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RESALE OF ELECTRICITY

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					                                      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?

				
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