COMPLIANCE MONITORING REPORT OF CHIEF ALBERT

LUTHULI MUNICIPALITY

Monitoring Date: 12 June 2013

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All enquiries and correspondence to be directed to the Head of

Department: Electricity Licensing and Compliance

Tel: 012 401 4794

National Energy Regulator of South Africa

Kulawula House

526 Madiba Street

Arcadia

Pretoria

PO Box 40434

Arcadia

0007

Tel: +27 (0)12 401 4600

Fax: +27 (0) 12 401 4700

www.nersa.org.za

DISCLAIMER

The content of this report is based on information and evidence obtained from

both the licensee and site verification of plant condition conducted during the

monitoring process. Should this report not be accurate as per the information

collected from the licensee, the licensee must in writing within fourteen (14) days

of receipt of this report advise NERSA about such inaccuracies.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY................................................................... 4

1. INTRODUCTION ........................................................................... 4

2. METHODOLOGY .......................................................................... 5

3. NERSA DELEGATES & CHIEF ALBERT LUTHULI MUNICIPALITY DELEGATES .......................................................... 5

4. GENERAL INFORMATION ON CHIEF ALBERT LUTHULI MUNICIPALITY ................................................................................. 6

5. AUDIT FINDINGS ......................................................................... 6

6. PROGRESS IN IMPLEMENTATION OF CORRECTIVE ACTION PLAN ................................................................................................ 7

7. CONCLUSIONS .......................................................................... 13

8. RECOMMENDATIONS ............................................................... 13

9. NEXT STEP ................................................................................ 14

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EXECUTIVE SUMMARY On 12 June 2013, two NERSA employees conducted compliance monitoring on Chief Albert Luthuli Local Municipality. The objective was to determine progress made by Chief Albert Luthuli Municipality in the implementation of corrective action plan that was submitted by Chief Albert Luthuli Local Municipality to NERSA. The corrective action plan was developed by Chief Albert Luthuli Municipality and agreed to by NERSA after the findings of an audit conducted by NERSA from 28 to 29 May 2012. The intent of the corrective action plan is to address the non-compliances identified during the audit in order to help Chief Albert Luthuli Municipality to be an efficient and complying licensee. Section 5 of this report depicts all the findings as per the audit, while section 6 displays in table format the non-compliances together with the corrective action plans and the progress made to date against the target dates as agreed with NERSA. It must be mentioned that at the time of the first monitoring exercise, Albert Luthuli Local Municipality had made progress in some areas, especially in the technical part of their responsibility, while in terms of the financial part, very little progress had been made.

1. INTRODUCTION

1.1 Overview

The National Energy Regulator of South Africa (NERSA or ‘the Energy Regulator’) is required to monitor and assess whether the electricity suppliers comply with the conditions of their licences. The Energy Regulator approved a compliance monitoring framework for electricity distributors in 2011, which acts as a guide on how compliance audits and monitoring must be conducted. The framework is also supported by the Electricity Regulation, 2006 (Act No. 4 of 2006), Chapter 4 (a) (vii), which states that ‘The Regulator must enforce performance and compliance; and take appropriate steps in the case of non-performance’. NERSA conducts the compliance audits on licensed electricity distributors annually. NERSA regulates the energy industry in accordance with Government laws and policies, standards and international best practices in support of sustainable development. The organisation issues licences to electricity distributors and therefore requires audits to be conducted against key licence obligations. It is NERSA’s mandate to monitor and enforce compliance with the licence conditions as per the Act. This monitoring process is to enforce and ensure improvement and sustainability of the licensees for the betterment of the Electricity Supply Industry (ESI) which will lead to improved quality of supply and service to customers.

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1.2 Monitoring and Enforcement Objectives The key objectives of the compliance monitoring and enforcement of the corrective action plans are:

to enforce implementation of the corrective action plans;

to help the licensee not to lose sight of critical matters that need to be corrected;

to help the licensee to start doing self monitoring in terms of their performance against licence conditions;

to help the licensee to ensure that the quality of service and quality of supply do not decline; and

to inform the Energy Regulator of the progress made by the licensee in the implementation of the corrective action plans.

2. METHODOLOGY

A corrective action plan template was developed and sent to the licensee to populate with all the non-compliances highlighted during the audit, together with the intended corrective action plans (CAPs) with implementation target dates. These were sent to NERSA, although they were not signed by the relevant officials of the licensee. NERSA carefully agreed on the CAP and instigated a monitoring process which robustly monitors progress against target dates. Progress is checked against target dates and remedial actions are implemented on an ongoing basis. Proof and supporting documents were requested and presented to the NERSA officials during the monitoring process. Some site verification was also done to compare the current plant condition with the condition during the audit.

3. NERSA DELEGATES & CHIEF ALBERT LUTHULI MUNICIPALITY DELEGATES

NERSA was represented by the following officials:

Mr B van Heerden Financial Compliance Officer

Mr V Malaza Senior Distribution Compliance Engineer

Chief Albert Luthuli Municipality was represented by:

Ms M Vilakazi Manager: Electricity

Mr M Ngobeni Technician: Electricity

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4. GENERAL INFORMATION ON CHIEF ALBERT LUTHULI MUNICIPALITY

Chief Albert Luthuli Municipality (CALM) is located in the Mpumalanga Province. It supplies electricity to Badplaas, Silobela Township, Caro Park and Carolina Central Business District (CBD). At the time of the audit, the licensee had approximately 6,038 customers, which are categorised as follows: 4,700 Prepaid Domestic; 1,320 Domestic Conventional and 18 Commercial customers. There are three bulk points in CALM, namely Carolina, Silobela Township and Badplaas.

5. AUDIT FINDINGS

At the time of the audit, the following was highlighted to the licensee as areas that need attention and improvement:

a) The areas of supply on the Chief Albert Luthuli Municipality licence were not the same as those mentioned during the audit.

b) Two critical positions were vacant at the time of the audit. c) The electricity bill did not reflect the tariff charged. d) The Municipality did not apply the inclining block tariff. e) The single line diagrams were not available for presentation to the audit

team. f) There were no maintenance plans in place at the Municipality. Network

inspections were not done because of budgetary constraints. g) The figures on budgeted and actual expenditure on maintenance and

repairs for the past five years as provided by Chief Albert Luthuli Municipality were not verified by the audit team because it was submitted two months after the audit date. These figures did not correlate with the facts provided during the audit interviews, and the network condition of the whole Municipality did not display the values provided for maintenance.

h) The Carolina Main substation was in a very poor condition both inside and outside.

i) Silobela Township substation had poor security, no vegetation management and evidence of lack of maintenance. The charger and batteries were not maintained and not functional.

j) The mini-substations inspected were in a poor condition. k) Notices for outstanding payment and disconnections are hand

delivered; this stipulates seven days notice, which is not according to the NRS 047 standard.

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6. PROGRESS IN IMPLEMENTATION OF CORRECTIVE ACTION PLAN

Non-compliance

Corrective Action Start Date End Date Progress

Condition on Monitoring Day

Two critical positions not filled

The Electrical Manager position has been filled, only the Superintendant/Senior Technician is still to be appointed. A new structure has also been developed subject to council approval. This structure makes provision for a millwright and this position has been approved by the council.

One Technician resigned while one staff member qualified as a Technician and is acting in the vacant position. The council granted approval to advertise and fill in the vacant position.

Area of Supply was not according to schedule 1 of the license.

Lodge an amendment application

01 Novemebr 2012

06 November 2013

No progress; licensee still to submit application for Schedule 1 amendment to NERSA

No progress

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Electrical Services not ring-fenced

CFO/Finance

01 November 2012

06 November 2013

Nothing to report as no financial person was available. To be discussed with Finance Department and consider date revision.

No change, to be reported on in second monitoring.

Asset register for electricity

CFO/Finance

01 January 2013

30 June 2013

To be discussed with Finance Department and consider date revision.

No change, to be reported on in second monitoring.

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No reference number issued to customers for any query or fault reported/no record keeping

Technical Department to attend to the finding

01 November 2013

30 December 2013

A customer complaints office has been set up for the recording and tracking of customer complaints and record keeping will be part of the job. An official is expected to start in July 2013 at this office.

An official is expected to start in July 2013.

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No customer education forums

To be done by Corporate Communication

This is going to be driven by both Technical and Corporate Departments of the municipality. The licensee will contact Mr Peter Buys from NERSA for assistance.

No progress.

No formal Quality of Supply management and monitoring system

To be done by Technical Dept

November 2012

December 2013

Not monitored yet.

Still to be monitored.

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No emergency plan under network constraints

To be developed by Technical dept

November 2012

December 2013

CALM is in communication with Eskom in terms of provision of critical and essential loads. The list has been submitted to Eskom, Eskom is yet to come back.

Licensee is in consultation with Eskom.

No technical staff training

To be done by Corporate dept

July 2012

June 2013

A request for a fault detector course to operate a new fault detector machine has been sent to the council and is awaiting approval. Cable termination, jointing and MV switching course is planned and officials to be sent for training by Dec 2013. Also one staff member has qualified as a technician.

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No maintenance plan and maintenance done

To be done by Technical

November 2012

December 2013

To be looked at later in the second monitoring. Single line diagrams need to be developed and the master plan will inform the plan.

Obsolete indoor breaker, non-functioning backup systems, old 1.5MVA transformer and poor vegetation management at Silobela substation

Refurbishment to be done in the substation

August 2012

New ABB indoor breaker, battery back-up systems and new 5MVA transformer were installed and commissioned. Gates and doors were repaired and are now lockable.

The substation was completely refurbished and was in good condition with proper MV yard stones and security lights also installed. Only safety signs to be installed.

The exterior and interior of Carolina substation was in a very poor condition. No fence around the switch room open door and open trenches.

To install perimeter fence and install new doors with proper locks and maintain good housekeeping.

Cable trench was closed, security lights were installed and interior of the switch room is maintained. The perimeter fence was in the process of being installed when the contractor had to stop due to incorrect installation of perimeter fence; this is to resume and be completed within the next few weeks.

Some progress has been observed; substation now in good condition. Only perimeter fence must be completed.

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Low stock levels at the stores

To be done by CFO

February 2013

June 2013

Not started yet.

Need to revive the SCM process in collaboration with finance. A stores man is not in place as yet and material is kept at the workshop while critical material is kept by the electrical department.

7. CONCLUSIONS

Chief Albert Luthuli Local Municipality attended to most of the non-compliances highlighted by the audit in terms of network infrastructure refurbishment and repairs. In general, Chief Albert Luthuli Local Municipality improved in their performance on the technical part of the business. Most of the non-compliances highlighted at the time of the audit were attended to and the remaining issues are still being addressed as projects are still in progress. NERSA observed a high level of commitment from the electricity department officials regarding the addressing of the non-compliance issues. Chief Albert Luthuli Municipality did not only address the plant equipment that was audited, but attended to other additional plant equipment that was not part of the audited sample. NERSA commends the electricity department for the dedication and good work they are doing to improve the network condition of Chief Albert Luthuli Municipality. An area of concern is the financial part of the business, where support is needed by the technical department for the correction of the non-compliances highlighted at the time of the audit.

8. RECOMMENDATIONS It is recommended that the licensee provide the required support to the electricity business of Chief Albert Luthuli Local Municipality on the following critical matters: 8.1 Barricading and covering of the exposed and open mini substation at Caro

Park immediately due to safety and the high risk to the public;

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8.2 filling the critical Senior Technician/Superintendent vacant position in the department;

8.3 implementing the process of the development of an asset register for the electricity department linked to the GIS system of the municipality;

8.4 developing a proper maintenance plan for all plant equipment and adhering thereto in terms of funding and implementation;

8.5 ring-fencing the electricity business of the municipality from the rest of the municipality businesses for accurate budget allocation based on revenue generated by the business which will aid compliance with the NERSA tariff guideline when granting budgets to the department for repairs and maintenance;

8.6 completing the draft master plan in order to include not only the current risk on the electricity network, but also sub-projects with indicative budgets that address the risks and capacity constraints in the future planning;

8.7 assisting the department in the establishment of proper working stores for the keeping of critical stock items; and

8.8 implementing a self-monitoring process to ensure that the improved areas do not deteriorate back to a situation of non-compliance.

9. NEXT STEP

The Energy Regulator expects the Executive Management of Chief Albert Luthuli Local Municipality to support the electricity department as it implements the remaining corrective action plans in order to not only improve on compliance, but also to be one of the efficient and successful licensees in terms of good quality of supply and service to its customers. NERSA will continue to conduct the monitoring of the implementation of the corrective action plans on an ongoing basis until NERSA is satisfied with the progress made. Further engagements on the monitoring will be communicated to the licensees. It is expected that the licensee will now implement self-monitoring measures to ensure that the improved areas do not deteriorate back to a situation of non-compliance. All communication should be forwarded to: The Head of Department Licensing and Compliance: Electricity National Energy Regulator of South Africa PO Box 40343 Arcadia 0007 Fax: +27 (0)12 401 4700

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APPENDIX A: PLANT CONDITION DURING AUDIT VS. MONITORING TIME

Condition during the time of the audit Carolina Main Condition during the monitoring – work in progress to install fence

Condition during the time of the audit open trench During the monitoring – trench closed and proper stones in place

Condition during the time of the audit at Silobela During monitoring – new 5MVA transformer with yard stones

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Obsolete breakers at the time of audit New set of ABB indoor breakers at the time of monitoring

Condition during the time of the audit Condition during monitoring – in progress to fence off and repair

Unfenced with high grass during the time of the audit Condition during monitoring – fenced with proper stones