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Since early 1992 the debate intensified in South Africa in respect of

amongst others the structure and business model for the electricity
supply industry (ESI). These discussions also included the electricity
distribution industry (EDI). The discussions since 1992 clearly
highlighted the numerous views of the various interested parties in
respect of the ESI.
By now it should be evident that it will be very difficult to please all of the
opposing views. Eskom and some municipalities made progress during the early
2000s in terms of realigning their business with the direction proposed by
government. From a national perspective the Eskom alignment continued in
respect of their Distribution business while the generation reform lost
momentum during 2004/5. However the discussions and more particularly the
generation related power outages of 2007/8, directly contributed to a plan to
address the generation challenges. The transmission business is generally being
regarded as under control and there are no external factors which creates the
impression that special attention is required in this part of the ESI.
During 2001 the cabinet approved the blueprint which was intended to guide the
EDI reform in South Africa. It is now history that despite the good progress which
was made towards the EDI reform, the decision was taken by cabinet at the end
of 2010 to discontinue the EDI reform process. Sadly, the EDI can today mainly
record views but very little vision in respect of the future of the industry. At times
one get the feeling that the more we talk the less progress is made. While the
talking is taking place the overall performance of the EDI keep on slipping,
despite the few pockets of good performance. South Africa, now more than ever
before, requires a very clear vision in respect of the future of the electricity
distribution industry.
This vision can only be formulated by government with inputs from the
stakeholders. The EDI cannot and will not reform itself optimally in the absence
of such a vision. Without the required vision, accountability and effective
reporting mechanism in place, it is most unlikely that there will be real progress
towards a better functioning EDI.
With a self-generated capacity of 41 194 MW, Eskom ranks as one of the top 20
utilities in the world by generation capacity. Furthermore Eskom generates
approximately 95% of the electricity used in South Africa and approximately 45%
of the electricity used in Africa. From a local perspective Eskom directly provides
electricity to about 45% of all end-customers in South Africa. The municipalities
and other redistributors are responsible for the rest (55%) of the electricity
distribution to end-customers. It could therefore be argued that over the years
Eskom clearly demonstrated their capability in the generation domain and their
ability to respond to challenges in this area. South Africa must take action in
respect of the EDI infrastructure. It is essential to avoid a situation where there is
sufficient generation capacity but the distribution sector lacks the infrastructure
and reliability to get electricity to the end-customers.
The joint public hearing in Cape Town on 25 July to 27 July 2012 and 01 August
2012 of the parliament committee (PC) on energy and the PC on cooperative
governance and traditional affairs (COGTA)is regarded as an important EDI
intervention. The purpose of the joint hearing was to receive inputs in respect of

the electricity distribution industry (EDI) infrastructure condition and the way
forward. Submissions were made by industry stakeholders such as the AMEU,
Department of Energy, EIUG, Eskom, municipalities, NERSA, National Treasury,
SALGA, SA Insurance Association, industry experts, etc.
The presence of customer representatives and their submissions are an
encouraging sign. It is essential that the EDI moves away from an utility centric
mentality and move towards a customer centric business. To ensure that the EDI
delivers what the customers require will require more constructive and proactive
customer involvement.
Since the early EDI reform discussions the role of municipalities in the
distribution of electricity was always a point of extensive debate. The Local
Government: Municipal Systems Act (MSA), 2000, Act No.32 of 2000 is normally
referenced when the distribution of electricity is discussed.
The MSA gives local authorities (municipalities) the competency for the
reticulation of electricity. This is also a point which was made by SALGA during
their submission at the joint PC on energy and the PC on COGTA. The Electricity
Regulation Act, No. 28 of 2007, as amended, also provides for a definition for
reticulation. The definition of reticulation as reflected in this act states that:
reticulation means trading or distribution of electricity and includes services
associated therewith. Furthermore in terms of Section 156 of the constitution, a
municipality has executive authority in respect of, and has the right to
administer the local government matters listed in part B of schedule 4 and part B
of schedule 5.
Electricity reticulation is listed in Part B of Schedule 4. On the other hand the
Electricity Regulation Act, No. 28 of 2007, as amended, states that a distribution
license and a trading license are required for the distribution and sale of
electricity to end-customers. Therefore electricity distributors such as Eskom,
municipalities, municipal entities and the private sector, require distribution and
trading licences in order to deliver electricity to end-customers. The Electricity
Regulation Act amongst others establishes a national regulatory framework for
the electricity supply industry. Therefor the Electricity Regulation Act regulates
generation, transmission, distribution, reticulation, trading and the import and
export of electricity.
The legislative framework as highlighted in the paragraph above reflects the
complexity in respect of the dual regulation as applicable to South Africa.
Furthermore these complexities directly contributed to the delay in the reform of
the EDI. Both SALGA and NERSA acknowledged during their submissions to the
joint PC on Energy and the PC on COGTA, that the dual regulation presents some
challenges. Considering the legislative and regulatory framework applicable to
South Africa, it suggests that NERSA can regulate Eskom more effectively than
what the case is with a municipality.
While the legislative and regulatory framework can be debated, it seems as if
there is not an appetite to introduce enabling legislation to facilitate more
effective functioning or a structured reform of the EDI. Therefore the only
alternative seems to be that a solution for the EDI challenges must be found
within the constraints of the current legislative and regulatory frameworks. To do
this will require bold leadership. The assessment which was done by EDI Holdings

in respect of the status of the EDI infrastructure is just as relevant today as what
is was in 2008 when the study was conducted. The estimated maintenance,
refurbishment and strengthening backlog is now estimated at R35-billion. While
the current investment backlog and the deteriorating performance of the EDI no
doubt presents some challenges, it can be converted into an opportunity. Since
the decision was taken to discontinue with the EDI reform and to close EDI
Holdings, very little evidence is available to suggest that there is any
optimisation taking place or that the challenges facing the EDI is receiving
attention.
The EDI agenda is currently dominated amongst others by:

Grid reliability and availability

Cost/price of electricity

Resources/skills to effectively operate an electricity business

Funding required to address infrastructure challenges

Customer service, communication and effective interface

Business sustainability

By leveraging all the relevant work done to date and go and find the EDI
experience/knowledge and bring them to assist in facilitating the solution
implementation, we can transform the EDI challenges into opportunities.
During 2008 the approach to distribution asset management (ADAM) strategy
was developed and amongst others this document highlighted the EDI
infrastructure investment backlog. While one can debate the quantum of the
investment required, the industry came to terms with the infrastructure
backlog. There is also acknowledgement that amongst others that the
infrastructure investment backlog must be addressed.
During the joint PC on energy and the PC on COGTA session, Eskom indicated
how they are currently addressing the backlog applicable to their distribution
business. However, addressing the infrastructure backlog alone will not
necessarily result in a more effective and efficient EDI. The current EDI operating
model needs to be urgently revised as well as the municipal funding model.
Revenue derived from the sale of electricity remains one of the major sources of
income for most municipalities. While it might not be acknowledged at this
stage, this municipal revenue stream from electricity is under threat. The
municipal electricity distribution infrastructure requires investment, there is a
need to attract, train and retain staff while the overall Eskom bill will keep on
increasing. Therefore the ability to fund other services from funds generated
through the sale of electricity, will come under pressure. Without a wellstructured intervention and review of the current situation, municipalities could
soon be in for an unpleasant surprise. From an EDI perspective there are at least
three distinct matters to be addressed, namely:

The infrastructure investment backlog

Current maintenance and business operations

Position the EDI to meet the 21st century challenges

From an infrastructure investment perspectiveit is acknowledged that the EDI is


not in a position to deal with the infrastructure backlog all at once. Therefore it
is necessary to give consideration to a national prioritisation of the infrastructure
requiring investment and to do the prioritisation over a 5 to 10 year period. The
most appropriate funding approach would be to develop and implement a
national funding mechanism to fund ADAM and manage the process from a
central point e.g. similar to the integrated national electrification
programme(INEP). The funding mechanism must also take into account the
potential impact on the customers.ADAM will have to be implemented as a
parallel initiative to the day to day operational responsibilities.
With reference to the current maintenance and business operations, a very
practical solution must be explored. This is the area which as an example directly
impacts on service delivery, the ability to grow the economy and to create jobs.
As stated earlier it would be advisable to search for opportunities to address this
area within the constraints of the current legislative and regulatory framework.
To this end it is recommended that the metros/municipalities with capacity and
financial ability be identified who:

Can operate as a sustainable business

Can operate as a sustainable business and provide support to other


metros/municipalities

The next step would be to identify the metros/municipalities thatrequire support.


This step can then be linked to the alignment of the metros/municipalities
requiring support (short term) to:

Metro/secondary municipalities who can provide support

Eskom region/depot that can provide support

It is essential that the proposed arrangement as indicated above must comply


with the relevant legislation and the regulatory framework and as far as practical
possible limit the potential of asset transfers.
In addition to the above it is recommended that the metro/municipal area of
supply boundary and delivery responsibility of the capable metros/municipalities,
be aligned with their area of jurisdiction/demarcated boundary. For this to work
will require effective ringfencing of the electricity units and amongst others
detailed cost/expenditure and revenue accounting.
A whole new opportunity came into view and electricity has become the life
blood of the South African economy. The average age of the electricity
distribution infrastructure is in the order of 45 years. A substantial component of
the infrastructure created over the last decade relates to electrification.
Considering the current backlogs, one come to the realisation that the average
age of the backbone infrastructure must therefore be greater than 45 years. As
indicated there is in general agreement that substantial infrastructure
investments must be made without further delay. It is therefore an opportune
time to also position the EDI from an infrastructure perspective to meet the 21st
century requirements.

The world trend has showed us that the leveraging of technology presents many
opportunities. The EDI will have to leverage technology to enhance its
effectiveness and efficiency. Since South Africa must invest in the infrastructure,
it is most unlikely that the introduction of appropriate grid modernisation will
contribute to an substantial increase in the required investment.
A recent study conducted by the Global Smart Grid Federation indicated that grid
modernisation can amongst others contribute to:

Reduction in energy usage (2.5% to 15%)

Grid peak shavings (5% to 8%)

Change in customer energy consumption patterns

Green House Gas (GHG) reduction

Improved grid performance, transfer capability, power quality and


enhanced asset utilisation

Creation of a customer centric business

Accelerating the introduction of renewable energy options into the


distribution grid

Meeting the 21st century requirements from a grid perspective

It is not suggested that South Africa target an overnight grid modernisation,


but that a phased approach is adopted and that entity specific grid
modernisation objectives be pursued.
For South Africa to leverage the envisaged investment opportunity will require
some key interventions. To this end the South African National Energy
Development Institute (SANEDI) established the South African Smart Grid
Initiative (SASGI). The purpose of SASGI is amongst others to identify appropriate
technology options, to influence standards and to direct technology related
applied research. To ensure that the EDI can meet the 21st century requirements
from an electricity distribution perspective it is necessary to:

Agree on the vision for the EDI (inclusive of technology)

Review and improve the EDI data collection

Establish the EDI baseline and benchmark where the EDI should be over
the next 5 years, inclusive of improvement targets and incentives

Develop and implement the grid technology application framework for


South Africa

Leverage technology to modernise the grid, to enhance customer


interface, improve grid reliability, improve business sustainability and to
contribute towards resource efficiency improvement. Get smarter and
produce more with less

Introduce standardisation and adopt appropriate best practices

Set targets and drive energy efficiency and demand response to amongst
others improve asset utilisation and address climate management
objectives

The solutions to be developed to address the future of the EDI will have to take
into account the requirements of the individuals (customers), the utility and the
societal value. Furthermore it is necessary to:

Review the regulatory framework and powers to ensure a sustainable


Electricity Supply Industry (ESI) and to address the current systemic
challenges and amongst others avoid a repeat of the EDI backlog
challenge

Address the tariff harmonisation challenge

Revive all the potential training capabilities and leverage all training
potential to assist in addressing the skills gap

Create centre/s of expertise to the benefit of the total EDI

Assign accountabilities/responsibilities and keep individuals accountable;

Review municipal funding model

Establish an EDI turnaround integration/coordination mechanism and


reporting on progress to the PC on energy

In the industry participants, the consultants, the universities, etc. we do have the
knowledge, capacity and capability to transform the current EDI challenges into
opportunities. To capitalise on all the opportunities will however require bold and
decisive leadership.
Contact Dr. Willie de Beer, SANEDI,