Regulation of electricity utilities – sales of power

Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

The ERA requires that any person involved in trading of electricity must obtain an applicable licence from NERSA. These trading licences are applicable both to the selling and the buying of electricity as a commercial activity.

The Minister of Energy has recently gazetted the Licencing Exemption and Registration Notice under the ERA. These exemptions will potentially simplify the licencing requirements for small scale embedded generation.

Power sales tariffs

Is there any tariff or other regulation regarding power sales?

In terms of the ERA, NERSA is tasked with the regulation of electricity charges and tariffs.

NERSA approves tariffs on submission by Eskom of a schedule of tariffs. A licensee may only charge the tariffs set or approved by NERSA. NERSA may, in prescribed circumstances, approve a deviation from set or approved tariffs.

In terms of NERSA’s tariff principles for economic regulation of the electricity supply industry, the licence condition relating to the setting or approval of prices, charges and tariffs and the regulation of revenues:

  • must enable an efficient licensee to recover its costs;
  • must provide for or prescribe incentives for the continued improvement of the technical and economic efficiency with which services are to be provided;
  • must give end users proper information regarding the costs that their consumption imposes on the licensee’s business;
  • must avoid undue discrimination between customer categories (discrimination between different classes of customers for objectively justifiable and identifiable differences is allowed if approved by NERSA); and
  • may allow the cross-subsidy of tariffs between certain classes of customers.

The Minister of Energy may, in consultation with the Minister of Finance and by notice in the Government Gazette, make regulations in respect of norms and standards for the charging of tariffs.

Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

Refer to question 19 above.

Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

The NERA obliges the Minister of Energy to adopt measures that will provide for the universal access to appropriate forms of energy or energy services for all the people of South Africa at affordable prices. These measures must take into account the country’s commitment to provide free basic electricity to poor households.

Currently, South Africa has an Electricity Basic Services Support Tariff (Free Basic Electricity) Policy, which requires the provision of 50kWh of electricity per month to existing qualifying consumers (ie, poor households that are legally connected to the national electricity grid or to a non-grid electricity system such as a solar home system).

The ERA allows a licensee, in this case Eskom, to terminate the supply of electricity to a customer if such customer is insolvent, has failed to honour an agreement for the supply of electricity or the customer has failed to comply with the payment conditions under the licence. Eskom is empowered by statute to disconnect defaulting customers, which includes municipalities. Accordingly, Eskom’s obligation to provide the public with electricity is subject to certain limitations.

Municipalities have a statutory duty to deliver electricity to consumers. According to the agreement between Eskom and municipalities, Eskom is obliged to supply electricity to municipalities at a prescribed rate or tariff. In turn, municipalities sell electricity to consumers at an increased rate and use the revenue to provide other services.

Eskom, as the national electricity supplier, remains responsible to ensure that should all else fails, it is the supplier of last resort.