Energy Regulator Bill: hearings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
11 August 2004
ENERGY REGULATOR BILL: HEARINGS

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
National Electricity Regulator (NER) submission
SA Petroleum Industry Association (SAPIA) submission
ESKOM submission
SASOL Gas submission
SA Chamber of Business (SACOB) submission
Chamber of Mines submission
BHP Billiton submission
Energy Regulator Bill (B9-2004)

SUMMARY
The Committee conducted public hearings on the Energy Regulator Bill (B9-2004). All stakeholders supported the creation of a single energy regulator for the electricity, gas and petroleum pipeline sectors in South Africa as it would create more efficiency and synergy and would cut costs. Recommendations for amendments to the Bill included making the CEO of the Energy Regulator a full-time regulator; clarifying the duality between High Court review of the Energy Regulator's decisions and the appeals process to the Minister of Minerals and Energy in terms of the Electricity Act; clarifying the apparent concurrent jurisdiction of the Energy Regulator and the competition authorities on competition matters and the lack of policy guidance in the Bill relating to the current restructuring of the electricity supply, transmission and generation sectors.

Committee Members were somewhat subdued throughout the proceedings, but pertinent questions about the position of the Energy Regulator's CEO; the ER's separation of accounts and its independence were asked.

MINUTES
National Electricity Regulator (NER)
The NER was represented by Mr C Matjila (Board Chairperson) and Mr S Mokoena (Chief Executive Officer). Mr Matjila stated that the NER supported the Bill and the creation of the Energy Regulator (ER). However, the NER recommended that the CEO of the ER be one of the full-time regulators as it would ensure a proper structure with appropriate lines of accountability. In addition, the CEO should be on an equal footing with the other full-time regulators. As a result, the NER proposed that the number of full-time regulators be increased from three to four to accommodate the CEO recommendation. The NER also proposed a change to the manner of appointing the regulators from designation by the Minister of Minerals and Energy to the Minister appointing the part-time regulators and the CEO whom would then select the full-time regulators and recommending their appointment to the Minister.

Discussion
Mr H Schmidt (DA) commented that the proposal concerning the CEO did not make sense as the CEO could very well become a super-regulator because the other regulators would have to report to him / her. Mr Matjila refuted this by stating that it was not the intention to give the CEO more power than the Board and that the Board would decide on which functions should be delegated to the CEO and which to the other regulators. This would avoid tension and would create more efficiency.

Mr R Mofokeng (ANC) suggested that the NER's proposal on the position of the CEO could have been affected by the Board's relationship with the incumbent NER CEO. He queried what effect a change in CEO would have. Mr Matjila rejected this suggestion by stating that legislation should not be created to accommodate personalities or incumbent individuals.

The chairperson requested clarity on the NER's proposal to change the number of regulators. Mr Matjila reiterated that should the committee accept that the CEO be a full-time regulator, the NER proposed that the number of full-time regulators be increased from three to four. The number of part-time regulators would remain unchanged at five. If the committee did not accept the NER's proposal, the organisation proposed that one of the three full-time regulators should be the CEO of the ER.

At this point, the chairperson requested Mr N Magoai of ESKOM to comment on the NER presentation. ESKOM had made only a written submission to the committee. Mr Magoai said that ESKOM agreed with the NER presentation, but added that the Bill provided for High Court review while the Electricity Act made provision for an appeals process to the Minister. This created confusion and uncertainty and should be cleared up by the committee. He argued against the provision that allowed the Minister to instruct the ER on certain matters stating that this could jeopardise the independence of the regulator. He also felt that "petty" offences should not disqualify persons from becoming regulators and said that confining the regulators to SA citizens only would limit the regulator's ability to source foreign expertise.

SA Petroleum Industry Association (Sapia)
Mr C McClelland, Executive Director of SAPIA said his organisation supported the idea of a single energy regulator as it would lower administration costs, but cautioned that care should be taken not to compromise the skills required in electricity, gas and pipeline regulation. SAPIA welcomed the fact that the petroleum industry would not fall under the regulatory mandate of the ER as the industry was moving towards less regulation of its commercial operations. However, he felt that the ER could well in future regulate health and safety and product specification issues. SAPIA had just two concerns relating to "other services" and their charges and whether fines levied by the regulator would remain with it or be transferred to the National Treasury.

The chairperson requested Mr S Maputha (SASOL Gas) and Mr I Collair (Shell) to add their comments. Mr Maputha said that his company preferred a separate regulator for the gas industry as it was in its infancy and required a different regulatory regime than the mature electricity industry. He, however, accepted the government's intention to create a single energy regulator. He added that clause 13 of the Bill did not make sense as it was unclear how the parliamentary appropriation to the ER would be divided between the three separate accounts that were proposed. He agreed that revenue and costs should be shared proportionally between the three sectors, but felt that the parliamentary appropriation should be shared equally. Mr Collier's only comment was that he foresaw problems with the implementation of the Bill by the target date as the regulations to the Petroleum Pipelines Act were not yet finished.

No questions were asked after the above presentations and comments.

SA Chamber Of Business (SACOB)
Ms M Drodsky and Mr K Warren represented SACOB. Ms Drodsky said they welcomed the establishment of a single energy regulator as it would contain the costs of infrastructure and operations. SACOB's main proposals included that a limit be placed on the number of times a person could be re-appointed to the regulator; that procedures for meetings of the ER be prescribed or agreed by consensus among the members; that the regulator should inform parties when their interests are affected by its decisions; that the regulator's annual report include information on tariffs and tariff structures and that the ER would in future be phased out as competition was introduced into the SA energy market thereby obviating the need for regulation.

Discussion
Mr Schmidt asked whether the independence of the ER would be compromised if persons that had previously worked in the three sectors were appointed as part-time regulators. Ms Drodsky responded that it was vital that regulators had no current interests in the three sectors when they were appointed and that there should not be potential for or perception of any conflict of interest.

Mr Kekana (ANC) commented that it seemed almost impossible that experienced regulators could be recruited that did not have some sort of potential conflict of interest. He argued that it would be sufficient for the regulators to declare existing interests to the Minister and to recuse themselves from decision-making on those interests. Ms Drodsky agreed and stated that a minimum requirement would be that a potential regulator would have to terminate his / her employment with a related company or organisation before appointment.

Chamber of Mines
Mr D Kruger, Assistant Adviser: Techno-Economics, said the Chamber supported the establishment of the ER. It welcomed the provision for a majority of part-time regulators and the requirement that the Minister had to call for public nominations before appointing members of the regulator. The Chamber also supported the provision for separate accounts and the proportional sharing of costs envisaged in the Bill. However, he felt that the Bill should have included provisions dealing with the current restructuring of the electricity supply industry and related issues as the ER would have to operate in a policy vacuum while these developments were continuing. Mr Kruger added that the term "part-time" might require amendment as it created certain perceptions. After a request for clarity from Mr Kekana, he contended that "non-executive" might be a better term.

No further questions were asked of Mr Kruger.

BHP Billiton
Ms E Teljeur made BHP Billiton's presentation. In essence, the company supported the establishment of a single energy regulator and the provision safeguarding continuity of decision-making in the electricity industry. It also welcomed the public nature of the ER's meetings as provided for in the Bill. However, the company was concerned that the Bill was silent on the current restructuring developments in the electricity supply industry thereby leaving the ER without guidance on critical issues such as the regulation of independent power producers, contestability, access to the transmission grid and concurrency of jurisdiction with the competition authorities and Ministerial discretion. BHP Billiton also recommended that the Bill needed to clarify the grounds for appeals to the Minister and its procedures to prevent the independence of the ER being undermined. This would also require clarification of the jurisdiction of the competition authorities and the ER on competition issues to prevent "forum-shopping" or conflicting adjudication on the same issue.

No questions were asked of Ms Teljeur.

The meeting was adjourned.