EXPRESSION OF VIEWS AND OPINIONS PERTAINING TO NERSA CONSULTATION PAPER ON ELECTRICITY RESELLERS

PRESENTER : LESHAN MOODLIAR

(BSC – ENG / PR – ENG)

VENUE : GALLAGHER ESTATE – MIDRAND

DATE : 22 JULY 2014

GENERAL COMMENTS

NERSA’s attempt in trying to “tackle” the electricity reseller industry is supported, however the paper does not holistically regulate the industry for the benefit of all stakeholders.

NERSA study 2007/08 followed by workshops in September 2011: results not published

There is a lack of clarity in terms of resellers mandated role when compared to the Municipality. Unfortunately, the consultation paper does not clarify their position nor make an attempt to call for views in doing the same.

The consultation paper does not deal with the technical and safety criteria that resellers should abide by;

The consultation paper focuses directly on Municipalities and excludes Eskom who are also exposed to electricity re-selling as well.

Paper states that NERSA - `… has instructed all licensed supply authorities to submit resellers’ tariff proposal for the next tariff review.’

A special tariff will not solve the many issues surrounding resellers. The next few slides will highlight this.

STREET LIGHTING & GRASS CUTTING Provision of load/verge lighting and maintenance

ROADS Provision of road infrastructure to enable a network of transport routes

SOLID WASTE Provision of a waste disposal solution for solid and recyclable material

WATER & SANITATION Planning, operating and maintenance of water infrastructure

ELECTRICITY Responsible for providing electricity services to household, business and industrial customers

1 2 3 4 5

The reality is that the owner is not exempt from costs irrespective if they are a single household or a combined supply (i.e. flats, complex etc…)

The introduction of resellers must not then place the burden on the municipality to pick up owners costs !!!

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THE RESPONSIBILITY OF THE MUNICIPALITY

Any service provided by the Municipality terminates at the municipal boundary point. A reseller operating on private property is NOT doing so on behalf of the Municipality.

If the reseller is managing municipal assets then costs should be recovered from municipality

If the reseller is managing private assets then costs should be recovered from owners and independent of municipality, like all other services on a private property !!!

Reseller on Private Property

Negotiates fees and charges with Owners

Should not recover costs from electricity tariffs

Municipality not to regulate as this is a private arrangement

If NERSA finds prudent, regulate a charge mechanism

Reseller on Municipal owned property

Negotiates fees and charges with Municipality for services via tender process

Should recover costs from electricity tariffs

Municipality to regulate this via SCM process

If NERSA finds prudent, NERSA to regulate in conjunction with Municipality

Question 1: Given the different tariff structures followed by the different licensed authorities, do you think the Energy Regulator should develop a standard reseller tariff that is uniform to be charged to the Electricity Reseller by the licensed authority or should each licensed authority propose a tariff for its resellers? Tariffs are designed based on costs. Due to varying costs structures that resellers face, it is not possible to design a single tariff structure that will be able to suit all resellers nationally. A single tariff will not work. (Its for the same reason municipalities have different tariffs) By offering a special tariff for resellers, a cross subsidy will have to be created. This in effect will cost other customers more !!! This goes against the cost of supply principles.

It is not possible and appropriate for the Energy Regulator to develop a standard reseller tariff to accommodate all of the circumstances that may be applicable to the end customer.

COMMENTS / VIEWS / OPINIONS

Question 2 : Some licensees’ tariff structures include a basic charge, should a reseller charge a basic charge to its customers which will consequently result in a reseller making more profits out of the basic charge from its customers over and above the profit received from the reseller tariff? Without a proper understanding of the resellers costs, designing a tariff will be fruitless as there is no rationale for understanding the costs weather basic charges are included or not. The type of charge via a tariff is driven by the cost causation model.

The rationale for approving a municipal increase/tariff is based on the costs as experienced by the municipality. The exact same rationale should be adopted in approving a tariff or a tariff increase for resellers.

The reseller is providing a function similar to the municipality, it is therefore not understood why the reseller tariff is not being designed based on the same principles.

COMMENTS / VIEWS / OPINIONS

Question 3 : In your view do you think there is necessity for municipal regulation where electricity resale is concerned? Regulating the sale of electricity is a function that rests with the regulator. The various acts as promulgated empower the regulator to carry out this function, and therefore the NERSA should retain and embrace this function.

The Municipality is not a regulator in this regard and therefore should not be loaded with the additional responsibility of electricity sales regulation.

The municipality does not carry the mandate to regulate electricity sales; it is therefore unclear as to what principles will inform the municipal regulatory process in this regard.

COMMENTS / VIEWS / OPINIONS

Question 4: Should the reseller tariffs designed by the licensees be such that it ensures that resellers run economically viable businesses through tariffs that enable them to succeed and sustain their businesses? Whilst the municipality supports the success of a business, the licensee cannot be responsible for the viability of a business. Providing subsidized tariffs to promote business viability would be unfair to other customers as they would be paying more to subsidise cheaper reseller tariffs. Or should the licensee propose a maximum tariff that the reseller should charge its customers to enable it to make profit without affecting the licensee’s required revenue?

Reseller 1 kWh sales : 1000 Sales : 1000 x R 2 = R 2000 Expenses : R 1000 Profit : R 1000

Reseller 3 kWh sales : 1000 Sales : 1000 x R 2 = R 2000 Expenses : R 2500 Profit : R -500

Reseller 2 kWh sales : 1000 Sales : 1000 x R 2 = R 2000 Expenses : R 1500 Profit : R 500

COMMENTS / VIEWS / OPINIONS

Question 4 continued It is clear from the above example that a tariff with a maximum threshold will not always allow for all resellers to run the business with a decent profit.

Some will over recover whilst other will under recover. To ensure that a reseller business is run effectively with a profit, the income and expenses need to be understood. With varying income and expenses, a single tariff with a maximum threshold will not solve the problem and hence the idea is not supported. It is further unclear as to what is deemed to be a reasonable profit and what is the Municipality’s /NERSA’s right in limiting the profit margin to a business entity not formally registered by NERSA or the Municipality. Does this not violate the municipal by-law stating that “electricity resold shall not be less favourable to the purchaser than that would have been payable and applicable had the purchaser been supplied directly with electricity by the local electricity supply Authority”? The idea of a special tariff with a maximum threshold is not supported.

COMMENTS / VIEWS / OPINIONS

Question 5: What should be the role of the municipal by-law on matters pertaining to resellers’ tariff design process? Municipal by-laws should not be used as a tool to regulate reseller tariffs as a national regulatory body is empowered under a national act to do the same. Should the municipal by-law be used for the above mentioned role, it is difficult to understand how NERSA will integrate with the process and their direct role thereof. It is further difficult to understand what role would any such municipal by-law have on the Eskom tariff design process for resellers, in their licensed area of supply.

COMMENTS / VIEWS / OPINIONS

Question 6: Some customers are entitled to a free basic electricity (FBE) benefit, does this FBE apply to customers supplied by resellers and where will the reseller be getting such a subsidy to cover for the revenue? Free basic electricity is a Service Authority grant, and not an electricity tariff. The Service Authority needs to contract directly with the reseller to implement the grant on its behalf

To allow such a contract to meet the MFMA, regulation and licensing of resellers by NERSA MUST happen.

The Service Provider has no visibility downstream of the point of supply, creating significant opportunity for fraudulent practices to occur (verification of claims would be impossible). It is unreasonable to want the reseller to carry out all the deliverables/outputs as per current regulation, YET not impose a regulatory framework for resellers.

COMMENTS / VIEWS / OPINIONS

Question 7: What mechanism can be used so that resellers implement FBE to indigent customers and then claim from the supply authority? FBE provided to Eskom customers in municipal areas of jurisdiction is funded by the Service Authority in terms of a contract between the two relevant organisations that complies with the MFMA

COMMENTS / VIEWS / OPINIONS

Question 8: Stakeholders are requested to comment on whether municipal responsibility should only be limited to the bulk meter point of the trader/reseller or extended to include other activities related to resale, such as the standard of the reticulation network, quality of supply, meters installed as well as smart metering, billing/revenue collection, and licence conditions. Municipal responsibility should be limited to the bulk metering point. The reasons for such motivation are underpinned as follows:

The municipality abides by boundary metering. - The municipality will accept responsibility up until and including the metering point

The Municipality has no control over the assets and actions beyond the metering point, how then is it expected to take responsibility for assets and actions that lead to supply quality issues outside of its control.

The use of the electricity services beyond the metering point becomes the responsibility of the owner and the owner must take responsibility for such actions. Beyond the boundary point becomes private property; the Municipal legal authority of control is yet to be investigated.

COMMENTS / VIEWS / OPINIONS

Question 9: Should there be a role sharing between the supply authority and resellers on issues pertaining to the quality of service provided to the end users? No

There is a sharing of responsibility between the municipality and the owner of the property. The municipality will take responsibility up until the meter point (generally boundary point or nearest equivalent).

Thereafter, the owner will provide the cable from the meter to the distribution board (DB) of the house. From the DB, all circuits are wired by the owner and owner accepts all responsibility from that point onwards including operational and quality etc..

The quality of the connections are confirmed by the issuing of a COC certificate at the owners cost by his private electrician NOT the municipality.

The sharing exists and the Municipality takes responsibility up until the metering point. This is fair and reasonable as Municipality has no control or visibility beyond this point.

COMMENTS / VIEWS / OPINIONS

Question 10: Is there a rule that state that there should be one supply point for a single ERF? For safety reasons, there needs to be a single point of isolation to control electricity services.

Should there be an emergency; the supply to the site can be easily disconnected via a single point. This single point of isolation becomes important when the site is faced with a fire or a similar emergency where the mains need to be disconnected urgently.

Even where multiple meters are supplied to a building, there is generally a single point of isolation within the meter room to switch off the entire building (Block of flats etc...) Please refer to the OSH Act for further details.

COMMENTS / VIEWS / OPINIONS

Question 11: The Resellers Association is assumed to have a code of conduct for the resellers. In this light how are the issues of misconduct dealt with by the Association? NERSA will have to establish whether or not a `Resellers Association (RA)’ exists or not, so as not to assume the fact that it has a `code of conduct’.

What is the legal standing / mandate of such body and their ability to create and enforce codes of conduct Who is the regulatory body that ensure that such codes of conduct are fair and reasonable to all parties concerned.

Question 12: How should the Energy Regulator deal with non-affiliated members where misconduct prevails? NERSA should be licensing and regulating all resellers.

“Misconduct” or failure by a reseller to comply with any of its license conditions should thus be dealt with in terms of the appropriate legislation.

COMMENTS / VIEWS / OPINIONS

COMMENTS / VIEWS / OPINIONS

Question 13: Is a code of conduct that will govern the activities of registered electricity resellers in the country necessary? In principle the activities of the reseller are similar to that of the municipality. The reseller purchases electricity from an entity and sells on to customers. The responsibility from a financial, legal, technical and safety perspective is no different to that of a municipality. Resellers must be subject to the same regulatory scrutiny/protocol and encouraged to abide by the necessary technical and safety criteria as stipulated within the various literature within the supply industry.

A comprehensive regulatory framework is necessary for the treatment of resellers and not a standalone code of conduct.

COMMENTS / VIEWS / OPINIONS

Question 14: What should be the threshold to qualify for a reseller tariff? View: A reseller tariff is not supported and creating a threshold will not solve the various issues that surround the reseller industry. Question 15: There are different customer categories i.e. (residential, commercial and industrial), should therefore resellers be regarded as another customer category with similar such categories (residential reseller, commercial reseller and industrial reseller) as the licensed authority? View: A reseller tariff is not supported and creating a reseller “like a customer category” will not solve the various issues that surround the reseller industry. Question 16: How should the resellers that supply to a mixed category for example, residential and commercial customers in the same building or complex with a single bulk supply point categorise its customers. View: Customer categories are defined by NERSA. Resellers should be subject to the same criteria when classifying customers as there is no rationale to deviate from this.

RESELLER MANDATE VS MUNICIPAL MANDATE

Without a regulated framework in place but a reduced tariff structure, NERSA would be creating a boom of reseller activity within municipalities as it will be perceived as a lucrative business

With the reseller boundaries not clearly defined and lack of rules, a reduced tariff will

have negative financial impacts for Municipalities. – EXAMPLE:

100 meters selling 100 000 kwh per month = R 100 000 per month to Municipality 100 meters re-selling 100 000 kwh per month = R 90 000 per month to Municipality (via reduced tariff and reseller) – Assume 10% cheaper tariff

WHO BENEFITS ...

Municipal loss of R 10k

No reduction in Municipal costs

Other customer categories pay more to make up for R10k

loss

Reseller charges for services and NERSA may get less complaints

Without a regulated framework in place, Municipalities run a real risk of revenue shortfall How do Municipalities recover ??

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CONCLUSION

CREDIBILITY How is it possible to gauge the quality of the reseller if a proper licence/application

process is not followed.

TARIFFS Tariffs are designed based on costs, if costs are not properly

understood, tariffs become flawed

With the variety of end users, a single reseller tariff will not suffice

TECHNICAL COMPLIANCE In the absence of a

framework, how will the reseller be liable for

compliance to technical standards, grid codes etc

REPORTING/AUDIT In absence of a proper

reporting/audit framework, how will the finances of a

reseller be controlled

SUBSIDISATION Municipalities provide

services and surpluses are ploughed back into the city

– what happens to surpluses of resellers

The creation of tariffs is part of a regulatory framework and cannot survive alone………

Whilst a tariff without regulation may at “face value” be able to keep a few customer

complaints at bay, it does little to bring about holistic stability and guidance within the sector.

AMEU recommends that this consultation paper is withdrawn until the Energy Regulator is in a position to firstly deal with the appropriate regulatory framework.