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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.)

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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.

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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
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 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.

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The role of municipalities as a service authority for electricity provision

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
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,
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

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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
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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.

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

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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.

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

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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.

Salga paper for AMEU conference, October 2014. Draft

The role of municipalities as a service authority for electricity provision

Annex 1: Notice of electricity authorisation (example)

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The role of municipalities as a service authority for electricity provision

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The role of municipalities as a service authority for electricity provision

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The role of municipalities as a service authority for electricity provision

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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

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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

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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

Salga paper for AMEU conference, October 2014. Draft