767 120 000 131 449 - 234 754 153 785 2 571 256T Bukula 1 775 110 372 855 50 000 148 126 88 881 175 299 155 011 2 765 282E Teljeur 1 784 437 301 240 54 000 109 751 - 173 489 147 011 2 569 928R Crompton 1 766 290 301 240 36 360 78 228 35 787 173 489 147 011 2 538 405

7 241 338 991 102 260 360 467 554 124 668 757 031 602 818 10 444 871

*Bonuseswerepaidinthe2012/2013financialyearwithregardtotheperformanceofthe2011/2012financialyear.

2012Salary Backpay Car allowance Reimbursive and

other allowancesMedical Pension contributions

and UIFPerformance

Bonus***Total

P Baleni (née Nzimande)* 1 655 247 - 110 000 98 998 - 210 681 - 2 074 926T Bukula** 1 211 586 - 50 000 154 487 80 976 160 608 131 823 1 789 480E Teljeur** 1 225 253 - 51 577 110 077 - 160 608 117 176 1 664 691R Crompton** 1 300 772 - 9 180 92 645 32 610 160 608 117 176 1 712 991

5 392 858 - 220 757 456 207 113 586 692 505 366 175 7 242 088

* Appointed 1 May 2011** Re-appointed 1 April 2011

***Bonuseswerepaidinthe2011/2012financialyearwithregardtotheperformanceofthe2010/2011financialyear.




Figures in Rand22. Remuneration of Regulator Members and Executive Management (continued)

Part Time Regulator Members

2013Scheduled meetings Special assignments Reimbursive and other

allowancesTotal

CB Khuzwayo 448 846 16 500 40 033 505 379MJ Lesejane 293 308 14 020 12 852 320 180KR Mthimunye 333 914 26 768 44 644 405 326GM Whittington Banda 442 722 39 928 27 352 510 002O Komane 335 474 65 026 55 179 455 679

1 854 264 162 242 180 060 2 196 5662012

Scheduled meetings Special assignments Reimbursive and other allowances

Total

CB Khuzwayo 211 418 206 090 19 057 436 565MJ Lesejane 139 890 61 534 7 096 208 520KR Mthimunye 198 444 26 768 19 093 244 305GM Whittington Banda 325 162 96 540 40 911 462 613O Komane* 44 080 - 840 44 920

918 994 390 932 86 997 1 396 923

* Appointed 1 November 2011


Figures in RandExternal Members

2013

Scheduled meetings Special assignmentsReimbursive and other allowances

Total

M Joubert 11 972 - - 11 972N Joubert 43 920 - 1 010 44 930J Mabaso ** 21 960 - 1 920 23 880M Nkhabu *** 16 470 - 192 16 662

94 322 - 3 122 97 444

2012

Scheduled meetings Special assignmentsReimbursive and other allowances

Total

N Joubert 56 858 25 492 808 83 158J Mabaso 40 388 9 022 3 840 53 250M Nkhabu 16 470 - 280 16 750

113 716 34 514 4 928 153 158** Resigned 15 October 2012** Resigned 07 September 2012




Figures in Rand22. Remuneration of Regulator Members and Executive Management (continued)Executive Management

2013Salary

Car allowanceReimbursive and other allowances

MedicalPension contributionsand UIF

Performance Bonus***

Total

M Ncetezo 1 183 441 120 000 134 489 - 149 045 269 296 1 856 271

N Sithole 1 265 536 42 000 100 606 30 384 150 059 153 804 1 742 389N Maseti 974 017 60 000 99 891 43 245 116 809 250 707 1 544 669A Lees-Rolfe * 894 689 - 60 103 64 299 119 082 - 1 138 173P Nku ** 252 405 - - 22 395 33 039 - 307 839

4 570 088 222 000 395 089 160 323 568 034 673 807 6 589 341

* Appointed 11 June 2012** Appointed 2 January 2013***Bonuseswerepaidinthe2012/2013financialyearwithregardtotheperformanceofthe2011/2012financialyear.2012

SalaryBackpay Car allowance

Reimbursive and other allowances

Medical Pension contributions and UIF

Total

M Ncetezo 1 086 832 120 000 80 068 - 140 121 207 351 1 634 372N Sithole 1 149 271 42 000 99 558 27 813 141 412 209 285 1 669 339

N Maseti 836 019 60 000 67 325 39 390 110 493 - 1 113 227B Chaunzwa* 790 416 85 551 42 669 48 841 99 353 198 448 1 265 278P Mathibela** 880 911 - 51 056 - 96 197 207 978 1 236 142

4 743 449 307 551 340 676 116 044 587 576 823 062 6 918 35822. Remuneration of Regulator Members and Executive Management (continued)* Resigned 6 February 2012** Resigned 31 January 2012***Bonuseswerepaidinthe2011/2012financialyearwithregardtotheperformanceofthe2010/2011financialyear.


Figures in Rand23. Change in estimate

Property, plant and equipment

In the current period management have extended the estimated useful life of certain assets by 2 years. The effect of this revision has been a decrease in the depreciation charge for the current period by R 3 794 240, and an increase of R 2 529 493 on depreciation future periods.

24. Prior period adjustment

Thepriorperiodadjustmentisinrelationtofourtransactionsthattookplaceinpriorperiods.ThefirstoneisaSARSpaymentamountingtoR1,198,092.52whichwasnever recorded in prior periods. The second adjustment is in relation to reversal of invoices (R 1,162,211.30) which were wrongly captured as payables in previous periods. It was subsequently discovered that those invoices were fraudulent. A decision was taken to keep them in Accounts payable pending the outcome of an investigation. The investigation concluded that the invoices were indeed fraudulent hence the decision to reverse was taken. The third adjustment relates to the write-off of invoices for the recovery of cost related to a course which NERSA offered to licencees amounting to R 34,960.00. The fourth adjustment is in relation to the reassessment of the usefull life of assets that were fully depreciated in prior years resulting in a decrease of accumulated depreciation by R 103 547.

EmployeerelatedcostdisclosedinNote10ofthepreviousyearfinancialswasunderstatedbyR497089.

The correction of the error(s) results in adjustments as follows:

StatementoffinancialpositionIncrease in Payables from non-exchange transactions - (36 881)Decrease Receivables from non-exchange transactions - (34 960)Decrease in Accumulated depreciation - 103 547Opening Accumulated surplus - 31 707

Statement of Financial PerformanceAdvertising expense - (1 161 211)Salaries expense - 1 198 092Other Income - 34 960Depreciation - (103 547)




Figures in Rand25.ComparativefiguresWherenecessarycomparativefigureshavebeenadjustedtoconformtochangesinthecurrentyear.

Certaincomparativefigureshavebeenreclassified.

ThereclassificationrelatesoperatingleasepaymentsandprintingexpenseswhichwerepreviouslyincludedunderOperatingexpenseStatement of Financial PerformanceOperating lease charges - 3 007 411Printing and stationery - 1 615 241Operating expenses - (4 622 652)

26. Risk management

Financial risk management

NERSA’sactivitiesexposeittoavarietyoffinancialrisks:marketrisk(includingcurrencyrisk,fairvalueinterestraterisk,cashflowinterestrateriskandpricerisk),creditriskandliquidityrisk.

Credit risk

Creditriskconsistsmainlyofcashdeposits,cashequivalents,derivativefinancialinstrumentsandtradedebtors.NERSAonlydepositscashwithmajorbankswithhigh quality credit standing and limits exposure to any one counter-party.

Counterpartyriskreferstotheriskthatacounterpartywilldefaultonitsobiligationresultinginfinanciallosstotheentity.NERSAcollectsitsrevenuebasedonthreeacts namely section 5B of the Electricity Act, 1987 of (Act No 41 of 1987); section 2 of the Gas Regulator Levies Act, 2002 (No. 75 of 2002) and section 2 of the Petroleum Pipelines Levies Act, 2004 (No. 28 of 2004). The risk of non-payment largely mitigated by the existence of the relevant legislation in this regard.

Financial assets exposed to credit risk at year end were as follows:

Financial instrumentStandard Bank 7 479 144 10 055 371South African Reserve Bank 76 580 313 72 751 309


Figures in Rand26. Risk management (continued)

Interest rate risk

NERSA’spolicyistomanageinterestraterisksothatfluctuationsinthevariableratesdonothavematerialimpactonthesurplus(deficit).NERSA’sexposuretointerest rate risk and theAssets Weighted

average rateof interest

1 year or less Non-interest Total

Cash - 4 092 4 092Short-term investments 5.5 % 76 580 313 - 76 580 313Current account 3.75 % 7 479 144 - 7 479 144Receivable from exchange transactions - - 1 478 677 1 478 677Receivable from non-exchange transaction 8,5% 17 908 759 485 745 18 394 504

101 968 216 1 968 514 103 936 730

Liabilities Weightedaverage rate

of interest

1 year or less Non-interest Total

Payables from exchange transactions - 25 099 255 25 099 255Payables from non-exchange transactions - 427 238 427 238 - 25 526 493 25 526 493




Figures in Rand27. Going concern

We draw attention to the fact that at 31 March 2013, NERSA had accumulated suplus of R 101 774 385 and that the entity’s total assets exceed its liabilities by R 122 174 642.

The Annual Financial Statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be availabletofinancefutureoperationsandthattherealisationofassetsandsettlementofliabilities,contingentobligationsandcommitmentswilloccurintheordinarycourse of business

28. Fruitless and wasteful expenditure2013 2012

Payment of interest to Telkom due to invoices being received after due date 1 222 356

29. Irregular expenditure

Opening balance 85 242 85 242

Add: Irregular Expenditure - current year 3 108 376 402 485Less: Amounts condoned (423 315) (402 485)

2 770 303 85 242

Analysisofexpenditureawaitingcondonationperageclassification

Current year 2 770 303 85 242

Details of irregular expenditure – current year

Incident Disciplinary steps taken/criminal proceedings 2 614 957Continuation of service without appropriate approval Under investigationExtention of scope without prior approval Under investigation 96 201Service obtained without approval Under investigation 52 761SCM process not followed Under investigation 6 384Non compliance to NERSA’s sponsorship policy None 338 073

3 108 376


Figures in Rand29. Irregular expenditure (Continued)

Details of irregular expenditure condonedIncident Condoned by (condoning authority)Continuation of service without appropriate approval Energy Regulator 85 242Non compliance to NERSA's sponsorship policy Energy Regulator 338 073

423 315

Details of irregular expenditure recoverable (not condoned)Continuation of service without appropriate approval 2 614 957IncidentExtention of scope without prior approval 96 201Service obtained without approval 52 761SCM process not followed 6 384

2 770 303




30. Budget differences

Material differences between budget and actual amounts

The difference between budgeted and actual levies is to due lower than anticipated volumes for electricity and petroleum pipelines industries .

Personnel expenditure was lower than the budget amount due to vacancies that existed during the year under review. The vacancy rate as at 31 March 2013 was 11.86%.

Underspending on general expenses can be attributed to projects that were budgeted for but not implemented and some projects that were started in the last quarterofthefinancialyear.

Differences between budget and actual amounts basis of preparation and presentation

The budget and the accounting basis differ. The annual financial statementsarepreparedontheaccrualbasisusingaclassificationbasedonthenatureofexpensesinthestatementoffinancialperformance,whilethebudgetispreparedon the cash basis.


Notes


Notes


Notes


Notes

NATIONAL ENERGY REGULATOR (NERSA)Kulawula House, 526 Madiba Street

PO Box 40343, Arcadia, 0007 South AfricaTel: + 27 (0) 12 401-4600Fax: +27 (0) 12 401-4700

www.nersa.org.za

Designed/Printed: Milk Brown Designs & Communications

Documents

ANNUAL REPORT 2012/2013 and...3 NERSA - ANNUAL REPORT 2012/2013 PART A: GENERAL INFORMATION 1. GENERAL INFORMATION 6 2. ABBREVIATIONS AND ACRONYMS 7 3. STRATEGIC OVERVIEW 9 3.1 Vision