COMPLIANCE MONITORING REPORT OF PHUMELELA LOCAL MUNICIPALITY

Transcription

1 COMPLIANCE MONITORING REPORT OF PHUMELELA LOCAL MUNICIPALITY Monitoring Date: 27 October 2015

2 All enquiries and correspondence to be directed to the Head of Department, unless indicated otherwise, by means of a formal letter signed by the Head of Department: Electricity Licensing, Compliance and Dispute Resolution. Tel: National Energy Regulator Kulawula House 526 Madiba Street Arcadia Pretoria PO Box Arcadia 0007 Tel: +27 (0) Fax: +27 (0) DISCLAIMER The content of this report is based on information and evidence obtained from both the licensee and site verification of plant condition conducted during the monitoring process. Should this report not be accurate, the licensee must, in writing and within fourteen (14) days of receipt of this report, advise NERSA about such inaccuracies. Page 2 of 13

3 TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION METHODOLOGY NERSA AND PHUMELELA LOCAL MUNICIPALITY DELEGATES GENERAL INFORMATION ON PHUMELELA LOCAL MUNICIPALITY AUDIT FINDINGS PHUMELELA S PERFORMANCE ON NERSA COMMUNICATION PROGRESS ON THE IMPLEMENTATION OF THE CORRECTIVE ACTION PLAN PLANT CONDITION DURING AUDIT VS. MONITORING TIME CONCLUSIONS RECOMMENDATIONS NEXT STEP Page 3 of 13

4 EXECUTIVE SUMMARY The National Energy Regulator (NERSA) conducted a compliance audit on Phumelela Local Municipality ( the Licensee ) from 23 to 24 October 2012 to determine their level of compliance with the licence conditions. The objective was to determine the compliance of Phumelela Local Municipality with the legal, financial and technical conditions of the electricity distribution licence. After the audit, findings were recorded in a draft report and forwarded to the Licensee for management comments with regard to the correctness of the findings in order to make the report final. Phumelela failed to submit the management comments within the prescribed time frame, thus the report was considered final. Phumelela was then requested to submit a Corrective Action Plan (CAP) to address the instances of non-compliance highlighted in the report. On 28 June 2013, NERSA received a CAP from Phumelela Local Municipality indicating what it intended to do to correct the instances of non-compliance. The National Energy Regulator instituted a monitoring regime to ensure and enforce the implementation of the CAP. On 27 October 2015, the National Energy Regulator conducted a monitoring exercise on the implementation of the CAP at Phumelela Local Municipality. The monitoring exercise was conducted in order to determine the progress made in the implementation of the CAP. The National Energy Regulator is of the view that addressing issues raised during an audit will help Phumelela Local Municipality to be a more efficient and effective licensee. This is a report on all the findings as per the audit and presents the status quo in terms of the progress made to address the non-compliances highlighted during the audit. During the monitoring exercise, NERSA conducted site inspections to verify the progress made in the implementation of the CAP. It must be noted that minor progress had been made in improving the network condition and business systems of the Phumelela Local Municipality. The level of improvement is presented in detail in section seven of the report. Page 4 of 13

5 1. INTRODUCTION 1.1 Overview The National Energy Regulator (NERSA) is required to monitor and assess whether the electricity suppliers comply with the conditions of their licences. The Energy Regulator approved a compliance monitoring framework for electricity distributors in 2011, which acts as a guide on how compliance audits and monitoring must be conducted. The framework is also supported by the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Chapter 4 (a) (vii), which states that the Regulator must enforce performance and compliance; and take appropriate steps in the case of non-performance. The National Energy Regulator conducts compliance audits on licensed electricity distributors annually. The National Energy Regulator regulates the energy industry in accordance with Government laws and policies, standards and international best practices in support of sustainable development. The organisation issues licences to electricity distributors and therefore requires audits to be conducted against key licence obligations. It is the National Energy Regulator s mandate to monitor and enforce compliance with the licence conditions as per the Act. This monitoring process enforces and ensures the improvement and sustainability of the licensees for the betterment of the Electricity Supply Industry (ESI), which will lead to improved quality of supply and service to customers. 1.2 Monitoring and Enforcement Objectives The key objectives of the compliance monitoring and enforcement of the corrective action plans are to: a) enforce implementation of the corrective action plan; b) help the licensee not to lose sight of critical matters that need to be corrected; c) help the licensee to start doing self-monitoring in terms of their performance against licence conditions; d) help the licensee to ensure that the quality of service and supply does not decline; and Page 5 of 13

6 e) inform the Energy Regulator of the progress made by the licensee in the implementation of the corrective action plan. 2. METHODOLOGY A corrective action plan template was developed and sent to the Phumelela Local Municipality ( the Licensee ) to populate all the non-compliances highlighted during the audit, together with the intended corrective action plan (CAP) with target dates of implementation. This is to be used by the National Energy Regulator to monitor the progress made and to establish whether the timelines on the CAP were realistic and whether it addresses the issues highlighted during the audit. The CAP was sent to the National Energy Regulator after being signed by the relevant officials of the Licensee. The National Energy Regulator agreed on the CAP and initiated a monitoring process that robustly monitors progress. Progress is checked against target dates and remedial actions are implemented on an ongoing basis. Proof and supporting documents are requested and presented to the National Energy Regulator s officials during the monitoring process. Site verification was also done to compare the current plant condition against the plant condition during the audit. 3. NERSA AND PHUMELELA LOCAL MUNICIPALITY DELEGATES NERSA was represented by the following officials: Mr B van Heerden Financial Compliance Officer Mr T Manaka Compliance Monitoring Technician Mr G Hopkins Compliance Monitoring Technician Phumelela Local Municipality was represented by: Mr H Mthemba Acting Technical Director Mr N Gnole Acting Unit Manager Mr R Sithole Ermsa Supervisor Page 6 of 13

7 4. GENERAL INFORMATION ON PHUMELELA LOCAL MUNICIPALITY Phumelela Local Municipality is a licensed electricity distributor (Licence No. NER/D/FS195) located in Vrede in the Free State. It is a small municipality consisting of two intake points at the town of Warden. It has 3,078 customers, which are categorised as follows: 2,528 prepaid domestic; 408 domestic credit meters; 116 commercial and one industrial customer. 5. AUDIT FINDINGS At the time of the audit, the following was highlighted to the Licensee as areas that need attention and improvement: a) Preparation for the compliance audits and the submission of required information was not displayed this is critical, as it does not only assist the NERSA audit team, but the Municipality as well. b) There were no employees dedicated to electricity in the Electricity Department and the responsibility for the management was delegated to a Consultant and Contractor. c) There is no Responsible Person appointed as required by the Occupational Health and Safety Act, (Act No. 85 of 1993) ( the OHS Act ) and no safety meetings took place. d) The actual areas of supply are not the same as those stated on the licence. e) The electricity affairs of the Municipality are not ring-fenced. f) There was no proof that the Municipality budgeted at least 6% of total budgeted expenditure for maintenance as per NERSA guideline. The comparative figures for budgeted versus actual maintenance for the past five years were not available. g) There are some discrepancies in terms of the tariff being implemented when the Phumelela tariff structure is compared to NERSA s approval letter. h) No proof of any load forecasting or network planning could be presented to the Audit Team. i) There was no proof of any condition inspections or demand side management, and the Licensee could not present a single line diagram. Page 7 of 13

8 j) No proof of any asset management policy or asset register for electricity could be submitted. k) There is no maintenance plan available and it was reported that no preventative maintenance is being done. Emergency maintenance is done by a contractor. l) There is no power quality management system in place at Phumelela Municipality. m) Almost none of the technical conditions are being adhered to. 6. PHUMELELA S PERFORMANCE ON NERSA COMMUNICATION The October 2012 compliance audit on Phumelela Local Municipality was followed by a number of requests via from the National Energy Regulator to Phumelela Local Municipality for comments on the draft audit report. No comments were received. After the submission of the final report, a signed CAP was received by NERSA and the monitoring exercise commenced. The communication is as indicated in the table below. Table 1: Communication between NERSA and Phumelela Local Municipality NERSA REQUEST DATE OF REQUEST LICENSEE RESPONSE DATE OF RESPONSE Request for Management 26/02/2013 No response n/a comments on draft report Request for CAP 12/08/2013 CAP Received 13/07/2013 Monitoring notification 05/10/2015 Positive response 05/10/2015 Monitoring exercise 27/10/2015 Positive response 27/10/ PROGRESS ON THE IMPLEMENTATION OF THE CORRECTIVE ACTION PLAN Phumelela Local Municipality displayed a fair level of commitment during the monitoring exercise in terms of addressing all the instances of noncompliance highlighted during the audit. At the time of the monitoring exercise, it was observed that most of the instances of non-compliance highlighted by the audit had been attended to, however with minimum effort. The table below depicts the progress made by the Licensee in addressing the instances of non-compliance highlighted during the audit. Page 8 of 13

9 Table 2: Corrective Action Plan Non-compliance Corrective action Progress Condition during monitoring day Financial Constraints No meter audits Payment of accounts not monitored properly Disconnections not done Implemented tariffs not as per NERSA approval Electricity not ringfenced Reduce unaccounted for electrical losses by at least 10% per year. Introduce meter audit programme. Finance Department to be assisted to monitor and report on overdue accounts timeously. Default procedures including disconnections to be determined and applied. Finance Department to be assisted to implement tariffs as approved by NERSA. Finance Department to be assisted to ringfence Electricity. No progress reported. Twin Peak Technologies have been contracted to audit meters. Three credit controllers were appointed on 01 July 2015 to monitor accounts. 100% Complete. PLM started disconnections for non-payment of accounts in May NERSA tariffs have been implemented. Partly ring-fenced. Planned to be ringfenced by % improvement. 60% complete; report scheduled for 30 October Ongoing. It was reported that some larger semi-industrial customers that had been disconnected have not paid their accounts and are using generators or leaving town. 100% compliant. No change since audit. Information required by NERSA not available The licenced areas of supply do not correspond with the actual areas of supply Finance Department to be assisted to make the required information available. The matter is to be taken up with NERSA to get the licenced areas of supply to correspond with None. None. 0% improvement. 0% improvement. Page 9 of 13

10 the actual areas of supply. No responsible person in terms of the OHS Act No Electricity Department Structure No Electricity Master Plan Asset Management The electricity distribution network is in an unacceptable and unreliable condition No electricity store No power quality management system No demand side management Appoint responsible person in terms of the OHS Act. Determine and update electrical organogram as required. Draw up Electricity Master Plan to include line diagrams, asset register and load forecast. Introduce routine preventative maintenance and inspection programmes. Upgrade the electricity distribution network to cope with load growth and to ensure reliable quality of supply. Institute electricity materials store. Introduce power quality management system. Introduce demand side management programme. Contractor has been appointed as responsible person. Department structure has been drawn up. Master Plan completed. R7.6 million funding was received from the DoE for upgrade/ refurbishment project. Contractor keeps spares and consumables. Feasibility of introducing a power quality management system to be reviewed annually. Feasibility of introducing a demand side management system to be reviewed annually. 100% complete. Structure not implemented. PLM has 3 years left on the contract with the maintenance contractor. 100% complete. No change since audit. Project to start in November Electricity materials store will be instituted at the end of the contract with their Maintenance contractor. 0% complete. 0% complete. The table above indicates that although many of the non-compliances had been addressed by Phumelela Local Municipality, very few of the non- Page 10 of 13

11 compliances had been resolved. It was highlighted during the monitoring that the main challenges faced by the Municipality was a lack of funds due to the small customer base and that many (1800 out of the households) customers where indigent, which was expected to increase over the next year. It was reported that although Phumelela Local Municipality has improved its monitoring of customer accounts and have instituted a disconnection procedure, the financial benefits have not yet been realised as larger commercial (semi-industrial) customers have not paid their outstanding accounts and are using self-generation or have moved out of the PLM area. 8. PLANT CONDITION DURING AUDIT VS. MONITORING TIME The photos below depict the condition of the network equipment during the audit compared to the condition during the monitoring process. Cross arms of LV overhead line are in bad condition, tress encroaching lines (2012) and no improvement (2015) Pole-mounted transformers in an acceptable condition in 2012 and network has deteriorated (2015) Page 11 of 13

12 The photos indicate that Phumelela Local Municipality s network is still in bad condition. It needs serious capital investment to bring it on par with similar licensees networks. 9. CONCLUSIONS Phumelela Local Municipality tried to address many of the noncompliances, however there are still non-compliances that need to be attended to. The lack of attention to detail at Phumelela Local Municipality has contributed to the slow pace of implementation of the corrective actions. The lack of a formalised inspection programme with the maintenance contractor has led to a degradation of the electrical distribution network, therefore a formalised inspection programme should be implemented urgently. 10. RECOMMENDATIONS It is recommended that Phumelela Local Municipality increase its dedication and commitment to improving the level of compliance with its licence conditions. A preventative maintenance plan, a formalised inspection procedure and a refurbishment master plan must be implemented without delay to assist in improving the quality of supply the Licensee is offering its customers. It is further recommended that Phumelela Local Municipality impose a self-monitoring regime to ensure that it improves its level of compliance with licence conditions. 11. NEXT STEP There are still instances of non-compliance that need to be addressed by the Licensee. As a result, the Energy Regulator expects the Licensee to implement the CAP until all the instances of non-compliance have been fully addressed in order to improve the Licensee s level of compliance. The National Energy Regulator will continue to monitor the Licensee s implementation of the CAP on an ongoing basis to ensure that all the findings are addressed. Once the remaining projects in the CAP have been concluded, the Licensee must send a closeout report to the National Energy Regulator. It is expected that the Licensee will now implement a self- Page 12 of 13

13 monitoring regime to ensure that the improved areas do not deteriorate back to a situation of non-compliance. Further monitoring exercises to be conducted by the Energy Regulator on the Licensee will be communicated to the Licensee in due course. All communication should be forwarded to the Head of Department, unless indicated otherwise by means of a formal letter signed by the Head of Department: The Head of Department Licensing, Compliance and Dispute Resolution: Electricity National Energy Regulator PO Box Arcadia 0007 Fax: +27 (0) Page 13 of 13