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The role of municipalities as a service authority for electricity provision
The role of municipalities as a Service Authorities for Electricity provision
Paper prepared by SALGA for the AMEU Committees
Draft, 27th August 2014
1 Introduction
1.1 Context
Electricity distribution is a local government competence
In terms of the constitution, municipalities have the “executive authority and right to administer” “electricity reticulation” in their area of jurisdiction subject to legislation and regulation by national and provincial government.
Making a distinction between service authority and provider
The Municipal Systems Act (Act 32 of 2000) establishes municipalities as service authorities and introduces a distinction between authority and provider, where the authority function includes the development of policies, drafting by-laws, setting tariffs, making arrangements for the financing of investments in services, deciding on how services are provided and regulating the provision of services in terms of the by-laws and other mechanisms. The service provider, which could be the municipality itself or an external provider, is the entity that undertakes the actual service provision function (providing the service), for example, operating and maintaining an electricity network and selling electricity to customers.
Deciding whether district or local governments are service authorities
The Municipal Structures Act (Act 117 of 1998, as amended)[1] determined whether local or district municipalities were the default service authority for different services and provided a mechanism whereby the service authority function could be allocated between a district and local authority.[2] In the case of water, electricity and health, the default position was that these responsibilities were allocated to district municipalities unless a local municipality was authorised to perform the function by the national minister responsible for local government.[3]
In the case of water there was an explicit process to determine whether the district or local government was the water services authority for an area, and these decisions were made and gazetted by the Minister in 2003.[4] In the case of electricity, the existing supply arrangements at the time of establishment of the district and local municipalities in 2000 were maintained in light of the anticipated reform of the electricity distribution industry, and these were also set out in gazetted government notices during 2003. As a result, it is not completely clear which municipalities have electricity service authority status (and over what areas).[5] This is discussed further in Section 2.
Proposed reforms of electricity distribution industry
A review of efforts to reform the electricity distribution industry is provided in the paper “An Overview of the Restructuring of the South African Electricity Distribution Industry” (SALGA, 2013). This review showed that, while some consolidation of the industry had taken place through the reduction in the number of local governments in the 2000 local government reforms, the proposed establishment of six regional electricity distributors (REDs) was not achieved. In 2010, Cabinet abandoned the REDs model, disbanded the organisation set up to established the REDs (EDI Holdings), and asked the Department of Energy to develop a “holistic approach to revitalise electricity [distribution] infrastructure.”[6]
Recognising local government as the service authority for electricity distribution
In terms of the constitution, local government has executive authority over, and the right to administer, electricity distribution, while recognising the right of national and local government to legislate and regulate this function. This executive authority includes the right and duty to enter into service provider agreements with entities providing the electricity distribution function on its behalf. SALGA has developed a position paper (SALGA, 2013) proposing an alternative approach to electricity distribution industry reforms recognising this right.
Electricity distributors are required to be licenced by NERSA
The Electricity Regulation Act (Act 4 of 2006, as amended) states that persons operating a electricity ‘distribution facility’ must do so in terms of a licence.
NERSA has licensed a total of 188 distributors as follows: 6 metropolitan municipalities, 2 metropolitan electricity service providers (City Power and Centlec), 164 local municipalities, 1 district (uMkhanyakude District Municipality), 13 private distributors and Eskom.
1.2 Purpose of paper
The purpose of this paper is to outline and discuss the role of electricity service authorities (municipalities) in a context where their constitutional right to have the “executive authority and right to administer” “electricity reticulation” in their area of jurisdiction is fully asserted, including the implications of implementing service provider agreements as envisaged in the Municipal Systems Act for the distribution of electricity by external service providers (that is, providers who are not the municipality itself).
1.3 Outline
The paper first seeks to clearly identify which municipalities are electricity service authorities. The paper then sets out the rights and duties of electricity service authorities in terms of the law. The existing practices are described and the implications of any differences between these discussed. Recommendations are made as to how the electricity service authority function can be properly established in South Africa in light of proposed reforms to the electricity distributions sector set out in SALGA’s position paper (SALGA, 2013).
2 The identification of electricity service authorities
2.1 What the law says - existing legislation and terminology
The Constitution states that municipalities have the “executive authority and right to administer” “electricity reticulation” in their area of jurisdiction (Schedule 4B and Section 155).
The Municipal Structures Act states that the “Bulk supply of electricity, which includes for the purposes of such supply, the transmission, distribution and, where applicable, the generation ofelectricity" is a district municipality function and power (Section 84 (1)(c)).
The Municipal Structures Act allows for the national Minister of local government to authorize a local municipality “to perform a function or exercise a power”, including the electricity power and function as defined above, “in its area or any aspect of such function or power”.
The Electricity Regulation Act defines “municipality” as “a category of municipality that has executive authority over and the right to reticulate electricity within its area of jurisdiction in terms of the Municipal Structures Act” and defines “reticulation” as meaning the “trading or distribution of electricity and includes services associated therewith”.
Comment
- Making sense of the terminology: The terminology used is somewhat confusing. For the purposes of this paper, it will be assumed that the different terminology and definitions used in three pieces of legislation (the Constitution, the Municipal Structure Act and the Electricity Regulation Act) all essentially mean the same thing (or are at least intended to mean the same thing). This is the only practical point of departure. If this is not the case, then SALGA should seek clarity through the courts on the exact meaning and implications of the meaning for municipalities.
- Intended meanings. It is assumed that the intended meaning of the definitions is as per the definitions given in the Electricity Regulation Act, with two implications:
- Firstly, municipalities can and should be categorised in terms of their executive authority to reticulate electricity. They either have this executive authority or do not have it depending on the authorisations made in terms of the Municipal Structures Act.
- Secondly, the meaning of ‘electricity reticulation’ is that municipalities with executive authority have the executive authority to ‘trade electricity’ (that is, sell electricity to customers) and also have the right to manage all of the associated services necessary to trade electricity and distribute electricity to customers.
In other words, certain defined municipalities (metropolitan municipalities and either district or local municipalities in each particular area) have the right to sell electricity and have the executive authority over the functions necessary to undertake this function, including the management of the electricity reticulation network or electricity distribution system, subject to national and provision legislation.
- Clarification of terminology in the legislation. It is recommended that the terminology in the Structures Act be amended so as to be more explicitly consistent with the terminology used in the Constitution and in the Electricity Regulation Act.
2.2 Which municipalities are electricity service authorities?
Legal authorisations
District municipalities are electricity service authorities unless a local municipality is authorised by the national Minister of local government. The Minister has issued gazetted notices authorising certain local municipalities. These gazetted notices, issued in terms Section 84(3)(a) of the Municipal Structure Act, state that the identified local municipalities are authorised by the Minister of local government to perform "Bulk electricity supply" (as defined above), "or any aspect thereof, to the extent that those functions and powers were performed or exercised beforethe effective date". The effective date refers to the effective date of the establishment of the local and district municipalities (in 2000). These authorisations were made in 2003 and there was one gazetted notice per district. An example of a gazetted notice is given in Annex 1.
NERSA licences to providers
NERSA licenses the ‘provision’ function, not the ‘authority’ function. NERSA’s licenses for municipal electricity distributors (that is, ‘providers’) list the supply areas for each licensee. These include both the previous transitional local council areas (urban areas) as well as the relevant transitional rural council (TRC) that formed the newly established municipality, but exclude the customers being supplied by Eskom and other licenced providers.
Comment
It appears that the intention of the gazette notices with respect to electricity was to maintain the status quo, that is, all municipalities who had distributed electricity to customers before 2000 were to continue to provide electricity to these same areas, and that Eskom was to continue to distribute electricity to all of its customers.
The legal implications of this appear to be that the identified local municipalities (who had been supplying electricity) would have executive authority for electricity only in the areas where they had previously supplied electricity, and therefore the newly created district municipalities would have executive authority for the remaining areas. This interpretation appears to imply that both the district and local municipalities would have executive authority for the electricity distribution function within a local municipality area (but for different areas). This interpretation is, however, not tenable. It is not possible for a district and a local municipality to both have executive authority within a local municipal area.
NERSA has given licences to local municipalities for their whole area of jurisdiction (where they had been previously involved in electricity supply), but excluding Eskom customers and customers supplied by other licensed (presumably non-municipal) providers. Only one district municipality (uMkhanyakude District Municipality) has a license to distribute electricity.
Electricity service authorities in South Africa
For the purposes of this paper, and in the absence of better information, it is assumed that:
· All municipalities with a NERSA distribution licence are electricity service authorities. This list comprises 164 local municipalities, 1 district municipality and 8 metropolitan municipalities (see Annex 2 for a full list).[7] (Note, however, that a NERSA license does not confer service authority status, this can only be done by the Minister of local government.)
· Where local municipalities have not been authorised and/or do not hold a distribution licence, then the district is the electricity service authority.[8]
3 Electricity service authorities in law (mandate and duties)
The previous section identified which municipalities are electricity service authorities. This section outlines the mandate, duties and functions of electricity service authorities.
3.1 The meaning of executive authority and general duties
The meaning of executive authority
The Constitution states that municipalities have the “executive authority and right to administer” “electricity reticulation” in their area of jurisdiction (Schedule 4B and Section 155). The previous section identified which municipalities have this executive authority. These municipalities are called “electricity services authorities” (ESAs).
The executive and legislative authority of a municipality is vested in its Municipal Council (Constitution, Section 151(2)).
In terms of Section 12 of the Municipal Systems Act, a municipality exercises its executive authority by, inter alia,
· developing and adopting policies, plans, strategies and programmes, including setting targets for delivery;
· implementing applicable national and provincial legislation and making by-laws;
· providing municipal services to the local community, or appointing appropriate service providers in accordance with the criteria and process set out in section 78;
· monitoring and, where appropriate, regulating municipal services where those services are provided by service providers other than the municipality;
· preparing, approving and implementing its budgets;
· imposing and recovering rates, taxes, levies, duties, service fees and surcharges on fees, including setting and implementing tariff, rates and tax and debt collection policies;
· monitoring the impact and effectiveness of any services, policies, programmed or plans; and
· passing by-laws and taking decisions on any of the above-mentioned matters.
With respect to electricity distribution, the above clearly means that Municipalities who are electricity service authorities have:
1. The duty to develop electricity services policy.
2. The duty to pass and implement by-laws with respect to the electricity distribution function.
3. The duty to plan for electricity distribution.
4. The right to manage electricity distribution and trading themselves (as this is a municipal service according to the Constitution) and the right to appoint service providers other than the municipality.
5. The right to set service fees and surcharges.
6. The duty to regulate and monitor external electricity providers and the effectiveness of electricity distribution services in its area.
These rights are subject to national and provincial legislation, but this legislation cannot take away these rights. These duties are elaborated in the section that follows.
General duties related to municipal services
Municipalities must give priority to the basic needs of the local community; promote the development of the local community; and ensure that all members of the local community have access to at least the minimum level of basic municipal services (Municipal Systems Act Section 73(1)).