In addition to providing for a new transmission system operator and a competitive multi-market structure in the electricity supply sector, the recently published Electricity Regulation Amendment Bill also clarifies the role of the energy regulator Nersa and expands its mandate and some of its powers.

During his State of the Nation address on Thursday (February 10th), President Cyril Ramaphosa described the current electricity supply crisis as “one of the greatest threats to economic and social progress”.

He said there was a shortfall of around 4,000 megawatts (MW), although Eskom has repeatedly estimated it at up to 6,000 MW.

Ramaphosa cited various steps taken by the government to add generation capacity to the network and said Eskom is on track to complete the unbundling of its transmission business by the end of 2022.

“To regulate all these reforms, yesterday’s cabinet [February 9] approved the amendments to the Electricity Regulation Act for public comment,” he said.

It was published in the Official Journal on the same day, kicking off a 30-day comment period.

What’s in the bill

The bill provides for the creation of a transmission system operator and describes its functions while describing the new market structure.

Also, it makes several changes to how Nersa works.

This includes giving it powers not only to mediate, but also to make binding decisions in disputes between licensees and between licensees and customers or end users through arbitration.

In addition to issuing licenses for the generation, transmission, distribution, import, export and trade of electricity, it will also license system operators and cross-linking.

If the Bill is passed as is, the Minister of Mineral Resources and Energy may require Nersa to determine a tariff for the proposed energy – or to set a maximum or indicative price – before issuing a determination of additional production capacity, or thereafter but before procuring this.

Until now, this was entirely the responsibility of the departmental office of independent power producers.

The high tariffs agreed in the first tenders have been widely criticised, but Eskom is stuck with these tariffs for the duration of the 20-year power purchase agreement (PPA).

Although some renegotiation has taken place, it has yet to provide significant relief and represents a significant portion of the additional revenue requested by Eskom in the tariff application for next year.

Nersa is expected to decide on the app within the next week or two.

If Nersa decides on a tariff, guideline or maximum tariff, this must be implemented in the PPAs following the corresponding procurement process.

With regard to the determination of electricity tariffs, the principle of eligible income based on the full cost of the service plus a reasonable return remains, but the margin requirement is now linked to risk with the qualification: “proportional at the risk of the authorized activity”. ”.

An additional pricing principle in the bill is that Nersa may take into account the need to ensure security of supply and diversity of supply, and to promote renewable energy.

The bill further stipulates that when determining the tariffs, Nersa must take into account all the projects foreseen in the integrated resource plan and the transmission development plan insofar as this will have an impact on the costs of the holder. during the tariff period.

In the case of direct supply agreements between an approved producer and its customer, it is not necessary to obtain Nersa’s approval for the prices agreed by the parties.

The bill removed the provision allowing a Nersa court to deal with licensees who fail to comply with the terms of their license.

In the past, Nersa has seemed reluctant to sit as a court and has been accused of failing to act against non-compliant licensees, particularly municipalities.

The bill also specifies the conditions under which Nersa may apply to the High Court for an order suspending or revoking a license.

In addition to the current wording that this may be done “if there is a cause justifying” such action, the bill now gives an example: “such as a failure to carry out the activities for which the permission has been granted or a material non-compliance with the terms of the license”.

Nersa adopted at the end of last year three new pricing principles in the electricity supply sector, namely:

• Unbundling of services such as generation, transmission and distribution;
• Differentiate the cost of different services, such as baseload supply or variable demand; and
• The differentiation between the costs associated with each of these services.

It plans to develop and finalize a methodology based on these principles by September.

Many critics have argued that the amendment of the Electricity Regulation Law and the Tariff Policy must first be finalized before developing the methodology.

The Pricing Policy was released for comment on the same day as the Amendment Bill, also with a 30-day comment period beginning February 10.

This article first appeared on Moneyweb and has been republished with permission. Read the original article here.