1

OVERVIEW OF NERSA

Presentation to Business Opportunities in the Energy Sector Workshop

By Nomalungelo Simelane

23 May 2014

2

CONTENT

A. Introduction

B. Vision, Mission, Values and Regulatory Principles

C. Mandate

D. National Energy Regulator Act

E. Industry Specific-Acts

F. Conclusion

3

A. INTRODUCTION

4

INTRODUCTION

• The National Energy Regulator (NERSA), a Schedule 3A Public Finance Management Act, 1999 (Act No. 1 of 1999) Public Entity was established on 1 October 2005 in terms of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) to regulate: o Electricity industry (Electricity Regulation Act, 2006 (Act No. 4 of

2006))

o Piped-Gas industry (Gas Act, 2001 (Act No. 48 of 2001))

o Petroleum Pipelines industry (Petroleum Pipelines Act, 2003 (Act No. 60 of 2003))

• In executing its mandate NERSA endeavours to balance the interest of both licensed entities and end users/consumers

5

B. VISION, MISSION,

VALUES AND

REGULATORY PRINCIPLES

6

VISION

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

MISSION

“To regulate the energy industry in accordance with

government laws and policies, standards and

international best practices in support of sustainable

development”

7

VALUES

• Passion

• Spirit of Partnership

• Excellence

• Innovation

• Integrity

• Responsibility

• Professionalism

8

REGULATORY PRINCIPLES

Underpinned by NERSA’s legal mandate

• Transparency

• Neutrality

• Consistency and Predictability

• Independence

• Accountability

• Integrity

• Efficiency

9

C. MANDATE

10

MANDATE (1)

NERSA’s Mandate is anchored in:

• 4 Primary Acts:

o National Energy Regulator Act, 2004 (Act No. 40 of 2004)

o Electricity Regulation Act, 2006 (Act No. 4 of 2006)

o Gas Act, 2001 (Act No. 48 of 2001)

o Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)

• 3 Levies Acts:

o Gas Regulator Levies Act, 2002 (Act No. 75 of 2002)

o Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004)

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

11

MANDATE (2)

• 3 Facilitating Acts:

o Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA)

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

(PAIA)

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

(PAJA)

12

D. NATIONAL ENERGY

REGULATOR ACT

13

SUMMARY

• The National Energy Regulator Act (NERSA Act)

combines the non-technical aspects of the Electricity

Regulation Act, Gas Act Petroleum Pipelines Act and

deletes these provisions from the three Acts;

• Establishes a National Energy Regulator to administer all

three Acts and related legislations (regulations, levies);

and

• Passed by Parliament, came into operation on the 15

September 2005.

14

DEFINITIONS AND OBJECTS

• Definitions can be found in Section 1; and

• Object (Section 2) is to establish the National Energy

Regulator to regulate electricity, piped-gas and petroleum

pipelines industries.

15

FUNCTIONS

• Undertake the functions of the Gas Regulator (section 4 of

the Gas Act);

• Undertake the functions of the Petroleum Pipelines

Regulatory Authority (section 4 of the Petroleum Pipelines

Act); and

• Undertake the functions of the Electricity Regulator

(section 4 of the Electricity Regulation Act).

16

MEETINGS

• Rules and procedures contained in the Member’s

Handbook;

• Any meeting is open to the public unless the information to

be discussed would create a record that would oblige the

Energy Regulator to refuse access in terms of PAIA;

• Round robin decisions may be taken;

• Record of proceedings should be kept; and

• The Energy Regulator may establish subcommittees of its

members to perform specific functions such as conducting

hearings and enquiries and sitting as a tribunal.

17

DECISIONS OF THE ENERGY REGULATOR

• Consistent with the Constitution and all applicable laws;

• In public interest;

• Within the powers of the Energy Regulator as set out in this Act, and the 3 industry-specific Acts;

• Procedurally fair (affected persons given the opportunity to submit their views, facts and evidence);

• Based on reasons, facts and evidence;

• Written;

• Explained clearly as to their factual and legal basis;

• Reviewable by the High Court;

• The Energy Regulator’s decisions sitting as a tribunal may be appealed against.

18

ACCOUNTING AND REPORTING

• Function performed i.t.o. the Public Finance Management

Act (PFMA);

• Separate accounts for the 3 industries regulated functions;

• Audited by the Auditor-General;

• Financial year: starts 1 April of one year and ends on 31 March of the following year;

• Annual Report required i.t.o. the PFMA; and

• Annual Report to include inter alia licences granted, amended or withdrawn.

19

E. INDUSTRY-SPECIFIC

ACTS

20

ELECTRICITY REGULATION ACT (ERA)

• Establish a national regulatory framework for the electricity supply industry;

• To make the Energy Regulator the custodian and enforcer of that framework;

• To provide for licences and registration for generation, transmission, distribution, reticulation, trading and import/export of electricity; and

• To regulate the reticulation of electricity by Municipalities.

21

GAS ACT (GSA)

• To establish a national regulatory framework for the

piped-gas industry; and

• To promote orderly development of the piped-gas

industry.

22

PETROLEUM PIPELINES ACT (PPA)

• To establish a national regulatory framework for

petroleum pipelines.

23

OBJECTS OF THE ACTS

24

ERA

• Achieve the efficient, effective, sustainable and orderly development and operation of electricity supply infrastructure;

• Ensure that the interests of customers/end-users are safeguarded;

• Facilitate investment;

• Facilitate universal access to electricity;

• Promote competitiveness and customer/end user choice; and

• Facilitate fair balance between the interests of customers/end-users, licensees, investors and the public.

25

GSA (1)

• Promote efficient, effective, sustainable and orderly

development and operation of gas transmission, storage,

distribution, liquefaction and re-gasification facilities;

• Facilitate investment;

• Ensure safe and environmentally responsible

transmission, storage, distribution, liquefaction and re-

gasification of gas;

• Promote companies owned or controlled by Historically

Disadvantaged South Africans (HDSA) by means of

licence conditions to enable them to be competitive;

26

GSA (2)

• Ensure that interests/needs of all parties are considered;

• Promote skills among employees and employment equity

in the gas industry;

• Promote development of competitive markets for gas and

gas services;

• Facilitate gas trade between RSA and other countries;

and

• Promote access to gas affordably and safely.

27

PPA (1)

• Promote competition in the construction and operation of petroleum pipelines, loading facilities and storage facilities;

• Promote efficient, effective, sustainable and orderly development and operation and use of petroleum pipelines, loading facilities and storage facilities;

• Ensure safe and environmentally responsible transport, loading and storage;

• Promote equitable access to petroleum pipelines, loading facilities and storage facilities;

28

PPA (2)

• Facilitate investment;

• Provide for the security of petroleum pipelines;

• Promote companies that are owned and controlled by

HDSA by means of licence conditions to enable them to

be competitive;

• Promote development of competitive markets for

petroleum products;

• Promote access to petroleum products affordably; and

• Ensure appropriate supply to meet market requirements.

29

POWERS AND DUTIES OF THE ENERGY

REGULATOR

30

ERA (1)

The Energy regulator must –

• consider applications for licences and may issue licences

for –

a) the operation of generation, transmission or distribution facilities;

b) the import and export of electricity

c) trading

• regulate prices and tariffs;

• register persons not required to hold a licence;

• issue rules designed to implement the electricity policy

framework, integrated resource plan and this Act; and

• enforce performance and compliance.

31

ERA (2)

The Energy regulator may –

• mediate disputes;

• undertake investigations/inquiries regarding licensees’ activities; and

• perform any other act incidental to its functions.

32

GSA (1)

The Energy regulator must (as appropriate) –

• Issue licences for –

a) construction of, conversion of infrastructure into, operation of gas

transmission, storage, distribution, liquefaction and re-gasification

facilities; and

b) trading in gas.

• gather information;

• issue notices if there is contravention;

• undertake investigations/inquiries;

• consult with Government Departments and other

regulatory authorities;

33

GSA (2)

• regulate prices;

• monitor and approve, and if necessary regulate

transmission and storage tariffs;

• expropriate land for the performance of licensee’s

functions;

• promote competition;

• promote optimal use of available gas resources; and

• make rules.

34

PPA

The Energy regulator must (as appropriate) –

• Issue licences for –

a) construction and conversion of petroleum pipelines, loading facilities

and storage facilities; and

b) operation of petroleum pipelines, loading facilities and storage

facilities.

• Other functions of the Energy Regulator are the same as

the functions i.t.o. the GSA except that the Energy

Regulator must SET or APPROVE tariffs and charges.

35

ACTIVITIES REQUIRING LICENSING

36

ERA • operation of any generation, transmission or distribution

facility;

• importing or exporting of any electricity; and

• trading.

GSA

• construction of gas transmission, storage, distribution,

liquefaction and re-gasification facilities or converting

infrastructure into such facilities;

• operation of facilities; and

• trading.

37

PPA • construction of petroleum pipeline, a loading facility or a

storage facility; and

• operation of petroleum pipeline, a loading facility or a

storage facility.

38

LICENCE CONDITIONS

39

ALL 3 INDUSTRY-SPECIFIC ACTS • Gives the Energy Regulator the framework of

requirements and limitations within which licence

conditions may be imposed.

40

TARIFF AND PRICES

41

ERA – TARIFF PRINCIPLES (1)

A licence condition –

• must enable licensee to recover full cost of its licensed activities including a reasonable margin or return;

• must provide for (prescribe) incentives for improvement of efficiency in providing services;

• must give end user information regarding the costs their consumption imposes on licensees;

• must avoid undue discrimination between customer categories;

• may permit cross-subsidy to tariffs to certain classes of customers;

42

ERA – TARIFF PRINCIPLES (2)

• Only tariffs determined or approved by the Energy

Regulator can be charged to a customer by licensee; and

• The Energy Regulator has the discretion to approve a

deviation from set or approved tariffs.

43

GSA – PRICE REGULATION PRINCIPLES

Maximum prices approved by the Energy Regulator must

enable the licensee to:

• recover investment and operational cost (efficient and

prudently incurred); and

• Make a profit commensurate with the risk (regulation 4(4)).

44

PPA – TARIFF SETTING AND APPROVAL (1)

• The Energy Regulator must set as a condition of licence tariffs charged by licensee in the operation of a petroleum pipeline;

• The Energy Regulator must approve tariffs for storage and loading facilities; and

• The tariff must be: a) based on systematic methodology applicable on a consistent and

comparable basis;

b) fair;

c) simple and transparent;

d) predictable and stable; and

e) promote access to affordable petroleum products.

45

PPA – TARIFF SETTING AND APPROVAL (2)

• The Energy Regulator is to review tariffs within the period set out in the licence;

• Tariffs may be adjusted by the Energy Regulator on review;

• Tariffs must enable licensee to: a) recover the investment;

b) operate and maintain the system; and

c) make profit commensurate with the risk.

• Only tariffs set or approved by the Energy Regulator can be charged by the licensee.

46

TERMS OF LICENCE

47

ERA • Generation or transmission licence valid for 15 years or

longer period as the Energy Regulator may determine;

and

• Distribution or trading licence valid for period determined

by the Energy Regulator.

GSA • Any licence valid for 25 years or a longer period as the

Energy Regulator may determine.

PPA • Any licence valid for 25 years.

48

ALL 3 INDUSTRY-SPECIFIC ACTS

• Licenses are renewable upon application by licensee; and

• Licences cannot be sold or assigned to another party.

49

CONTRAVENTIONS

50

ALL 3 INDUSTRY-SPECIFIC ACTS

• The Energy Regulator may sit as a tribunal to handle

allegations of contravention; and

• If allegation is correct - imposition of a penalty.

51

NON-DISCRIMINATION

52

ALL 3 INDUSTRY-SPECIFIC ACTS

• No discrimination between customers or classes of

customers regarding access, tariffs, prices, conditions or

service except for objectively justifiable and identifiable

grounds approved by the Energy Regulator.

53

REGULATIONS AND RULES

54

ALL 3 INDUSTRY-SPECIFIC ACTS

• For proper implementation or administration of these 3

industry-specific Acts the Minister of Energy and the

Energy Regulator are empowered to make regulations

and rules respectively.

55

MEETING RULES AND PROCEDURES (1)

• According to S 8(11) of the National Energy Regulator Act the Energy Regulator MUST make rules for meetings procedure;

• This apply to the Energy Regulator (and its Subcommittee) meetings;

• Notice of meetings and business to be conducted must be published;

• Meetings are open to the public but with no speaking rights – governance meetings are closed to the public ;

• The Chairperson sets the agenda with assistance from the Regulatory Secretary;

56

ATTENDANCE OF REGULATOR MEETINGS

(1)

• Regulator meetings are advertised on the website;

• All meetings (of the Regulator and its subcommittees) are

open to the public (i.t.o. National Energy Regulator Act);

• Not a requirement for members of the public to make prior

arrangements for their attendance (but encouraged to

prearrange);

• Members of the public’s presence is acknowledged at the

start of meetings;

57

ATTENDANCE OF REGULATOR MEETINGS

(2)

• If the Energy Regulator discusses a matter that it may not

later make public due to its confidential nature, members of

the public present are temporarily excused from the meeting

for that subject to be discussed; and

• The person (company) applying for confidentiality remains in

a closed meeting (to present/clarify or answer questions).

58

REGULATORY PROCESS (1) • To achieve a culture of accountability, openness and

transparency, NERSA ensures that public participation takes place in all its processes;

• The Constitution of South Africa and the Promotion of Administrative Justice Act require administrative action to be open, transparent, reasonable and procedurally fair;

• Energy Regulator meetings are open to the public, except when confidential matters are discussed;

• Applications for tariffs (i.e. Eskom MYPD3 application) and licence are advertised for public comments;

• Consultation papers, methodologies and guidelines are advertised for public comments;

• Public hearings take place during which stakeholders may provide comments;

59

REGULATORY PROCESS (2) • Final decisions by the Energy Regulator take comments into

account;

• Section 10 of the NERSA Act provides that every decision of the Energy Regulator must be: o in writing, consistent with the Constitution and all applicable laws;

o in the public interest;

o within the powers of the Energy Regulator as set out in the National Energy Regulator Act and the industry-specific Acts;

o taken within a procedurally fair process in which affected persons have the opportunity to submit their views and present facts and evidence;

o based on reasons, facts and evidence (summarised and recorded); and

o explained clearly as to its factual and legal basis and reasons therefore.

60

REGULATORY PROCESS (3) • Decisions of the Energy Regulator and reasons thereof must

be available to the public (in terms of the Promotion of Access to Information Act);

• Any persons affected by a decision of the Energy Regulator may take it for judicial review to the High Court (in terms of the Promotion of Administrative Justice Act); and

• Any persons affected by a decision of the Energy Regulator sitting as a Tribunal may appeal to the High Court.

61

PUBLIC PARTICIPATION IN THE

REGULATOR’S ACTIVITIES (1)

• The public is accorded only observer status during meetings

of the Energy Regulator or any of its subcommittees;

• The public is invited through newspaper advertisements to

make representations during public hearings;

• It is a requirement that those interested to present make

prior arrangements and register with the Energy Regulator to

present (no registration no show);

• The public (only those registered with the Energy Regulator

to present) presents facts, reasons and evidence during

public hearings;

62

PUBLIC PARTICIPATION IN THE

REGULATOR’S ACTIVITIES (2)

• Only the Energy Regulator asks questions during public

hearings (presenters do not); and

• The public gets the opportunity to engage the Energy

Regulator during stakeholder workshops.

63

FRAMEWORK FOR PUBLIC HEARINGS

• Public consultation is a requirement of law (Promotion of Administrative Justice Act);

• The public hearing panel establishes facts, reasons and evidence (and takes no decision); and

• The public hearing panel make a recommendation to the Energy Regulator or the relevant Subcommittee.

64

F. CONCLUSION

65

CONCLUSION

• NERSA is conscious of the regulatory burden it imposes

which we seek to minimise;

• NERSA is striving for regulatory certainty in order to

contribute to an environment conducive for attracting and

ensuring orderly investment;

• Legislative gaps pose some challenges; and

• Regulatory challenge - balancing the interests of suppliers

and customers.

66

THANK YOU visit us at www.nersa.org.za