compliance monitoring report of nelson · pdf filecompliance monitoring report of nelson ......

COMPLIANCE MONITORING REPORT OF NELSON

MANDELA BAY METROPOLITAN MUNICIPALITY

Monitoring Date: 19 November 2013

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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 and Compliance

Tel: 012 401 4794

National Energy Regulator of South Africa

Kulawula House

526 Madiba Street

Arcadia

Pretoria

PO Box 40434

Arcadia

0007

Tel: +27 (0)12 401 4600

Fax: +27 (0) 12 401 4700

www.nersa.org.za

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 as per the information

collected from the licensee, the licensee must in writing within fourteen (14) days

of receipt of this report advise NERSA about such inaccuracies.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY ...................................................................................... 4

1. INTRODUCTION .............................................................................................. 5

2. METHODOLOGY ............................................................................................. 5

3. NERSA AND NMBMM DELEGATES ............................................................... 6

4. GENERAL INFORMATION ON NMBMM ......................................................... 6

5. AUDIT FINDINGS ............................................................................................. 7

6. NMBMM’S PERFORMANCE ON NERSA COMMUNICATION ....................... 8

7. PROGRESS ON THE IMPLEMENTATION OF THE CORRECTIVE ACTION PLAN .................................................................................................................... 9

8. PLANT CONDITION DURING AUDIT VS. MONITORING TIME ................... 14

9. CONCLUSIONS ............................................................................................. 17

10. RECOMMENDATIONS ................................................................................ 18

11. NEXT STEP .................................................................................................. 18

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EXECUTIVE SUMMARY The National Energy Regulator of South Africa (NERSA) conducted a compliance audit on Nelson Mandela Bay Metropolitan Municipality (‘NMBMM’ or ‘the Licensee’) from 09 to 12 October 2012 to determine their level of compliance with the licence conditions. The objective was to determine the compliance of NMBMM 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. On 21 January 2013, NMBMM sent the management comments. The report was then considered final by NERSA and NMBMM was requested to send NERSA a signed time-bound corrective action plan (CAP) to address the highlighted non-compliances. NERSA instituted a monitoring regime to ensure and enforce the implementation of the CAP developed by NMBMM. On 19 November 2013, NERSA conducted a monitoring exercise on NMBMM to determine progress made in the implementation of the CAP. NERSA is of the view that addressing issues raised during an audit will help NMBMM to be an efficient and effective licensee. This report depicts all the findings as per the audit and presents the status quo in terms of progress made at the time of the monitoring to address the non-compliances highlighted during the audit. It must be noted that tangible and noticeable progress in addressing the non-compliances mentioned in the report has been made. The progress made is on both the soft issues and the core technical issues of the electricity business. These include, among others, the appointment of additional personnel, development of a proper asset management policy for the electricity business, the replacement of obsolete switchgear and transformers, repairs and installation of security systems at substations and the repairs of steel towers. The progress made indicates the level of dedication and a will to comply with licence conditions of NMBMM by taking into consideration the recommendations made by NERSA.

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1. INTRODUCTION

1.1 Overview

The National Energy Regulator of South Africa (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’. NERSA conducts the compliance audits on licensed electricity distributors annually. NERSA 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 NERSA’s mandate to monitor and enforce compliance with the licence conditions as per the Act. This monitoring process enforces and ensures 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:

enforce implementation of the corrective action plans;

help the licensee not to lose sight of critical matters that need to be corrected;

help the licensee to start doing self monitoring in terms of their performance against licence conditions;

help the licensee to ensure that the quality of service and supply does not decline; and

inform the Energy Regulator of the progress made by the licensee in the implementation of the corrective action plans.

2. METHODOLOGY

A corrective action plan (CAP) template was developed and sent to the licensee to populate all the non-compliances highlighted during the audit, together with the intended CAPs with target dates of implementation. This is to be used by NERSA to monitor the progress made and to establish whether the timelines on the CAP were realistic and addressing the issues highlighted during the audit.

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The CAPs were sent to NERSA after being signed by the relevant officials of the Licensee. NERSA agreed on the CAP and instigated a monitoring process which robustly monitors progress. Progress is checked against target dates and remedial actions are implemented on an ongoing basis. Proof and supporting documents were requested and presented to NERSA officials during the monitoring process. Some site verification was also done to compare the current plant condition to the plant condition during the audit.

3. NERSA AND NMBMM DELEGATES

NERSA was represented by the following officials:

Ms B Gobe Compliance Monitoring Engineer

Ms V Poswa Dispute Resolution Officer

Mr V Malaza Senior Distribution Compliance Engineer

Nelson Mandela Bay Metropolitan Municipality was represented by:

Mr C Hempel Acting Director Distribution

Mr T Ferndale Acting Director Projects

Ms S Adams Acting Assistant Director Commercial Services

Mr M Booysen Assistant Director Commercial Services

Mr SM Luzipho Chief Accountant

4. GENERAL INFORMATION ON NMBMM

Nelson Mandela Bay Metropolitan Municipality (‘NMBMM’ or ‘the Licensee’) is the

electricity distribution license holder for Nelson Mandela Bay Metropolitan supply

area with Licence Number NER/D/NMandela and supplies electricity to Port

Elizabeth; Uitenhage; Despatch; Seaview and Blue Horizon Bay.

At the time of the audit it had 247,380 customers, which were categorised as

follows: 209,393 prepaid domestic; 29,757 domestic credit meters; 8,188

commercial and 42 industrial customers. There are five bulk intake points under

the Nelson Mandela Bay Metropolitan area of supply and it had a total installed

capacity of 2,300MVA. The total geographical area of Nelson Mandela Bay

Metropolitan Municipality is approximately 1,888km².

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5. AUDIT FINDINGS

At the time of the audit, the following was highlighted to the Licensee as areas that need attention and improvement:

a) The available staff was not adequate for proper execution of the Electricity Department’s duties as 40% of the approved positions were vacant.

b) The position of responsible/accountable person in accordance with section 16(1) of the OHS Act was vacant. The Directorate had no Health and Safety Officer and coordination was done by the Health Directorate’s, Occupational Health and Safety division.

c) As part of the approval process for tariffs for the 2011/12 financial year, an above the guideline increase of 25.82% was approved to be used during the 2012/13 financial year for maintenance and refurbishment and to ensure that the municipality puts appropriate measures in place to ensure an increase in its collection rate as well as a reduction in the non-technical losses due to illegal connections. No progress report or figures were available to explain the expenditure.

d) The planned expenditure for maintenance is only 1.5% of the total planned expenditure for NMBMM.

e) Nelson Mandela Bay Metropolitan Municipality did not have adequate stock available in the stores with regard to certain regularly used commodities.

f) A very good maintenance plan was available but was not fully implemented due to a shortage of human resources.

g) Funds made available as part of the above-guideline increase in tariffs were not used for maintenance.

h) There is no Asset Management Policy (AMP) for the electricity assets of the Licensee.

i) The areas of supply were not according to schedule one of the distribution licence. NMBMM is supplying electricity to Thornhill which is part of Kouga Municipality. Colchester is supplied by Eskom but is part of NMBMM’s licensing area.

j) The customer accounts were not fully transparent and user friendly. The bill was inadequate in terms of the previous month’s meter reading dates and/or current month meter reading dates which are not clearly indicated on the customer account as per the requirements of NRS047.

k) The security systems in some of the major substations were not reliable and in some substations there were no security systems.

l) The switching equipment was very old and obsolete and in some cases no spares were available for maintenance.

m) The age of Deal Party and Toll Gate substations switchgear is of concern. The equipment was very old and obsolete and could fail at any time with high risk of negative economical impact taking into account the industries supplied by these substations.

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n) The safety signs had faded or fallen off completely. o) Buildings need maintenance and repair (Deal Party).

6. NMBMM’S PERFORMANCE ON NERSA COMMUNICATION

In November 2013, NERSA conducted a compliance audit on NMBMM to determine its level of compliance with its licence conditions. This audit was followed by a number of emails and telephone calls from NERSA to NMBMM. In all these interventions, NMBMM’s Electricity Department cooperated and responded well as seen below. The cooperation and communication of NMBMM with NERSA is highly commended.

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7. PROGRESS ON THE IMPLEMENTATION OF THE CORRECTIVE ACTION PLAN

Nelson Mandela Bay Metropolitan Municipality made significant progress in addressing some of the issues highlighted by the audit. The table below depicts the non-compliance, the remedial action, the progress made and the condition to date in terms of addressing the non-compliance.

Non-compliance Corrective action Start date

End date Progress Condition during monitoring day

Asset Management and Practice.

Full implementation of PRAGMA maintenance plan on all distribution assets.

April 2012

April 2015 Still going on and on track, the PRAGMA system is up and running.

In progress.

Key Network statistics and strategic planning (Areas of supply not according to Schedule1).

Discussions with Eskom (Colchester) and Kouga Municipality (West of NMBMM area) are ongoing for the transferring of assets to the applicable licensee. Prescripts of the MFMA and NT are being followed for the transfer of assets.

June 2012

July 2014 The process is still going on and the item is on the agenda of the committee. The matter seems to be complicated as decisions need to be made on whether to give over or purchase the assets involved. The Kouga part is the most difficult one; as a result the process might

In progress and the date has been reviewed to June 2015 to allow more time for the ongoing engagement between the affected parties.

NERSA REQUEST DATE OF REQUEST

LICENSEE RESPONSE DATE OF RESPONSE

Request of Management comments on draft report.

19/11/2012 Still within time frame

Reminder on Management comments.

18/01/2013 Management comments were sent to NERSA within time frame

21/01/2013

Request for CAP. 13/02/2013 Still within time frame

Reminder on CAP 07/05/2013 Signed CAP sent to NERSA within time frame

17/05/2013

Monitoring notification. 04/11/2013 Positive response 12/11/2013

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drag beyond the initial date of 2014.

Network condition. I. Security

systems.

II. Obsolete switchgear.

III. Deal Party Substation obsolete switchgear.

IV. Tollgate Substation obsolete switchgear.

Presently upgrading security systems at Major substations by installing CCTV camera equipment, access control (finger print reader). Refurbishment programme for replacing of switchgear in major substations Deal Party switchgear has been purchased and is due for installation. New Actom panels have been extended to cater for additional feeders that would be removed from Tollgate1, the remainder circuits out of Tollgate 1 is to be re-routed to Algoa Road Load Centre.

2012 2013 July 2013 2012

June 2014 Ongoing June 2014 June 2015

Security system installed and completed in five major substations. Four major substations still to be done during the current (2013/14) financial year. The rest of the major substation will be done by June 2015. Orders were put in place and delivery of the panels is expected in February 2014. Panels delivered and to start with installation before the end of the year (2013). New Actom panels installed and tested. R2,5m is allocated to conclude the project by swinging the cables from the old switchgear to the new Actom

Major substations security systems improved and upgrade (Malabar, Sonop, Neptune and Toll gate Substation). Waiting for the panels’ delivery to commence with project. To start installation of panels at the substation. Not started yet (within target date). Panels installed and swing over of circuits to be done soon.

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V. Safety signs not in place or faded.

VI. Silica gel not in good condition.

VII. Building was in dilapidated and bad condition (Deal Party substation).

VIII. Transformer

leaks.

IX. Rusting steel structures on Arlington line.

X. Open trenches.

Safety signs are currently replaced/fitted in substations when maintenance/ inspections are carried out at the substations. Silica gel on transformers is replaced on a monthly basis when maintenance is done at the substations. Substations buildings are repaired and painted as and when necessary by staff based on monthly inspections carried out at the substations. Currently there is a list of all major transformers that require overhauling due to leaks and are prioritised according to the extent of leaks. Replace rusted structures. Trench plates are replaced as and when necessary after substation inspections are carried out.

2012 2012 2012 2012. 2013. 2012.

Ongoing. Ongoing. Ongoing. Ongoing. June 2013 Ongoing.

switchgear in phases. Attended on an ongoing basis. Replaced in some of the transformers. The Deal Party substation is to be done once the panels ordered have arrived as one project. Transformer at Fitcher’s Corner T1 has been done. Tower CAL45 (Chelsea- Arlington) has been replaced. Two more structures showing signs of rust to be replaced. Replaced in some of the substations.

Partially compliant. Nothing done yet. Fitcher’s Corner attended, still to do the other transformers. CAL45 replaced. Ongoing process.

Staff not adequate for the execution of the Electricity

Recruitment and advertisements of

01 July 2012

30 June 2014 New employees

Still no adequate

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Department’s duties. There was 40% vacancy.

critical vacancies has been done. The directorate has also engaged in mentoring of 11 unemployed graduates which will be later utilised in filling the critical positions. The exit and retirement of Senior Electricity employees is measured more closely to ensure succession plans are in place in due time.

were appointed to fill in vacant position due to resignation of other personnel. The total number of new employees from July 2012 to date is 15.

staff complement.

The position of a responsible person in accordance with section 16(1) of the OHS Act was vacant. The Electricity Directorate did not have a Health and Safety Officer and safety coordination was done by the Health Directorate’ Occupational Health and Safety division.

The official appointed according to section 16(1) of the Act resigned in the course of the year. Mrs Caylin Constable was appointed during 2012 as an Occupational Health and Safety Officer within the Health and Safety Directorate to assist all directorates. A health and safety committee has been established within the Electricity and Energy Directorate and active.

2012 2012 Safety committee is in place but not properly functioning as no meetings are taking place.

Not compliant.

There was no adequate stock available in the stores on materials that are regularly used. The stocks and reordering of materials was a challenge.

Meeting to be held with Supply Chain Management to ensure that all stock on hand have sufficient minimum stock levels to ensure effective service delivery and to ensure that specifications for electrical goods are up to date.

July 2013 30 September 2013

A tender was to be issued for a service provider, however it was withdrawn due to some technical flaws in the document. The document is under review and this will be issued once the document is corrected.

Not compliant.

The customer accounts were not fully transparent and user friendly. The bill was inadequate in terms of showing the previous

A meeting will be arranged with the Budget and Treasury department which is the custodian of the

01 August 2013

30 June 2014 There is a new billing system that has been adopted by

Still to be attended to and within target date.

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month’s meter reading dates and/or current month meter reading dates which were not clearly indicated on the customer account as per the requirement of NRS 047.

customers’ accounts and billing to address the short coming on the customer bills.

NMBMM as a result the account bill is still not aligned to the requirements and is in the process to be done.

There was no Asset Management Policy for the Electricity assets of NMBMM.

NMBMM has an Asset Management Directorate which handles all the assets of the Municipality. The Electricity Directorate will liaise with the above directorate to develop the asset management policy for the Electricity assets/infrastructure to comply with this audit.

01 July 2013

31 January 2014

The PRGMA system has been extended to cover the Electricity asset policy.

Attended.

As part of tariff approval process for the 2011/12 financial year, an above the guideline increase of 25.82% was approved to be used during the 2012/13 financial year for maintenance and refurbishment and to ensure improvement revenue collection rate as well as reduction of the non-technical losses due to illegal connections. A condition of the approval was the submission of progress report on the implementation of these projects. No progress reports or figures were available to explain the expenditure.

A report was prepared and sent to NERSA on 22 February 2013, the detailing the expenditure to date.

Report sent to NERSA.

Attended.

The planned expenditure for maintenance of network at NMBMM was only 1.5% of the total expenditure. This is not compliant to the approved tariff where at least 6% has to be budgeted for repairs and maintenance.

The budget is being reviewed and will be aligned to 6% required by NERSA.

June 2013

Ongoing.

2% maintenance expenditure to date.

Not corrected, still not implementing NERSA tariff guideline in terms of budget allocation and therefore not compliant.

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The Electricity Department of NMBMM is doing its best to address the issues raised by the audit conducted in 2012; as the table indicates, some progress has been made in terms of some of the non-compliances. Security systems have been upgraded and new high technology security systems are in place and the project is continuing. Leaking transformers has been put on a priority list according to their conditions for refurbishment and replacement. At Fitcher’s Corner substation the oil leaking transformer has already been replaced. Obsolete switchgear have been replaced by new ones at Tollgate substations while additional switches will be replaced going forward once all panels on order have been delivered. During the monitoring exercise it was also confirmed that the licensee is still not defaulting on its bulk account payments. The officials of NMBMM indicated that payment of the bulk account was a top priority as a result it is always up to date. This is much commended and NMBMM is encouraged to maintain the status quo in terms of the bulk account payment. During the monitoring exercise, it was indicated that NMBMM budgeted about 2% of its total expenditure for repairs and maintenance and this amount is still far below the 6% NERSA guideline requirement. The 6% expenditure on maintenance is still an area of concern and this need to be addressed. This is viewed as a recurring non-compliance for NMBMM which need to be corrected. Although 15 existing positions were refilled after personnel resignation, it is still a concern as the staff complement is not adequate for the duties of the Directorate. The moratorium for the appointment of new staff needs to be lifted up.

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.

Transformer No.4 at Tollgate leaking oil during the audit Oil leaks on Transformer No.4 during monitoring

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Obsolete 66kV indoor switches at Tollgate Substation to be decommissioned after cables switch over are done.

New panels and switches installed to be racked in once cables swing over are completed during the monitoring in 2013.

Old transformer leaking oil and no HV yard stones at Fitcher’s Corner substation during the audit in 2012.

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A new transformer with proper HV yard stones installed at Fitcher’s Corner substation during the monitoring in 2013.

Refurbishment and upgrade work in progress at Fitcher’s Corner Substation and new yard stones installed in the HV yard

Old transformers at Deal Party Substation on a priority list for refurbishment, waiting for ordered materials.

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An obsolete Reyrolle switch at Deal Party Substation with floor caving in, on priority list, waiting for ordered panels.

Double fencing and new high technology security system with camera for monitoring of substation during the monitoring. The photos indicate that a great amount of work has been done to address the issues highlighted by the audit. It must also be noted that a great amount of work still needs to be done by NMBMM to address the remaining plant equipment. NERSA takes note that the remaining plant equipment have been put on the refurbishment and replacement plan and materials have been ordered for these, while in some cases the material has arrived and the projects will be implemented accordingly. The replacement programme for the obsolete switches is highly commended since 250 panels have been ordered for this project.

9. CONCLUSIONS

Although some progress has been made to address the non-compliances highlighted during the 2012 audit, there is still a lot to be done to improve the situation in NMBMM. The security of the substations has been improved hence infrastructure vandalism will be averted. NERSA commends NMBMM for taking it to heart to address the issues highlighted by the audit. This is evident from the

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ongoing projects and plans in place to refurbish and upgrade the network infrastructure. The annual budgeting for repairs and maintenance is still a challenge as during the deliberation during the monitoring it was mentioned that only 2% was budgeted for such expenditure. This is an area that needs improvement. During the monitoring it was observed that the Licensee is on the right path to be compliant with the licence conditions if all the planned projects are successfully implemented.

10. RECOMMENDATIONS It is recommended that the planned refurbishment and replacement projects of all the obsolete plant equipment be implemented with great diligence and care to improve the network condition in order to be compliant with the licence conditions. The replacement and refurbishment plan must be executed without compromise, hence the funding required to execute the projects has to be allocated to the projects without compromise. The Finance Department of NMBMM is urged to comply with the 6% requirement for repairs and maintenance in the financial years going forward. It is also recommended that all the outstanding items in the CAP are addressed going forward and that the Licensee institute a self monitoring system to ensure that the improved areas do not deteriorate to a level of non-compliance again.

11. NEXT STEP

The Energy Regulator expects the Executive Management of NMBMM to support the implementation of the corrective action plan to address the issues highlighted. NERSA directs NMBMM to continue with the implementation of the CAP in a bid to conclude the remaining issues in order to not only improve on compliance, but also to be one of the efficient and successful licensees in terms of good quality of supply and service to its customers. This will also prevent deterioration of the network, which is an impending disaster if not monitored carefully. NERSA will continue to conduct the monitoring of the implementation of the corrective action plans on an ongoing basis until NERSA is satisfied with the progress made. Further engagements on the monitoring will be communicated to the licensee. It is expected that the licensee will now implement self-monitoring measures to ensure that the improved areas do not deteriorate back to a situation of non-compliance. 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:

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The Head of Department Licensing and Compliance: Electricity National Energy Regulator of South Africa PO Box 40343 Arcadia 0007 Fax: +27 (0)12 401 4700

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