DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY Lesley Ferrando, Senior Analyst Regulatory Reform Department, Electricity Regulation DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Market Challenges Context Research International practices Legislative Environment Issues / Challenges Future DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Putting it in context Resale of Electricity is thriving in South Africa, often putting interests of end-users at risk – many complaints. Most licenced suppliers have no data on the size of this market within their areas of jurisdiction. NERSA commissioned research to better define issues to be covered by resale guidelines (currently in draft form), and Examine legislative issues of “Trading” / Licensing versus registration. DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Putting it in context Who or What is a “Reseller”? Resale - distinct from the licensed distributor or retailer in that the amount of electricity resold at one site has not in the past justified it becoming a licensee Typically, the resale situation is where a company or legal entity purchases electricity for a specific property from the licensed distributor, and then re- distributes the electricity to various customers/tenants situated on that property. DUE Conference 18 - 20 March 2008 NETgroup Report DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Putting it in context Often outsourced to companies/consultancies to manage - rapidly growing, both in size and complexity. Some now providing services to many thousands of end-use customers at various sites throughout the country (One third party supplier 25 000; 100 000 customers – bigger than many licenced municipalities). Number of end use customers in this market still unknown, but widely believed to be into millions. Most complaints received - rights and responsibilities of both affected parties, and dispute resolution; quality of service, tariffs and pricing principles; billing issues. DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Research project Goal - to provide the basis on which the resale guidelines will be finalized; and define all roles and responsibilities to ensure that end-users’ rights are protected to the same extent as customers who are directly supplied by licensed distributors. TOR (published mid 2007): Research Report detailing the extent of the resale market in SA, and including: • An overview of practices in other countries; • Guidance on the best pricing principles for this market sector; • Highlighting legislative gaps and recommending • Guidance on dispute resolution; • Guidance on how best this market could be regulated while maintaining • a competitive environment; • Guidance on implementation of the guidelines. DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Research Progress Done: Consultants appointed (NetGroup / Shanduka) Research Undertaken Report Drafted Various workshops & presentations - NERSA staff & management Still to be done: NERSA Submission of Final Report to Regulator - imminent Workshop with stakeholders (proposed) NERSA to undertake further research and finalise guidelines (second half of 2008) NOTE: BASED on licencing framework DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – International Practices Similar issues in many other countries UK Competitive market MRP (Maximum Retail Price) published ito legislation (Director General of Electricity Supply) Ofgem responsibility to control Industrial and commercial not covered as deemed to be able to negotiate prices as part of rental agreements & pass on costs to tenants Australia On selling - “Inset” customer energy only tariff Retailer of choice DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Legislative environment Plethora of applicable legislation makes for a confusing environment The Electricity Resale Market is exploding as more housing developments are undertaken to meet the constantly growing need. The National Energy Regulator Act (Act 40 of 2004) continues the mandate to protect customers’ interests. The Electricity Regulation Act (no. 4 of 2006) states the Regulator’s right to regulate prices and tariffs. Municipal By- laws are also applied in most areas. DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Legislative environment Municipal by-law (very similar to Regulation 11 of old Electricity Act) … If electricity is resold for use upon the same premises, the electricity resold …… The tariffs, rates and charges at which and the conditions … shall not be less favourable to the purchaser than those that would have been payable and applicable had the purchaser been supplied directly by the Municipality. Every reseller shall furnish the purchaser with monthly accounts that are at least as detailed as the relevant monthly billing information details ….. The Electricity Regulation Act does not specifically provide for resale of electricity, but does specify “trading in electricity”, implicitly including resale It also stipulates that no person may be involved in trading of electricity without a licence obtained from the Regulator. Uncertainty regarding processes DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Legislative environment Electricity Regulation Amendment Act (28 of 2007) defines “reticulation” as … trading or distribution of electricity and includes services associated therewith; … Has implications for licencing of resellers Sectional Title and Properties Acts allow landlords to recover cost of services through levies – not normally transparently specified, leading to danger of double recovery from customers / tenants who may be in a position of weakness. Further unpacking of the legislative environment in the workshop later DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Issues / Challenges 1. Pricing Buying from Eskom or Local Distributor at different tariffs. What to sell at? Rights of the customer? Who decides what is fair? Eskom local distributor building owner/s managing agents end use customer Tariffs regulated Uncontrolled / unregulated pricing Licenced Licenced / Registered ?????? DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Issues / Challenges Some Pricing Issues: Subsidies – under or over-recovery Data availability “Free” units Information provided to customers Confusion as to where cost items may be collected DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Issues / Challenges 2. Local Distributor responsibilities Some municipalities haven’t adopted reworded by- law – some have existing (inadequate) by-laws, some totally silent on resale issues No data kept on resellers FBE / other national initiatives Most not geared / prepared to enforce Cross-subsidisation in existing tariffs / incorrectly structured tariffs Some resellers pro-active, others unaware of the legal requirements – who guides them? DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Issues / Challenges FREE BASIC ELECTRICITY (FBE) AND OTHER NATIONAL INITIATIVES SUCH AS LOAD SHEDDING AND RATIONING Funding for Government’s Free Basic Services (FBS) programme given to Local Authorities, who in turn may pass some of this funding through to specific service providers (such as Eskom). Many indigent or qualifying electricity customers supplied through a resale situation; however, most municipalities have no methodologies for allocating free units to them Limited cases - reseller can apply for free units - but who ensures any / correct customers receive them? Danger exists that reseller can use FBE units as a bargaining tool to ensure customers pay for other services, totally against the spirit of the initiative. DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Issues / Challenges FREE BASIC ELECTRICITY (FBE) AND OTHER NATIONAL INITIATIVES SUCH AS LOAD SHEDDING AND RATIONING Application of any quotas Monitoring / application / collection of any penalties Mandatory DSM? DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Issues / Challenges Licensing / Regulatory Framework Process Licence / Register – where / when? Conditions? Various approaches which can be taken DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Rights / Responsibilities Sad reality – most disputes are unnecessary! Many only come to Regulator after lengthy, costly legal fights Detailed billing often not provided Most don’t know where to turn for advice – both resellers and customers Many resellers would comply if they were given more advice / education Many are scared of “rocking the boat” and getting evicted? DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Future Finalise Research Revision of Legislation Determination of licensing / registration process Finalisation of Guidelines incl. Pricing Principles / Tariff Code More attention paid to right of choice of supplier by customers – not taken away by developers / given away by local authority DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Future Implementation process Guidelines Update legislation Stakeholder workshops Inform all licencees about legislative requirements and obligations Inform all known resellers about registration / licencing requirements Regional adverts for resellers to register Amnesty period? Liaison between NERSA and licencees re monitoring Liaison with other entities such as SAPOA on landowners & developers DUE Conference 18 - 20 March 2008 RESALE OF ELECTRICITY – Future What do we want to achieve finally? Resellers able to provide a service and reasonably recover costs Better understanding of the nature of the business Protection of customers Facilitate competition (?) Monitor / Regulate all resale situations – at Distributors (Eskom & Local) level (RED) – logical licensing framework Customers to know their rights, not be forced to pay unfair tariffs, have a clear dispute resolution path DUE Conference 18 - 20 March 2008 THANK YOU QUESTIONS?