Agenda

National Electricity Regulator

On ESI and EDI Restructuring

Presentation to Standing Committee on Minerals and

EnergyParliament

19 September 2001

Agenda• Setting the scene: White Paper on

Energy• Why regulate the ESI?• Developments in the ESI• NER’s proposed way forward on ESI

restructuring• Developments in the EDI• NER’s views on EDI restructuring• Gas Bill• Conclusion

1998 White Paper on Energy Policy: Objectives

• Five main government energy policy objectives:– Increasing access to affordable energy services– Improving energy governance– Stimulating economic development– Managing energy related environmental and

health impacts– Achieving security of supply by ensuring diversity

of sources

1998 White Paper on Energy Policy:

ESI and EDI objectives• Introduce competition to the industry, especially the

generation sector• Give customers the right to choose their electricity

supplier• Permit open, non-discriminatory access to the

transmission system• Encourage private sector participation in the industry• Eskom will have to be restructured into separate

generation and transmission companies• Government intends to separate power

stations into a number of companies

Government’s goals for restructuring state owned

enterprises (SOEs)• Boost economic growth• Create wider ownership in the economy• Fund basic needs programmes• Mobilise private sector capital and foreign

direct investment• Enhance competitiveness of state enterprises• Promote fair competition• Finance growth and requirements for

competitiveness

What is regulation?

• ‘Process established by law which restricts or controls some specified decisions made by the affected firm’ – Baumol and Blinder

• ‘Regulation is, quite simply, the control of a business enterprise in a particular way’ – Ernst and Young

Role of National Regulators

• Ensure efficient Electricity Supply Industry• Ensure cost effective electricty prices• Ensure optimal quality of service and supply• Ensure long term provision and

development of electricy services• Ensure fair play amongst suppliers – level

playing fields• Protect interest of customers

How National Regulators fulfill this role

• Promote competition• Regulate prices of monopoly elements• Set quality of supply and service

standards and monitor compliance• Mediate and arbitrate within the ESI• Oversee Integrated Resource Planning• Maintain industry information for

regulatory purposes and dissemanation

Stages of ESI RestructuringMonopolies Protect customers

Single buyer ? Protect customersEnsure order in generation competition

Wholesale competition

Protect customersEnsure order in generation & distribution competition

Retail competition Ensure order in competitionProtect some distribution customers?

ESI Developments• Government’s decision to implement

‘Pro-competitive Reform Programme‘ for generation – ‘Managed Liberalisation’– Implications for regulation are big

• Rationalisation of distribution industry into REDs underway

• Government also considering establishing other energy regulators– Gas– Liquid fuels

NER approach to ESI restructuring

• Phased restructuring designed to fit with South Africa’s circumstances

• Benefits realized before next stage of reform is undertaken

• Three phased approach to reform to competitive sector– Eskom corporatisation– Corporatisation of generation and

independent transmission– Private sector involvement and

competition

Phase I: Eskom CorporatisationEskom Conversion Act converts Eskom from a parastatal into a company – wholly owned by the State. – Formation of Holding Company with subsidiaries– Eskom Holdings Limited forms 4 subsidiaries: Eskom

Generation, Eskom Transmission, Eskom Distribution and Eskom Enterprises

– Transfer of assets and liabilities– “Ringfence” generators into clusters (portfolios) for

internal competition– Transmission “ringfences” operations into wires, system

operator and market operator

Eskom Transmission

Eskom Generation

IPP

Imports

Customers

RED2RED1RED6

Special Customers

Internal Pool

Eskom Enterprises

Eskom Holdings

Phase II: Corporatisation of generation and independent transmission

– Eskom Generation creates separate generation companies (GenCos) following portfolios

– Transfer of assets and liabilities– Establish State - owned transmission

company with “ringfenced” operations for wires, system operator and market operator

GenCo2GenCo1 GenCon

Eskom Holdings

Eskom Enterprises

IPP

ImportsPower Exchange

RED2RED1 RED6 Special Customers

State owned independent Transmission Company (incl. SO)

Customers

Phase III: Private sector and competition

– Power exchange separated from transmission company

– Opportunities for BEE to buy mothballed power stations (about 10% of Eskom’s capacity)

– Additional sale of one or more generation clusters (portfolios)

– Private sector encouraged to invest in new capacity – Eskom to be left in the end with a 70% share of the

market

GenCo2GenCo1 GenCon

Eskom Holdings

Eskom Enterprises

Imports PowerExchange

RED2RED1 RED6Special

Customers

State owned independent Transmission Company

Eskom Generation

Customers

Results of restructuring the ESI

• Achieves government’s policy goals• Competition results in improved efficiency and lower

prices than would have been the case• Less market power to control prices• Significant BEE is achieved• Fiscal revenue for debt reduction• Considerable inward investment• Private sector participation attracts international strategic

investors• Benefits to electricity consumers

EDI Restructuring: Why is this necessary?

• Financial viability– Problems in many municipal distributors– Lack of investment, constraints on electrification, non-secure

employment prospects• Inequitable treatment of customers

– Disparities in tariff structures, electrification needs unevenly spread, unfair discrepancies between Eskom Distribution and municipal distributors

• Inefficiencies– Highly fragmented, poor economies of scale, duplication of

administrative and technical functions• Difficult to regulate properly, unable to attract high quality management

teams, lack of investment in staff development and training

Main recommendations for EDI restructuring

• Number of RED’s = 6• EDI Holdings Company to manage process

– To be established shortly• HR planning to be given prominent attention• REDs ownership still to be decided• Electrification to be undertaken by REDs• Uniform system of tariffs and prices

Customers (000’s)1006Load (TWh)29Electrified (%)73

RED 2

East Rand

Bloemfontein Pietermaritzburg

Witbank

Durban

Port Elizabeth

Cape Town

Johannesburg

Pretoria

Calvinia

Upington

Vryburg

Prieska

Rustenburg

KroonstadLichtenberg

Pietersburg

Kimberley

Nelspruit

Lydenburg

Harrismith

De Aar

Newcastle

Bergville Richards

Bay

Ulundi

Umtata

East London

Graaf Reinet

Victoria West

Pretoria

East Rand

Johannesburg


RED 4


RED 6


RED 3


RED 5


RED 1

Results of restructuring the EDI

• Rationalization will achieve improvements in efficiency• Rescue a number of failing municipal distributors• Set up large, financial healthy and sustainable

distributors• Uniform pricing and tariffs systems• Successful, well managed businesses capable of

continuing with the electrification programme and undertaking rural development programmes

• Electrification to be undertaken by REDs• Equitable and fair tariffs

Gas Bill• NER supports process to establish framework for

natural gas industry– Major potential new primary energy source

for power generation– Remote from the current energy sources and

supports the (electricity) transmission system– Promotes regional growth and integration– Very useful demand side management tool

(can store gas, but not electricity)• Supportive of the proposed new gas legislation

Gas Bill• NER supportive of establishing one energy

regulatory authority• Many benefits to doing this

– Many similar regulatory principles– Share regulatory experiences– Blurring of industries– Reduction of costs

• NER is prepared to form part of new authority• Support whatever decision government makes

Conclusion• NER focusing on priorities for changing ESI• Lot of work done in putting in place

Business Plan• NER will focus its efforts on governments

priorities for the sector• Insufficient budget to skill up totally, but

best effort will be made • NER committed to serve ESI and its

stakeholders, especially customers.

Agenda

Documents

Transcript of Agenda