compliance monitoring report of …...instructed mbombela to send a signed cap, which was eventually...

COMPLIANCE MONITORING REPORT OF MBOMBELA

MUNICIPALITY

Monitoring Date: 24 October 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 ........................................................................... 4

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

3. NERSA AND MBOMBELA MUNICIPALITY DELEGATES .......... 6

4. GENERAL INFORMATION ON MBOMELA MUNICIPALITY ....... 6

5. AUDIT FINDINGS ......................................................................... 6

6. MBOMBELA’S PERFORMANCE ON NERSA COMMUNICATION .......................................................................................................... 7

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

8. PLANT CONDITION DURING AUDIT VS. MONITORING TIME 10

9. CONCLUSIONS .......................................................................... 12

10. RECOMMENDATIONS ............................................................. 13

11. NEXT STEP .............................................................................. 13

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EXECUTIVE SUMMARY The National Energy Regulator of South Africa (NERSA) conducted a compliance audit on Mbombela Municipality (‘the Licensee’) from 21 to 25 November 2011 to determine their level of compliance with the licence conditions. The objective was to determine the compliance of Mbombela 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. On 09 July 2012, Mbombela Municipality sent the management comments which were due to NERSA in April 2012. The report was then considered final by NERSA and Mbombela Municipality was then requested to send NERSA a signed time-bound corrective action plan (CAP) to address the highlighted non-compliances. On 07 November 2012, Mbombela Municipality sent an unsigned CAP. NERSA Instructed Mbombela to send a signed CAP, which was eventually received on 16 November 2012, and instituted a monitoring regime to ensure and enforce the implementation of the CAP developed by Mbombela Municipality. On 24 October 2013, NERSA conducted a monitoring exercise on Mbombela Municipality to determine progress made in the implementation of the CAP. NERSA is of the view that addressing issues raised during an audit will help Mbombela Municipality to be a more 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 Mbombela Municipality was not prepared and ready for the monitoring exercise by NERSA as all the relevant officials were not available. One official had to be called in from leave to meet the monitoring team since the Acting Senior Manager was not briefed about NERSA’s monitoring exercise. In the midst of Mbombela Municipality’s unpreparedness, NERSA did some site inspections to verify progress made in the implementation of the CAP. In terms of the physical network, progress had been made by Mbombela to improve the network condition.

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

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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 template was developed and sent to the licensee to populate all the non-compliances highlighted during the audit, together with the intended corrective action plans (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. 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 are 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.

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3. NERSA AND MBOMBELA MUNICIPALITY DELEGATES

NERSA was represented by the following officials:

Ms B Gobe Compliance Monitoring Engineer

Mr B van Heerden Financial Compliance Officer

Ms V Poswa Dispute Resolution Officer

Mr V Malaza Senior Distribution Compliance Engineer

Mbombela Municipality was represented by:

Mr N Sibanyoni Manager Infrastructure Planning

4. GENERAL INFORMATION ON MBOMELA MUNICIPALITY

Mbombela Local Municipality (MLM) is a licensed electricity distributor, (Licence No. NER/D/MP322) located in Mpumalanga, Nelspruit. MLM supplies electricity to municipal area of Nelspruit. At the time of the audit there were seven bulk intake points namely Delta 33kV, Nelsriver 132kV, Rockysdrift 132kV, PaarlKlip 22kV, and Hazyview 11kV. At the time of the audit the total load was 115MVA and it exceeded the firm supply criteria. The Installed Capacity was 176 MVA and the average age of the network was 30 years plus. The total number of customers was 12,072, which are categorised as follows: 3,481 business; 7,111 residential and 1,480 Industrial customers.

5. AUDIT FINDINGS

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

a) MLM does not supply electricity within the area of supply as prescribed by schedule 1 of the electricity distribution licence. Some geographical areas on MLM’s licence are not being supplied by MLM.

b) There was no evidence of an asset management policy. c) There was no evidence of an appointment of a Responsible Person in

adherence to the Occupational Health and Safety Act and no safety meetings were taking place.

d) A Master plan drafted in 2003 and revised in 2006 was presented. e) There was no customer education forum. f) There were critical vacant positions in the Electricity Division that need

to be addressed as a matter of urgency. g) No maintenance plan was available or presented to indicate

preventative maintenance to assets. h) No Quality of Supply (QoS) meters were installed and there was no

QoS Management System.

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i) The general condition of the electricity network was acceptable but needs management intervention.

j) The payments to Eskom were in arrears.

6. MBOMBELA’S PERFORMANCE ON NERSA COMMUNICATION

In November 2011, NERSA conducted a compliance audit on Mbombela Municipality 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 Mbombela Municipality. In all these interventions, Mbombela Municipality’s Electricity Department never cooperated or responded in a satisfactory manner as seen below.

7. PROGRESS ON THE IMPLEMENTATION OF THE CORRECTIVE ACTION PLAN

Mbombela Municipality displayed and indicated a high level of unpreparedness during the monitoring exercise since no official was available to meet the NERSA monitoring team although a formal appointment was set with the licensee. A verbal account of what had transpired since the audit had been conducted was given, however this could not be verified nor supported by any documentation. No proof was provided and the official was not well prepared. An extension for provision of documents was granted, but that was not met by Mbombela Municipality either. The team decided to continue with site inspections to establish if any physical progress or work had been done to address the non-compliances highlighted during the audit in 2011. The table below depicts the condition during the monitoring.

NERSA REQUEST DATE OF REQUEST

LICENSEE RESPONSE

DATE OF RESPONSE

Request of Management comments on draft report

15/02/2012 No comments n/a

Reminder on Management comments

16/04/2012 No comments n/a

Second reminder for comments 06/07/2012 Comments received 09/07/2012

Request for Corrective Action Plan 26/07/2012 No response n/a

Reminder for CAP 29/10/2012 Unsigned draft CAP sent

07/11/2012

Notice to send additional information with signed CAP.

08/11/2012 Information sent 08/11/2012

Signed CAP sent 16/11/2012

Monitoring notification 10/10/2013 No response n/a

Monitoring reminder by telephone 11/10/2013 Tentative response n/a

Monitoring reminder 16/10/2013 No response n/a

Monitoring exercise 24/10/2013 Unprepared 24/10/2013

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Non-compliance

Corrective action

Start date End date Progress Condition during monitoring day

Mbombela Local Municipality does not supply electricity within the area of supply as prescribed by schedule 1 of the electricity licence. Some geographical areas on MLM’s licence are not being supplied by MLM.

Mbombela Local Municipality signed a Service Delivery Agreement (SDA) with Eskom for the supply and distribution of electricity to the former TED areas. A formal confirmation will be forwarded to NERSA (attach relevant documentation)

01 July 2012 05 November 2012

Mbombela Municipality submitted a copy of the SDA they have with Eskom

The affected areas are still supplied by Eskom as per the SDA submitted by MLM

There was no evidence of an asset management policy.

Council has an Asset Management Policy and a GAMAP-compliant Asset Register (attach documents)

01 July 2012 05 November 2012

Policy and register sent to NERSA on 08 November 2012

Corrected and compliant

There was no evidence of an appointment of a Responsible Person in adherence to the Occupational Health and Safety Act and no safety meetings were taking place.

Council plans to appoint Competent Person in March 2013. Submissions from interested parties have been evaluated.

01 July 2012 30 March 2013 A verbal response was given that invitations to competent people was done and in process to make interviews and selection. This was however not supported by any proof.

Still there is no responsible person as per the Safety Act requirement.

An outdated Master Plan drafted in 2003 and revised in 2006 was presented.

A 2012 draft Master Plan has been completed.

01 July 2011 31 October 2012

Master Plan in place

Compliant.

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There was no customer education forum (Technical Condition 5.3.2).

Customer Services Unit not in place. This matter will be referred to the organisational structure review process (Obtain date from Corporate Services). NERSA will be requested to assist.

15 January 2013

20 December 2013

Customer services department was not in the meeting. No committing feedback provided.

Not reported on.

There were critical vacant positions in the Electricity division that need to be addressed as a matter of urgency.

This matter will be referred to the organisational structure review process (Obtain date from Corporate Services)

15 January 2013

20 December 2013

Some internal promotions were done however this opened new vacancies to the positions of the promoted officials. No supporting proof was presented to NERSA.

Still not compliant.

No maintenance plan was available or presented to indicate preventative maintenance to assets. This was due to financial and staff constraints.

A service provider has been appointed to develop a maintenance and refurbishment plan by June 2013.

01 July 2011 30 June 2013 No tangible report provided.

Not compliant.

No Quality of Supply (QoS) meters were installed and no QoS management system was implemented.

10 QoS meters will be installed by June 2013.

01 July 2012 30 June 2013 A verbal report was given that a request for service provider was with tender committee. This could not be verified by any form of supporting document.

Still not compliant.

The general condition of the

The implementation

01 July 2013 30 June 2016 Some refurbishment

Transformer condition

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electricity network was acceptable but needs management intervention.

of the maintenance and refurbishment plan as well as the employment of skilled staff and contractors will further improve the condition of the plant (first phase of implementation in FY2013/14)

and maintenance was conducted on three transformers at Delta 33kV substation. An additional transformer was commissioned at Katoen Substation.

improved but silica gel needs attention.

Payments to Eskom were in arrears.

The municipality has made an arrangement to pay Eskom in full by 28 February 2013.

30 March 2012 28 February 2013

Verbal report was given that Mbombela Municipality still owes Eskom.

Not compliant.

The table above indicates that NERSA could not verify any given response on the CAP submitted by Mbombela Municipality as no documentation was available. During the office session of the monitoring, the Electricity Department of Mbombela Municipality undertook to submit all the supporting documentation to NERSA by end of business on 29 October 2013. No information had been received by NERSA by the due date, nor at the time of writing the report. As a result, none of the soft (administration) issues were verified due to a lack of supporting documentation as a result of Mbombela Municipality’s unpreparedness for the monitoring. According to the CAP developed and submitted by Mbombela Municipality to NERSA, it was indicated that the Eskom account will be settled in full by the end of February 2013. This was not the case as the official indicated that they still owe huge amounts on their Eskom account. The amount owed to Eskom could not be verified either.

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.

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Unmaintained fire extinguisher in 2011 New and maintained fire extinguisher in 2013

Battery terminals not cleaned and not maintained Battery solution too low and battery terminals still not cleaned in 2013

Bad transformer with old silica gel in 2011 Delta Substation Refurbished transformer with bad silica gel during the

monitoring in 2013

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Open cable trench covers in 2011 Open trench covers in 2011

Trench covers still open during monitoring in 2013 Trench covers still open in 2013.

The photos indicate that Mbombela Municipality did not pay much attention to the recommendation made at the time of the audit. This is evident from the cable trenches that are still open, the batteries that are still not properly maintained and the silica gel that is still not in good condition. A great amount of work still needs to be done by Mbombela Municipality to address the plant equipment condition to prevent deterioration.

9. CONCLUSIONS

Although three transformers at the Delta Substation were refurbished after the audit, there are still concerns on the general commitment of Mbombela Municipality in addressing the other instances of non-compliance highlighted by the audit report. The level of commitment has shown itself in the form of unpreparedness of Mbombela Municipality for the monitoring and the number of issues that seem not to have been addressed as these could not be supported by any documentation to prove strides made in addressing the issues. The non-response of Mbombela Municipality to almost all NERSA communication is another element that needs to be addressed since this further exacerbates the

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non-compliance with licence conditions. Mbombela Municipality is as a result flagged as one of the worst performers in terms of compliance with licence conditions when it comes to provision of information to NERSA.

10. RECOMMENDATIONS It is recommended that Mbombela Municipality improve their communication and response to NERSA’s requests in future engagements. Mbombela Municipality is urged to compile a progress report on what has been done to address the non-compliances highlighted in the audit report. Supporting documents signed by the highest authority in Mbombela Municipality has to accompany the progress report within 120 days of receipt of the monitoring report.

11. NEXT STEP

The Energy Regulator expects the Executive Management of Mbombela Municipality to ensure the implementation of the corrective action plan to address the issues highlighted. NERSA urges Mbombela Municipality to send a signed progress report with signed supporting documents to affirm any progress and indicating how the remaining issues will be addressed 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 and that of the Electricity business of Mbombela Municipality. 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: 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

compliance monitoring report of …...instructed mbombela to send a signed cap, which was eventually...

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