The Role of Municipalities As A Service Authorities 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
Introduction
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
1 In this case specifically by the Local Government: Municipal Structures

Amendment Act 33 of 2000.
2 This was not relevant for metropolitan governments.
3 The exact definitions used for each service are discussed later in the
paper where relevant.
4 There are a total of 152 water services authorities, comprising 8
metropolitan, 21 district and 123 local municipalities (DWA, 2013,
Strategic Overview of the Water Sector in South Africa 2013.)
The role of municipalities as a service authority for electricity provision
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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.
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
5 Electricity service authorities (the equivalent of water services
authorities) have not been clearly delineated.
6 Cabinet resolution, 8 December 2010; Government Communications and
Information Service press release, 9 December 2010.
Salga paper for AMEU conference, October 2014. Draft
Page 3
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).
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 SALGAs
position paper (SALGA, 2013).
The identification of electricity service authorities
What the law says - existing legislation and terminology
The Constitution states that municipalities have the executive authority
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 of electricity" 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
1.
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.
2.
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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:
1.
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.
2.
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.
3.
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.
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 before the 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.
NERSAs 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
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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:
1
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
Electricity service authorities in law (mandate and duties)
7 It is assumed that all local municipalities that have been authorised in

terms of the Municipal Structures Act, as recorded in gazetted notices,
have been given a licence by NERSA. A list of authorized municipalities
does not appear to exist.
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The previous section identified which municipalities are electricity service

authorities. This section outlines the mandate, duties and functions of
electricity service authorities.
The meaning of executive authority and general duties
The meaning of executive authority
The Constitution states that municipalities have the executive authority
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,
1
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 abovementioned 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.
The duty to pass and implement by-laws with respect to the

electricity distribution function.
8 A map of the districts with authority status would be the negative

image of a map of the authorized local municipalities. A list of these
district municipalities does not exist.
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The duty to plan for electricity distribution.
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.
The right to set service fees and surcharges.
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; andensure
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)).
These services must be equitable and accessible; be provided in a manner
that is conducive to the prudent, economic, efficient and effective use of
available resources; be financially sustainable; be environmentally
sustainable; andbe regularly reviewed with a view to upgrading, extension
and improvement (Municipal Systems Act Section 73(2)).
The key functions of an electricity service authority
1. Electricity services policy
The purpose of the municipal Electricity Services Policy is to provide
policy guidelines for the provision of electricity services within the
Electricity service authoritys (ESA) jurisdictional area. The policy should
establish a holistic framework based on the overall functions of an ESA
and should address the following topics:
1
Principles: The principles that will be applied to the provision of

electricity services, for example: economic development; customer
care; financial sustainability; etc.
Planning: How services will be planned for the area of jurisdiction

(and how this is linked to integrated development planning
process); including the levels of service that will be provided and
associated specifications and requirements for each; and
electrification targets;
Quality of supply: Conditions of supply that will be met, including

connection (and disconnection) procedures, installation and fittings
specifications, standardisation of designs and materials; reliability of
supply, quality of supply (voltage, maximum power draw etc.)
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Demand management: Electricity Demand-side Management

including embedded generation within the reticulation network
standards, protocols, procedures, penalties, incentives etc.
Customer care: Approach to customer care such as a customer

services charter, protocols for customer engagement and
communication, response times to complaints, etc.
Financing: How the extension of the electricity reticulation network

will be financed, and how rehabilitation of the network will be
financed including a distinction between special measures, upfront
contributions and funding sourced from service charges.
Tariffs: An electricity services tariff policy (which forms part of the

service authoritys overall services tariff policy)
Credit control: A credit control and debt collection policy (which

forms part of the service authoritys overall services tariff policy,
and/or how this will be implemented in the case of external service
providers)
Institutional arrangements for the provision of electricity service

provision within the municipal area (current arrangements and
proposed future arrangements)
10
Regulation: The arrangements for regulating the activities of

external service providers operating in the ESAs area of jurisdiction,
including reporting and recourse processes and procedures.
2. Electricity supply by-laws

The municipalitys electricity services policies (described above) are
regulated and enforced through electricity by-laws. Electricity by-laws are
the instrument used by ESAs to exercise their legislative authority over
electricity services. These by-laws should cover at least the following:
Technical aspects: Standards and levels of services, including the
technical conditions of supply, connections and metering; installations,
fittings and standardised designs and materials specifications and
procedures; how the services will be installed, operated, protected and
inspected; temporary supplies; changes in supply; supply interruptions;
related procedures and formats.
Commercial and customer aspects: processes related to new
connections (or changes to supply arrangements); commercial conditions
of supply and conditions under which services will be discontinued;
including how illegal connections dealt with; disconnections and
reconnections; supply interruptions; accounts processes; offences &
penalties; duties of customers; provision of electrical consumption data;
prohibited acts; notices, orders & other documents; related procedures
and formats.
Compliance with national and provincial legislation: The by-laws
must also comply with any relevant national and provincial legislation
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provided this legislation does not take away the rights and duties of
municipalities. The by-laws may be amended from time to time.
By-laws also extend to external providers. Where an ESA appoints an
electricity services provider to provide electricity services on its behalf, the
by-laws serve as the set of conditions for the provision of the services and
should be referred to in the contract between the ESA and the electricity
services provider.
3. Planning for electricity services
Municipalities are required to undertake developmentally-oriented
planning to ensure the provision of services to communities in a
sustainable manner and to promote social and economic development
(Constitution Section 152 and Municipal Systems Act Section 23). A key
purpose of municipal services planning is therefore to ensure efficient,
affordable, economical and sustainable services. A plan for electricity
supply needs to address the socio-economic, technical, financial,
institutional and environmental issues as they pertain to this service for
the ESAs area of jurisdiction, and must be integrated with its Integrated
Development Plan.
The planning process, as set out in the Municipal Systems Act, is well
established in local government and is not elaborated here, except to
make a few key points relevant to electricity services:
1
A municipality that is an Electricity service authority should have an

explicit plan for electricity supply that is part of its integrated
development plan, even if an external services provider provides
the services.
This plan should

1
set explicit electrification targets;
plan for the expansion of the electricity network;
provide for the ongoing rehabilitation of the network;
show how the investments in expansion and rehabilitation

will be funded;
Identify who will take responsibility for the identified

investments and who will operate the network; and,
Provide for reporting on progress in the implementation of the

plan in terms of a set of key performance indicators.
4. Arrangements for electricity services provision

An electricity service authority (ESA) has a right to provide electricity
services itself. It may also contract this service out to one or more external
services providers (Municipal Systems Act Section 12). An external
services provider is defined as any service provided that is not the
municipality itself (Municipal Systems Act Section 76(b)). This includes a
municipal entity (for example, City Power), another municipality, another
Page 10
government entity (for example, Eskom), or a private company. Where a

municipality chooses to contract with an external services provider, it
must do so in terms of the Section 78 of the Municipal Systems Act. An
ESA could provide an electricity service in some areas within its
boundaries (or to some customers) and contract out the provision of the
electricity supply services to one or more external providers for defined
areas or customers, or it could contract out the services for its whole area
and all of its customers.
In terms of the Municipal Systems Act, where an ESA does not provide the
electricity supply service, the ESA:
1
Must make a decision on who should provide the service in terms of

a process defined in Section 78;
Must enter into a service delivery agreement with the external

service provider (Section 76(d));
May negotiate the terms of the agreement with the relevant

municipal entity, municipality or organ of state (including Eskom) in
terms of Section 80(1)(a);9
Must regulate the provision of the service (Section 81(1)(a));
Must monitor and assess the implementation of the agreement,

including the performance of the service provider (Section 81(1)(b));
and,
Must control the setting and adjustment of tariffs by the service

provider for the municipal service in question in terms of its tariff
policy (Section 81(1)(d)). See next section.
Whether the municipality provides the service itself, or through external

service providers, the municipality has a duty to ensure the services
prioritise universal basic needs, make prudent, economic, efficient and
effective use of available resources and are financially sustainable. (See
General duties related to municipal services above.)
5. Setting electricity tariffs and surcharges
The Municipal Systems Act states that while the municipal council has the
right to set, review or adjust the tariffs within its tariff policy, the service
delivery agreement may provide for the adjustment of tariffs by the
service provider within the limitations set by the municipal council.
(Section 81(3)). There is therefore some flexibility in the way that
municipalities may regulate electricity supply tariffs. Nevertheless, the
municipality may not completely abrogate the responsibility for setting
tariffs to an external service provider.
9 In the case of external providers not explicitly identified in this sentence,

the municipality is required to follow a competitive bidding process set out
Section 83 and the following sections.
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Municipalities may also apply a surcharge on service charges. These

surcharges are regulated by the Municipal Fiscal Powers And Functions Act
12 of 2007.
6. Regulating and monitoring external electricity providers
Electricity service authorities have a duty to regulate and monitor external
electricity providers (Municipal Systems Act Section 12).
The purpose of regulation is to protect customers and to ensure that
services comply with minimum national standards and with local
governments policies and by-laws, so that electricity services prioritise
basic needs and are efficient, effective, affordable and sustainable. (See
General duties related to municipal services above.)
External service providers must be regulated in terms of a service delivery
agreement. This agreement should include provisions for reporting on
compliance and performance in relation to a defined set of compliance
areas and performance indicators.
The role of NERSA in relation to the electricity services authority role
The Constitution states: national or provincial government may not
compromise or impede a municipalitys ability or right to exercise its
powers or perform its functions (Section 152(4)). Within this overall
constraint, national government and provincial governments have the
legislative and executive authority to see to the effective performance by
municipalities of their functions by regulating the exercise by
municipalities of their executive authority (Section 155(7)).
The Electricity Regulation Act requires that electricity distributors
(including municipalities) are licensed (Section 7) and also provides for
NERSA to approve licensee tariffs (Section 15(2)).
There may be a real or perceived conflict in law between the right of a
municipality to determine tariffs for municipal services (including
electricity) in terms of the Municipal Systems Act and the power of the
regulator to approve electricity tariffs in terms of the Electricity Regulation
Act.
In practice, municipalities appear to have accepted the right and practice
of NERSA approving municipal electricity tariffs in terms of their licence
conditions.
Electricity service authorities in practice
The role of electricity service authorities have not been operationalized in
practice
Although the role of electricity service authorities is clearly defined in
legislation (see Section 3), this has not been translated into practice. For
example, a national list of electricity service authorities is not known to
exist. For the purposes of this paper it is estimated that there are 174
electricity service authorities in South Africa (see Section 2 and Annex 2).
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Eskom retails electricity in 140 municipalities without service delivery

agreements
Eskom is involved in the distribution of electricity in 140 municipalities, yet
these municipalities do not have service delivery agreements with Eskom
as required by legislation (see Section 3). Neither has section 78 processes
taken place as required by law for the provision of municipal services
within a municipal area by an external provider.
Electricity service authorities are unable to monitor compliance and
performance
Due to the absence of service delivery agreements, and due to the
absence of detailed municipal-boundary based reporting on the part of
Eskom, electricity service authorities are unable to monitor compliance
and report on performance within their municipality with respect to
electricity services as required by law (see Section 3). They are therefore
unable to protect citizens rights.
Electricity service authorities are unable to undertake integrated planning
Due to the absence of detailed municipal-boundary based reporting on the
part of Eskom, electricity service authorities are unable to undertake
integrated planning with respect to electricity services as required by law
(see Section 3).
Electricity service authorities are unable to control retail tariffs
Electricity service authorities are unable to set (or control the setting of)
electricity tariffs as required by law (see Section 3) where Eskom provides
electricity distribution services due to the absence of service provider
agreements.
Likewise, electricity service authorities are unable to apply surcharges on
electricity tariffs as enabled in law (see Section 3) where Eskom provides
electricity distribution services due to the absence of service provider
agreements and the necessary information.
There is no effective electricity authority role currently in South Africa
In conclusion, in areas where Eskom is providing electricity distribution
services (140 municipalities) municipalities are unable to play an effective
electricity authority role (that is, exerting full executive authority for
electricity supply within their area of jurisdiction) contrary to what is
provided for and required in the law.
Proposed electricity distribution industry reforms
The problem poor performance of the electricity distribution industry
The SALGA position paper on electricity distribution industry reforms
summarises the current situation as follows: There is very widespread
concern about the poor and decreasing reliability of the electricity
distribution network. Unreliable electricity provision poses high costs on
businesses and inconveniences households. This reduces job growth and
negatively affects economic growth and efforts to reduce poverty, a key
Page 13
government priority. All stakeholders agree that reforms are needed in the
electricity distribution industry to improve its reliability and effectiveness,
so that it can properly support governments economic growth and
poverty reduction objectives. Past efforts over the last 20 years to create
six regional distributors have failed (SALGA, 2013).
At the heart of the problem are two inter-related factors:
1
Poor performance of electricity distributors leading to an unreliable

network; and
A large number of very small electricity distributors, which makes it

very difficult to provide an effective, economical and financially
viable service (see Figure 1)10.
Figure 1: There are over 120 small distributors (size of bubble = electricity
revenue)
Past reforms have sought to address this problem through top down
aggregation, creating far fewer and much larger regional distributors (the
so called regional electricity distributors or REDs) through a nationally led
process. This approach was abandoned (see above).
Proposed approach in SALGA position paper
The SALGA position paper on electricity distribution industry reforms
proposed an alternative approach that had four key elements: (SALGA,
2013)
1
Local governments retain the responsibility (executive authority) for

electricity distribution, as provided in the constitution and in law,
but have an obligation to ensure that the service is provided reliably
10 Source: Salga (2013).
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and cost-effectively (in terms of national minimum standards). That

is, designated municipalities are electricity service authorities.
2
National government enters into a joint regulatory compact with

NERSA and SALGA to ensure that local governments are held
accountable for performance in terms of clear operating licence
conditions and with a credible threat of withdrawal of the licence
where licence conditions are not met. That is, there is effective
regulation of the electricity provision function.
Local governments continue to provide electricity themselves where

they are able to do so reliably and cost-effectively. That is,
municipalities are internal electricity service providers.
Where local governments do not wish to (or are not able to) provide
electricity reliably and cost-effectively, municipalities enter into a
service delivery agreement with a competent and efficient
electricity distributor (external service provider).
This approach is premised on a clear distinction between the electricity

service authority role, played by designated municipalities, and electricity
services providers whom could be any competent entity providing the
electricity distribution function. This is consistent with current legislation
as outlined in Sections 2 and 3.
The approach focuses on service provider performance. Where
performance is adequate, existing arrangements can remain the same.
However, where performance is inadequate, strong incentives will be in
place to encourage decisions that lead to better performance outcomes. It
is envisaged that this will result in a consolidation of the distribution
industry over time.
The approach is also premised on the national regular playing an
important role through the use of operating licences as a key mechanism
to enforce better performance, and in ensuring transparent reporting on
compliance and performance.
See the SALGA Position Paper for a fuller description of the proposed
approach and its constituent elements (SALGA, 2013).
A possible route to consolidation?
One possible route to industry consolidation is for the Minister responsible
for local government to revoke the local municipality (Category B)
authorisations for electricity distribution. The executive authority function
would then revert to the district municipalities (Category C), which is the
default in the legislation. This would reduce the number of Electricity
service authorities from the current 174 to 52, that is, 8 Category A
(metropolitan) and 44 Category C (district) municipalities.
Because the districts do not have the capacity to undertake the electricity
distribution function, these districts would need to contract out the service
to competent electricity distributors (other municipal distributors, Eskom
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or other distributors). This should be done on a competitive basis. NERSA

could assist the process through its licensing function.
Although this approach could solve the problem of poor electricity
distribution performance (reliability and cost-effectiveness), there could be
significant implications for the local municipalities who currently undertake
the electricity distribution function. The loss of staff and revenue linked to
the electricity function may pose a threat to the financial viability of these
local governments. Serious consideration would have to be given to these
concerns prior to any decision to follow this path.
Implications and recommendations
Amend Municipality Structure Acts to clarify electricity distribution
definition
Consideration should be given to amending legislation to achieve greater
clarity in the use of terminology referring to the electricity distribution
function in law. It is proposed to:
1
Leave the terminology in the Constitution (electricity reticulation)

as is;
Leave the terminology in the Electricity Regulation Act as is.
Amend the Municipal Structures Act to refer directly to the

Constitutions terminology electricity reticulation and to clarify its
meaning as follows: For the purposes of this legislation, electricity
reticulation means the trading or distribution of electricity
and includes services associated therewith.
Clearly define which municipalities are electricity service authorities

Electricity service authorities have executive authority for electricity
reticulation (as defined above). At present it is not clear which
municipalities are electricity service authorities. It is recommended that
the Minister responsible for local government lead a process with the
objective of clearly defining which municipalities are (or should be)
electricity service authorities. During this process, the Minister responsible
for local government should consider reviewing the number of electricity
service authorities with a view to possibly reducing the number of
authorised municipalities in order to support the consolidation of the
electricity distribution industry and to improve performance.
Allow municipalities to fulfil their executive authority function
Municipalities that have been authorised as Electricity service authorities
(as per the above process), that is, metropolitan municipalities, district
municipalities (where all of the local municipalities have not been
authorised) and authorised local municipalities, must be allowed to fulfil
their full executive authority function. This means:
1
Electricity service authorities (ESA) must decide how electricity

services in their area are to be provided and by whom.
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The ESA must control the retail tariff subject to national legislation.
(The role of NERSA with respect to tariff determination needs to be
clearly defined and agreed.)
The ESA may apply a surcharge on the electricity tariff subject to

national legislation.
The ESA must develop a plan for electricity distribution which forms
part of an integrated development plan for the municipal area.
The ESA must monitor and report on the performance of electricity

distribution in its area, including the performance and compliance of
external providers (including Eskom).
All external electricity service providers (distributors), including

Eskom, must enter into service delivery agreements with the
Electricity service authorities where Eskom continues to provide
electricity distribution services within a municipal area.
Eskom must report on its distribution activities to each municipality

in which it provides a service in terms of the provisions of the
service delivery agreement.
A continued and important role for the national regulator

Asserting the role of the Electricity service authorities (as described
above) does not undermine the important role of the national regulator.
The national regulator should still undertake the licensing function of
electricity distributors, require compliance with technical standards,
require reporting on compliance and performance, and review tariff
applications for conformance with national norms and standards. Tariffs,
however, will be approved by the electricity service authority.
Cabinet level support
Even though the above recommendations are, in practice, giving effect to
existing legislation, current practices will have to be changed significantly.
Translating the above recommendations into reality with therefore require
Cabinet level support and changes in current Eskom practice.
References
Legislation, policies and cabinet resolutions
1
Cabinet resolution, 8 December 2010; Government Communications

and Information Service press release, 9 December 2010
Electricity Regulation Act 4 of 2006 as amended.
Energy White Paper 1996
Municipal Finance Management Act 56 of 2003
Municipal Fiscal Powers and Functions Act 12 of 2007
Municipal Structures Act 117 of 1998.
Municipal Systems Act 32 of 2000, as amended.
Page 17
Other documents and papers

AMEU, 2014. License agreements with respect to distribution of
electricity. Local Government Position Paper (8 May 2014.)
de la Harpe, Jean. 2012. The role of the Water Service Authority in the
delivery of water and sanitation services. IRC.
SALGA. 2013. A Proposed Approach to the Restructuring of the Electricity
Distribution Industry. SALGA Position Paper.
Annex 1: Notice of electricity authorisation (example)
Page 18
Page 19
Page 20
Page 21
Annex 2: List of electricity service authorities

For the purposes of this paper 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 as follows:
Metropolitan municipalities
Buffalo City
Ekurhuleni
City of Cape Town
eThekwini
City of Johannesburg
Mangaung
City of Tshwane
Nelson Mandela
District municipalities with NERSA distribution licence

uMkhanyakude District Municipality
Local municipalities with NERSA distribution licence
!Kai! Garib local Municipality
Abaqulusi Local Municipality
Elias Motswaledi Local

Municipality
Albert Luthuli Local Municipality
Elundini Local Municipality
Amahlathi Local Municipality
Emadlangeni Local Municipality
Ba-Phalaborwa Local Municipality
Emakhazeni Local Municipality
Baviaans Local Municipality
Emalahleni Municipality (EC)
Beaufort West Local Municipality
Emalahleni Municipality (MP)
Bela Bela Local Municipality
Emfuleni Local Municipality
Bergrivier Local Muunicipality
Emnambithi-Ladysmith
Municipality
Bitou Local Municipality

Blouberg Local Municipality
Blue Crane Route Local
Municipality
Breede River/Winelands Local M
Breede Valley Local Municipality
Camdeboo Local Municipality
Cape Agulhas Local Municipality
Cederberg Local Municipality
City of Matlosana
City of uMhlathuze Municipality
Dihlabeng Local Municipality
Dikgatlong Local Municipality
Dipaleseng Local Municipality
Ditsobotla Local Municipality
Drakenstein Local Municipality
eDumbe Local Municipality
Emthanjeni Local Municipality

Endumeni Local Municipality
Ephraim Mogale Local
Municipality
Gamagara Local Municipality
Gariep Local Municipality
Ga-Segonyana Local municipality
George Muncipality
Govan Mbeki Local Municipality
Great Kei Local Municipality
Greater Kokstad Local
Municipality
Greater Letaba Local Municipality
Greater Taung Local Municipality
Greater Tzaneen Muncipality
Hantam Local Municipality
Page 22
Hessequa Muncipality
Matzikama Local Municipality
Hibiscus Coast Local Municipality
Mbizana Local Municipality
Ikwezi Local Municipality
Mbombela Municipality
Inkwanca Local Municipality
Merafong City Local Municipality
Inxuba Yethemba Local

MunicipalIty
Metsimaholo Local Municipality
Kamiesberg Local Municipality
Mkhondo Local Municipality
Kannaland Local Municipality
Modimolle Local Municipality
Kareeberg Local Municipality
Mogalakwena Local Municipality
Karoo Hoogland Local Municipality
Mogale City Local Muinicipality
Kgatelopele Local Municipality
Molemole Local Municipality
Kgetleng River Local Municpality
Mookgopong Local Municipality
Khai-ma Local Municipality
Moqhaka Local Municipality
//Khara Hais Local Municpality
Mossel Bay Local municipality
King Sabata Dalindyebo Local M
Mpofana Local Municipality
Knysna Local Municipality
Msukaligwa Local Municipality
Kouga Local Municipality
uMsunduzi Municipality
Kou-Kamma Local Municipality
Mthonjaneni Local Municipality
KwaDukuza Local Municipality
Musina Local Municipality
Laingsburg Local Municipality
Nala Local Municipality
Lekwa Local Municipality
Naledi Local Municipality
Lekwa Teemane Local

Municipality
Nama Khoi Local Municipality
Lephalale Local Municipality

Lesedi Local Municipality
Letsemeng Local Municipality
Lukhanji Local municipality
Madibeng Municipality
Mafube Local Municipality
Magareng Local Municipality
Makana Local Municipality
Makhado Local Municipality
Maletswai Local Municipality
Maluti a Phofung Local
Municipality
Maamusa Local Municipality
Mandeni Local Municipality
Mantsopa Local Municipality
Maquassi Hills Local Municipality
Masilonyane Local Municipality
Matatiele Local Municipality
Matjhabeng Local Municipality
Midvaal Local Municipality
Ndlambe Local Municipality

Newcastle Municipality
Ngwathe Local Municipality
Nkandla Local Municipality
Nketoana Local Municipality
Nkomazi Local Municipality
Nkonkobe Local Municipality
Nquthu Local Municipality
Nxuba Local Municipality
Oudtshoorn Local Municipality
Overstrand Local Mnicipality
Phokwane Local Muncipality
Phumelela Local Municipality
Pixley Ka Seme Local Municipality
Polokwane Muncipality
Prince Albert Municipality
Ramotshere Municipality
Randfontein Local Municipality
Renosterberg Local Municipality
Page 23
Richtersveld Muncipality
Tlokwe Local Municipality
Rustenburg Muncipality
Tokologo Local Municipality
Sakhisizwe Local Municipality
Tsantsabane Local Municipality
Saldanha Bay Local Municipality
Tsolwana Local Municipality
Senqu Local Municipality
Tswaing Local Municipality
Setsoto Local Municipality
Tswelopele Local Municipality
Siyancuma Local municipality
Ubuntu Local Municipality
Siyathemba Local Municipality
Ulundi Local Municipality
Sol Plaatjie Local Municipality
Umjindi Local Municipality
Stellenbosch Muncipality
Umlalazi Local Municipality
Steve Tshwete Local Municpality
uMngeni Local Municipality
Sunday's River Vally Local

Municipality
Umsobomvu Local Municipality
Swartland Local Municipality
uMuziwabantu Local Municipality
Swellendam Local Municipality
Umvoti Local Municipality
Thaba Cweu Local Municipality
uPhongolo Local Municipality
Thabazimbi Local Municipality
Ventersdorp Local Municipality
Theewaterskloof Local
Municipality
Victor Khanye Local Municipality
Thembelihle Local Municipality
Umtshezi Local Municipality
Westonaria Local Municipality

Witzenberg Local Municipality

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The role of municipalities as a Service Authorities for Electricity provision

Paper prepared by SALGA for the AMEU Committees

1 In this case specifically by the Local Government: Municipal Structures

The role of municipalities as a service authority for electricity provision

electricity, the existing supply arrangements at the time of establishment of the

Proposed reforms of electricity distribution industry

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

reticulation in their area of jurisdiction is fully asserted, including the

Making sense of the terminology: The terminology used is

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

Intended meanings. It is assumed that the intended meaning of

Firstly, municipalities can and should be categorised in terms

Secondly, the meaning of electricity reticulation is that

In other words, certain defined municipalities (metropolitan

Clarification of terminology in the legislation. It is

Which municipalities are electricity service authorities?

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

transitional rural council (TRC) that formed the newly established

All municipalities with a NERSA distribution licence are electricity

Where local municipalities have not been authorised and/or do not

Electricity service authorities in law (mandate and duties)

7 It is assumed that all local municipalities that have been authorised in

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

The previous section identified which municipalities are electricity service

developing and adopting policies, plans, strategies and

implementing applicable national and provincial legislation and

providing municipal services to the local community, or

monitoring and, where appropriate, regulating municipal

preparing, approving and implementing its budgets;

imposing and recovering rates, taxes, levies, duties, service

monitoring the impact and effectiveness of any services, policies,

passing by-laws and taking decisions on any of the abovementioned matters.

With respect to electricity distribution, the above clearly means that

The duty to develop electricity services policy.

The duty to pass and implement by-laws with respect to the

8 A map of the districts with authority status would be the negative

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

The duty to plan for electricity distribution.

The right to manage electricity distribution and trading

The right to set service fees and surcharges.

The duty to regulate and monitor external electricity providers

Principles: The principles that will be applied to the provision of

Planning: How services will be planned for the area of jurisdiction

Quality of supply: Conditions of supply that will be met, including

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

Demand management: Electricity Demand-side Management

Customer care: Approach to customer care such as a customer

Financing: How the extension of the electricity reticulation network

Tariffs: An electricity services tariff policy (which forms part of the

Credit control: A credit control and debt collection policy (which

Institutional arrangements for the provision of electricity service

Regulation: The arrangements for regulating the activities of

2. Electricity supply by-laws

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

A municipality that is an Electricity service authority should have an

This plan should