Request for Proposals Benchmarking the Energy Regulator against International

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					Request for Proposals

Benchmarking the Energy Regulator against International Best Practices with reference to the impact of the processes and methodologies used on the regulated Industries.


The National Energy Regulator (NERSA) is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipeline industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act 2001 (Act No. 48 of 2001) and Petroleum Pipelines Act, 2003 (Act No. 60 of 2003). The structure of the Energy Regulator consists of nine Members, five of whom are part-time and four are full-time. The Energy Regulator is supported by a secretariat under the direction of the CEO. Electricity Regulation Act, 2006 (Act No.4 of 2006) provides NERSA with mandate to regulate the Electricity Supply Industry (ESI) by ensuring that the most efficient and effective ESI is in place to meet the requirements of existing and future electricity customers. Activities of the NERSA include: •Issuing licenses for the generation, transmission and distribution of electricity •Determining the price at which the company (licensee) sells electricity and (in the case of Eskom) the rate of return allowable •Advising the Minister of Minerals and Energy on any matter relating to the Electricity Supply Industry. Gas Act 2001 (Act No. 48 of 2001) provides the Energy Regulator with the mandate to regulate the Storage and Transmission of hydrocarbon gas products, to license industry participants and to set the applicable tariffs. Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) provides the Energy Regulator with the mandate to regulate the Storage and Transmission of liquid petroleum products, to license industry participants and to set the applicable tariffs.

Proposal for services:

Benchmarking the Energy Regulator against International Best Practices with reference to the impact of the processes and methodologies used on the regulated Industries.

Table of contents

1. Introduction 2. Context 3. Purpose 4. Scope of work 5. Project deliverables 6. Time frames 7. Information required in the proposal 8. Evaluation of the proposal 9. Submission of the proposal and closing date

1) Introduction

NERSA’s stated objective is to be a world class Energy Regulator and to benchmark itself against other regulators in accordance with International Best Practice criteria. This project is the first step towards the actualization of that objective and all work should be done with due consideration of its purpose detailed in paragraph 3 and the requirement of skills transference. The project is broken down into 3 stages which should be quoted on separately in a single submission. The stages will not be awarded to separate consultants but it is possible that not all stages will be awarded or later stages may be awarded subject to satisfactory performance of earlier stages. There will in any case be such a review at the end of each stage which could be considered to be a go / no go decision point. Should a no go decision be made due to a failure to perform adequately in NERSA’s view then NERSA reserves the right to award the remaining stages to another group and use what has already been done as the basis for the remaining work.

2) Context. In the broad scheme of things NERSA desires to benchmark itself against International Best Practice because of its commitment to being a world class regulator. This benchmarking is done by many regulators in the world and is seen as a crucial step ensuring the quality of regulation which in turn assists in ensuring the health of the industries regulated. Part of this process is the measurement and determination of the impact the Regulators decisions have on the regulated industries. In addition to the above there are key issues which the Energy Regulator must confront in the near term. Therefore it would be helpful to know and understand what other regulators have done concerning these issues and the results they achieved. The Regulators against which the benchmarking is to be done have been chosen with these issues in mind. The overall project has to be carried out in such a way that the benchmarking and impact assessment methodology becomes integrated into and ingrained in processes and the culture of the regulatory structures. This is the first time that NERSA is embarking on this exercise and therefore it’s considered expedient to examine whether NERSA is fulfilling its mandate correctly? This part of the project could be considered to be doing a benchmark against mandate.

Part of this benchmark against mandate will be to determine and document the processes and methodologies NERSA uses. This is an important step to enable the benchmarking against mandate. The proper documentation of the processes and methodologies that NERSA uses will make benchmark comparisons with other regulators more accurate and meaningful. The focus of this exercise is on those things which can be changed and managed by NERSA. Some benchmarking exercises focus more on the framework within which the regulator operates. It is our view that this would be a study for the central government to commission because those are the things which only they can change and manage. It is NERSA’s desire to be effective and efficient in their role as mandated. The long term health of the regulated industry is also of vital concern and is part of NERSA’s mandate therefore it is essential that as part of this project a means of evaluating the impact of decisions on the industry be determined and used. This is considered important so that unintended consequences can be minimised. It is intended that the results of this benchmarking exercise will then be used to do a gap analysis by comparing current status with International best practice. After the gap has been determined action plans to close the gap between the current and the desired state must be drawn up and agreed upon. An important aspect of this project is the transference of skills and knowledge to NERSA staff so that they can do ongoing benchmarking of the regulators business without assistance. 3) Purpose

The purpose of this project is to align the National Energy Regulator (NERSA) with its mandate and also with International Best Practice. It should provide a system for measuring performance and regulatory impact against International Best Practice with a view to making NERSA a world class regulator. The additional purpose of this project is the transference of the necessary benchmarking skills to the regulators staff. 4) Scope of work The consultants are required principally because the regulator needs an outsiders view. However this view needs to be given by people qualified to give it. They should be experienced in International Regulatory practice and be experienced in Benchmarking procedures. There is a lack of experience in benchmarking practices within NERSA and part of this project is the transference of skills to NERSA staff.

The Scope of work covers three stages of the project with a view to achieving the objectives laid out in the Context and Purpose above. The work done must at least include but not necessarily be limited to only cover the items listed below. The consultant needs to be widely experienced internationally in Benchmarking and Regulatory practice as well as having local knowledge and expertise. Specifically excluded from the scope of work are Financial and Human Resource procedures internal to NERSA. a) In all aspects of the project the following should be considered. (1) Adequate, efficient and timely investment in the regulated industries. Particularly electrical generation capacity and petroleum and gas pipeline capacity; (2) Security of supply and NERSA’s mandate in this regard; (3) Economically efficient pricing and tariffs; (4) Efficient operation. Especially with regard to electricity generation. (5) Environmental and social factors and impacts.

b) Stage 1 i) The first stage of this project will look at NERSA’s Mandate. This covers the three industries that NERSA regulates and the five subdivisions of the Electricity Industry. These are Petroleum Pipelines, Piped-Gas and the Electricity Industry. The Electricity industry is subdivided into Generation, Transmission, Distribution, Reticulation and Dispatch. With regard to Piped Gas the focus is on the implementation of the agreement concerning the Mozambican gas pipeline between the government of South Africa and Sasol Limited as well as transmission and storage tariffs. ii) It must examine whether in terms of this mandate the processes and methodologies used by NERSA to carry out its responsibilities are appropriate efficient and effective? Is NERSA covering all aspects of its mandate? Are there things which NERSA is doing which it should not be doing? iii) In other words is NERSA doing the right things in the right way to fulfil its mandate?

iv) The current processes and methodologies must be determined and be reduced to Diagrams, flow charts and tables which will form the basis for evaluating the current position. These should be done in a way which is independent of the internal structure and departmental organisation of NERSA. v) The processes must be evaluated for internal consistency and completeness. That is to say do they make business and logical sense? How do they compare with the “ideal” processes which NERSA should have? Is the set of processes complete? Are they done efficiently? Are there redundant processes? .Are the methodologies correct? How do they compare with International Best Practice and International trends? vi) It is important to note that this is not meant to be a process reengineering exercise. Rather it is a look at the things which NERSA is supposed to do and an evaluation of how they are done. For example if NERSA is supposed to set a tariff or issue a licence. It should follow these processes from start to finish and evaluate if all the “bases” have been adequately covered? Is it properly tracked and handled? vii) The process should then be documented together with the rules and policies associated with it. From this information and understanding the “template” will be drawn up and the measurement criteria set which will be used for benchmarking NERSA against International Best Practice. viii)The key decision criteria should also be documented and a method arrived at for measuring the impact of regulatory decisions on the Industry.

c) Stage 2 The second stage of this project will be the scan of international Regulators against which NERSA will benchmark itself in accordance with International best practice. In addition it should answer the specific questions raised by NERSA as set out below and those raised in the formal meetings with staff and the Energy Regulator. These will be about issues which NERSA is confronting and which it is felt that knowledge of how its peers approached and solved them would yield a collective wisdom which would assist NERSA to reach an answer suitable for South African conditions.

d) Stage 3 i) The third stage of this project will be to actually do the benchmarking and to measure the impact of selected past regulatory decisions and approaches on the regulated industry.

ii) It will also determine the gap between the desired state and the actual state. It will determine the necessary corrective measures and draw up an effective implementation plan to which will use a “continuous improvement approach” with the assessment framework as the "tool" to initiate and achieve improvements in regulators' effectiveness, efficiency and the quality of operations. 5) Project deliverables a) Deliverables applicable for All Stages of the Project i) A written report and presentation which will detail the results of the investigation after every stage. This report will detail methodologies and processes studied relevant to the stage being reported on with an assessment of their effectiveness. The report will highlight measures which might not be used currently by other Regulators but which would seem to be applicable to NERSA ii) Issues that should be addressed by the regulator internally and issues which should be brought to the attention of the policy makers must be identified separately. iii) This report should be accompanied by a CD which will constitute a knowledge base in electronic digital format using Adobe Acrobat and / or Microsoft Office file formats. iv) This CD should contain all information used or referred to by the consultants during that stage of the project. It should include any questionnaires (and results thereof), minutes of meetings and responses from other regulators. It should include the report, presentation and other outputs requested for the relevant stage. Any publications referred to should be scanned if necessary and be in pdf format on the disc. v) The consultants must produce well structured reports with practical recommendations. vi) It is expected that the consultants will work and interact with the team through-out the exercise in order to impart the necessary skills. vii) All of the issues mentioned in the scope should also be covered in so far as can be and are relevant to the stage. viii)Discussion sessions must be held with stakeholders and departmental representatives to gain input from them and inform them of the findings and progress. It is important that there is widespread buy in from the NERSA staff and the Regulator board. ix) Out of these discussions a detailed plan must be produced for the next stage

b) Stages 1 i) This stage must produce a practical detailed and effective plan to benchmark NERSA against International best practice. It must also produce a detailed and effective plan to assess the impact of regulatory decisions on the sector. ii) These plans must include practical, effective and efficient methodology and process to perform these tasks on a once off (annual) basis and a continuous ongoing basis. iii) Interviews and group discussions must be done to determine the processes and methodologies used by NERSA. iv) Flow charts, diagrams and tables referred to previously must be produced. These will define the processes and methodologies currently used by NERSA. v) A plan and template to be used for the following stages must be agreed upon. vi) A section in the report which identifies any weaknesses or threats to NERSA which became apparent to the consultants during the course of their work. vii) An evaluation of current practices on their own merit before reference to benchmarking with other regulators based on efficiency, effectiveness and sound business practice. c) Stage 2 i) The following international regulators should be considered: Australia, New Zealand, California, FERC, the United Kingdom, Canada and France. Brazil and the Central European Regulator should also be covered. The Central European Regulator must be looked at because they are benchmarking the European Union utilities every year. Particular examples to be looked at are Turkey and Montenegro. Some of these are of particular interest because of the generation mix and other because of their past experiences or political situation. ii) The following issues must be addressed with regard to the above regulators. iii) How do other regulators which handle more than one sector ensure “level playing fields” between the sectors? Do they use the same allowable rates of return for example? iv) How are competition and entry by new operators encouraged? v) How the rates of return are determined vis-à-vis risk and real rate of return?

vi) What methodologies are used to set tariffs and prices? vii) How the government’s energy policies are included in the regulatory frameworks. viii)Interruptible loads should be addressed in terms of how much is allowed to be included in margin calculations for planning purposes? ix) Determine how these regulators ensure adequate capacity? x) How did those who have experienced critical shortages respond? xi) Did that response fix the problem? (This is an important question.) xii) If it did not fix the problem then what were the reasons? xiii)General regulatory issues need to be answered such as:(1) The role of incident reports and how they are handled. What are the criteria for requesting them and what is the involvement the regulator in the investigations? (2) What other reports are required by the regulator and how are they used. (3) How are Social and Environmental issues handled? This involves issues such as Electrification of disadvantaged communities and air quality. (4) Particular note must be taken as to how the Regulators handle Nuclear Power and the reasoning behind these processes. All the key areas of difference to conventional plant should be listed. (5) Particular note should also be made about as to how the Regulators handle other non conventional generation. How do they handle renewable energy sources and bio fuels? (6) How do they handle energy efficiency issues and demand side management? xiv) The tools available to NERSA to monitor regulate and shape the industry effectively must be determined and recommendations made as to how best to use them. xv) The frame work and methodology to be used for stage 3 together with a plan of action. xvi) This is a vital stage and the report must present an effective comparison of all the regulators and NERSA. It should also answer all the relevant questions listed above and which arise out of Stages 1and 2.

d) Stage 3 i) This stage has to have included consultation with Stakeholders, some major customers, investors, DME (Department of Minerals and Energy) and Primary Energy suppliers. The records of these consultations are a required deliverable of this stage. ii) The above should include an identification of the Priorities of NERSA as regards to the applicable sector so the correct balance can be achieved in the conflicting interests of the real world. Also there must be some measure or decision tree which will lay down when a dispute is because of good regulation and when is it because of bad regulation. iii) A training course must be presented to NERSA staff to enable them do a benchmarking analysis like the one envisaged in this stage. iv) The benchmarking measurement should be done with NERSA’s involvement as “on job training.” v) A presentation at this stage must be made to the Energy Regulator with particular reference to the perceived gaps. vi) A detailed action plan to close the gap identified in this stage. It will be an effective implementation plan which will use a “continuous improvement approach” with the assessment framework as the "tool" to initiate and achieve improvements in regulators' effectiveness, efficiency and the quality of operations of NERSA. vii) A report must be produced which will detail exactly what measures are to be used to benchmark NERSA and how they will be measured. It will give the reason for using these particular measures. It will also detail what the respective levels of excellence are. The report should also provide diagrammatic views of the processes NERSA will use to regulate the Industry and implement change. 6) Time frames i) The proposal submission closing date is 26 February 2008 at 12H00 CAT. ii) It is envisaged that the decision of the evaluators will go to the Tender committee’s first meeting in March 2008 with a view to finalising the contract before 21 March 2008. iii) The duration and milestone dates of the project will be determined by mutual agreement according to the timeline requirements laid out in the successful bidder’s proposal.

7) Information required in the proposal a) It is absolutely necessary for the consultants to have above average expertise in benchmarking processes as well as wide international experience in regulatory processes. It is anticipated that this assignment will be intense in duration and nature and thus availability of the consulting team is a very critical factor throughout. b) Bidders are requested to provide their proposals in two parts i.e. Technical and financial. NERSA reserves the right not to consider any proposal that does not include at least the following information: c) Technical requirement i) The technical proposal must contain the following information: ii) Detailed methodology to address the terms of reference; iii) A detailed work plan with milestones, deliverables and timeline; and iv) A Project list demonstrating that the proposed project team has been involved in similar assignments. v) The proposed project team, project management and availability of project team members and their curriculum vitae. d) Financial requirements i) The financial proposal must provide the cost for completing each stage of the project in South African Rand and it should contain the following: ii) Company or consortium profile; iii) It is important that the consultants/consortium demonstrate a firm commitment to black economic empowerment. This extends to the composition of the team of consultants that will perform the work.

8) Evaluation of proposals The evaluation of proposals will be conducted according to NERSA’s procurement policy. All proposals will be screened for technical ability and those that meet that requirements will be evaluated in terms of financial criteria. A selection committee comprising NERSA staff will apply the following criteria in evaluating the proposals

Requirement Cost Qualifications of project team and specific experience related to this assignment Knowledge of South African electricity supply, petroleum pipeline and piped gas industries and related socio-economic challenges Competency of project team and previous experience or similar assignments Relevance of project methodology and plan Black economic empowerment Total

Points 30 10


25 20 10 100

NERSA has a right not to appoint a consultant/consortium if it is established that no proposal meets the requirements. NERSA will own the intellectual property of any work done under this contract.

9) Submission of proposals and closing date. a) The proposals must be received by NERSA on or before 12h00 CAT 26 February 2008. Proposals must be deposited in the tender box at Kulawula House, 526 Vermeulen Street, Arcadia, Pretoria.

b) Contact Persons The contact persons for this assignment are:

Mtutuzeli Benya Tel: +27 (12) 401 4600 Fax: +27 (12) 401 4700

Charles Geldard Tel: +27 (12) 401 4048 Fax: +27 (12) 401 4700

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