compliance monitoring report of nkomazi local · pdf filecompliance monitoring report of...

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COMPLIANCE MONITORING

REPORT OF NKOMAZI LOCAL

MUNICIPALITY

Monitoring Date: 12 August 2015

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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, Compliance and Dispute Resolution.

Tel: 012 401 4794

National Energy Regulator

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, the licensee must, in writing and 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 .......................................................................... 6

3. NERSA AND NKOMAZI LOCAL MUNICIPALITY DELEGATES.. 6

4. GENERAL INFORMATION ON NKOMAZI LOCAL

MUNICIPALITY ............................................................................. 7

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

6. NKOMAZI’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 (NERSA) conducted a compliance audit on

Nkomazi Local Municipality (‘the Licensee’) from 21 to 22 October 2013 to

determine its level of compliance with the licence conditions. The objective was to

determine the compliance of Nkomazi 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.

On 15 January 2014, Nkomazi Local Municipality sent the management comments

to NERSA. These were received well within the prescribed timeframe. The report

was then considered final by NERSA and Nkomazi Local Municipality was then

requested to send NERSA a signed, time-bound corrective action plan (CAP) to

address the highlighted instances of non-compliance.

On 23 May 2014, Nkomazi Local Municipality sent a CAP for NERSA’s perusal

and this was found to be acceptable as it addressed the issues highlighted by the

audit. The National Energy Regulator instituted a monitoring regime to ensure and

enforce the implementation of the CAP. On 12 August 2015, the National Energy

Regulator conducted a monitoring exercise on the implementation of the CAP at

Nkomazi Local Municipality. The monitoring exercise was conducted in order to

determine 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

Nkomazi 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 instances of non-compliance

highlighted during the audit. During the monitoring exercise, NERSA conducted

site inspections to verify progress made in the implementation of the CAP. The

level of improvement is presented in detail in section seven of the report.

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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 the 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 Electricity Regulation Act No 4 of 2006 (Act No 4 of

2006). 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:

a) enforce implementation of the corrective action plans;

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

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e) 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 Nkomazi Local

Municipality (‘the Licensee) to populate all the instances of non-compliance

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 addressed 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, 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 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 NKOMAZI LOCAL MUNICIPALITY DELEGATES

NERSA was represented by the following officials:

Mr B Nhlabathi Compliance Monitoring Technician

Ms B Malatji Compliance Monitoring Technician

Ms B Gobe Compliance Engineer

Ms V Poswa Dispute Resolution Officer

Mr V Malaza Senior Distribution Compliance Engineer

Nkomazi Local Municipality was represented by the following official:

Mr Pieter Theron Manager Electrical

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4. GENERAL INFORMATION ON NKOMAZI LOCAL

MUNICIPALITY

Nkomazi Local Municipality is the electricity distribution licence holder for the

supply area with licence number NER/D/MP324 and supplies electricity to

Malelane, Hectorspruit, Marloth Park and Komatipoort. It has five bulk supply

points with an installed capacity of 18.5MVA and a maximum demand of

16.5MVA. At the time of the audit, the Licensee had 3,735 customers, which

are categorised as follows: 2,213 prepaid domestic; 1,207 domestic credit

meters; 313 commercial and 2 industrial customers.

The total geographical area of Nkomazi Local Municipality is approximately

3,240 km². It was also mentioned during the audit that 60% of the electricity

equipment is older than 30 years and 10% is less than 10 years old.

At the time of the monitoring, it was highlighted that the Licensee managed

to refurbish certain parts of the network, which even though they were not

inspected during the NERSA compliance audit, needed urgent attention to

ensure continuous supply of power to dedicated 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) There were 42 vacancies out of 72 approved positions.

b) There was a shortage of vehicles to accommodate the 31 employees.

c) There was no Competent/Responsible Person appointed in terms of the

requirements of the Occupational Health and Safety Act (Act No 85 of

1993).

d) The areas of electricity supply do not correspond with the supply areas

in schedule 1 of the Distribution Licence.

e) Nkomazi did not budget sufficient funds (6% of total budget) for the

maintenance of the electricity network as required by the NERSA tariff

guideline – only 3% was budgeted.

f) The new, approved tariffs were implemented on 01 July 2013 and

customers were charged at the new tariffs for the full period. The

customer’s accounts should have been based on 50% of old and 50%

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of new tariffs as the consumption was measured from 15 June to 15 July

2013.

g) Nkomazi does not have any bulk stores to keep critical stock.

h) Although Nkomazi is doing scheduled maintenance, there is no official

maintenance plan available.

i) There was an outdated (2008) master plan that made provision for

upgrades and replacement of equipment, which was constrained by lack

of funds and personnel.

j) There was no formal power quality management system in place.

k) The service date of some fire extinguishers had expired.

l) There were missing cable trench covers at the back of the switchgear in

Malelane substation and no single line diagram was visible at the

substation.

m) Some mini-substations were old and need to be replaced (Hectic 1).

n) The safety signs were faded on the outside of the mini-substations.

o) The open switchgear at Erf mini-substation was not locked.

p) Some wooden poles were old and leaning and should be put on a

replacement programme.

q) There was a high level of technical and non-technical loses.

6. NKOMAZI LOCAL MUNICIPALITY’S PERFORMANCE ON

NERSA COMMUNICATION

In October 2013, the National Energy Regulator conducted a compliance

audit on Nkomazi Local Municipality to determine its level of compliance with

its licence conditions. This audit was followed by a number of emails from the

National Energy Regulator to Nkomazi Local Municipality. This

communication was sent directly to Nkomazi Local Municipality’s Electricity

Manager. During this communication, Nkomazi Local Municipality’s

Electricity Manager cooperated and responded in a satisfactory manner as

indicated in table 1 below.

Table 1: Nkomazi’s response record

NERSA REQUEST DATE OF REQUEST LICENSEE

RESPONSE

DATE OF

RESPONSE

Request of Management

comments on draft report

22/11/2013 Management

comments sent

15/01/2014

Request for Corrective Action

Plan

03/02/2014 CAP sent 23/05/2014

Monitoring notification 28/07/2015 Positive response 28/07/2015

Monitoring exercise 12/08/2015 Positive response 12/08/2015

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7. PROGRESS ON THE IMPLEMENTATION OF THE

CORRECTIVE ACTION PLAN

Nkomazi Local Municipality displayed a lack of commitment during the

monitoring exercise as most instances of non-compliance highlighted during

the audit were not addressed. At the time of the monitoring exercise it was

observed that certain parts of the Licensee’ infrastructure was in worse

condition now compared to the time during which the audit was conducted.

However, the Licensee indicated that certain mini-substations that had not

been inspected during the audit had been in a critical condition and had

needed immediate intervention. Table 2 below depicts the progress made at

the time of the monitoring of the implementation of the CAP that was

submitted to NERSA to address the instances of non-compliance.

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Table 2: CAP implementation progress

Non-compliance Corrective action Target date Target date for

completion

Progress Condition during monitoring

day

Shortage of personnel:

Critical vacancies must be

filled according to the

immediate demand.

All current vacancies for the

2013/2014 financial year will

be filled. Additional posts will

be added on the 2014/2015

personnel budget. A total of

11 posts will be advertised

and filled.

01 July 2014 01 September

2014

Fifteen (15) posts were

advertised and filled from

November 2014 to March

2015. These posts include:

7x Electricians;

7x Electrical Labourers; and

1x Electrical driver

At the time of the

monitoring, 15 vacant

positions had been filled.

The 64% of positions that

were vacant during the

audit were still not filled.

Shortage of vehicles:

Sufficient work vehicles

must be purchased.

One LDV was purchased in

May 2014. The purchase of

a cherry picker truck was

approved by Council, but

procurement has not started.

Additional vehicles will be

considered on a lease

agreement that must still be

finalised .

01 May 2014 30 June 2015 Only the one LDV was

purchased – procurement of

the Cherry Picker failed.

Leasing of vehicles also

failed. Planned for 2015/16

FY are the following:

• Purchase of 1xCherry

Picker

• Replacement of 5xLDVs

The shortage of vehicles was

also not yet finalised during the

monitoring exercise.

No responsible person:

A Competent Person must

be appointed according to

the OHS act.

Pieter Fourie from lntegra

Electrical Technologies was

appointed as a

Competent/Responsible

Person on 27 March 2014

for a 12- month period. This

appointment was done

according to the scope of

work for a responsible

person as per OHS Act

requirement.

Completed . Integra Electrical was

appointed as from March

2014 for twelve months. The

appointment was extended

with an additional 12 months

until March 2016.

Proof was provided.

Confusion of supply

areas: Areas of supply

should be clarified -

Marloth Park

NERSA must intervene to

resolve this matter, because

this is a dispute between

two Licensed Authorities.

Nkomazi Municipality and

Eskom have the same

licences for the same area,

as issued by NERSA.

To be

confirmed.

As requested, the dispute

was forwarded to NERSA in

September 2014 as it

became a serious safety

risk.

No response from NERSA to

date.

Still unresolved. NERSA is

awaiting application to correct

schedule 1 of the Electricity

distribution licence.

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Insufficient Budget:

Operations & Maintenance

budget should be increased

to 6% of the total revenue

generated

6% of the R 48m (revenue

generated) was allocated to

operations and maintenance

for the new financial year of

2014/2015.

01 July 2014 Continuous For 2015/16 FY, 6% (approx.

R4 million) was allocated to

operations and maintenance

from the estimated R65

million revenue.

The budget figure of 6% was

implemented. No proof was

provided.

No Bulk Stores: Bulk stores

should be put in place to carry

critical stock .

Due to the shortage of

capital funding, the issue of

bulk stores will only be

addressed in the next

financial year. However the

small individual stores will

equipped with most critical and

essential stock/material.

2014/2015 2015/2016 A 3-year supply and delivery

contract (for all electrical

material, cables and

transforming equipment) will

be awarded before 30

August 2015.

The stores finance at

Finance Offices will also be

made active for keeping

essential material.

A tender evaluation committee

was in progress on the day of the

monitoring. It was reported that

this will be finalised by 30 August

2015.

No maintenance plan:

Compile a comprehensive

maintenance plan to address

network backlogs.

The Maintenance Plan was

originally part of the MISA

programme, but due to

financial constraints the

focus moved to compiling a

conclusive asset register. The

register will form part of the

maintenance plan. Additional

funding required to compile the

maintenance plan.

Source funding . Source funding The Maintenance and the Master

plans’ non-compliances were still

not addressed. The Licensee

indicated that they have a

template at present that was

developed in-house which they

use for maintenance. No

supporting documents were

submitted.

Wrong

application of

tariffs:

Approved tariffs should be

correctly implemented .

From 2014 onwards billing for

new tariffs will be in August

instead of July .

August 2014 Continuous According to Finance

Department this was

corrected.

No supporting documents were

submitted to the monitoring team.

Outdated Master Plan:

Electrical master plan must

be reviewed and updated to

accommodate the current

status quo.

The Electrical Master Plan

also formed part of the MISA

programme, but was later

excluded. Tough the master

plan is old it is still up to date

with the current challenges .

However funding is required to

include ESKOM projects and

development to the master

plan.

Source funding Source funding The Maintenance and the Master

plans’ non-compliances were still

not addressed.

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No Supply monitoring:

Quality of supply

management should be

implemented according to

NRS 047.

R1,200,000.00 is allocated

for smart metering for the

2014/2015 financial year.

Smart metering will include

quality of supply metering .

Suppliers were invited to

present their products and do

proposals for the

municipality. The next

presentation will be on 03 June

2014.

01 July 2014 30 June 2016 Seventeen (17) smart meters

were installed for the largest

municipal consumers.

Immediate revenue increase

were noticed.

This project will be continued

in the 2015/16 FY since there

are still thirty seven (37) large

consumers outstanding.

No analysis of the quality of

supply information from the

installed meters was available.

No evidence was shown to the

monitoring team.

Expired fire extinguishers:

Fire extinguishers must be

inspected and serviced within

the recommended periods.

Fire extinguishers will be

inspected quarterly and will be

serviced within recommended

time frames.

01 July 2014 31 December

2014

Service provider was

appointed in July 2015 to

perform these duties.

Although they have to be

inspected quarterly, only 1 of the

substation’s fire extinguisher was

serviced.

Hazardous e nv i ronm e nt :

Open cable trenches must be

covered.

All open cable trenches were

covered properly.

Completed Completed 100% Completed

Unavailability of drawings:

Install single line diagrams in

all the main substations , and

update all drawings

Drawings and single line

diagrams were installed in all

the main substations . Some

drawings must still be

updated. (responsibility of the

appointed Competent Person).

01 April 2014 31 December

2014

All drawings will be updated

and placed in newly

upgraded substations in

Komatipoort and Malelane.

Non-compliant

Replacement/

refurbishment of old

substations:

Old mini-substations must be

replaced or refurbished

according to their condition.

2 x Mini-substations and 1 x

floor standing transformer were

already replaced. The

redundant units were sent for

refurbishment.

The only reason for replacing

mini-substations,

transformers and switchgear is

due to failure or very bad test

reports. It is very costly exercise

to replace units just because of

their age.

06 January

2014

• 2x new mini-substations

were installed;

• 3x mini-substations were

replaced;

• 2x mini-substations were

refurbished;

• 2x Ring main units were

replaced; and

• 2x New ring main units were

installed

Only the Mini-substation in

Hectorspruit, the RMU was

replaced. Other relevant

information were not part of the

monitoring.

Faded safety and

warning signs :

All safety and warning signs

to be inspected and replaced

where necessary.

All missing, damaged and

faded safety and warning

signs were listed. New signs

will be purchased and installed.

01 July 2014 31 December

2014

All damaged and faded signs

will be replaced in the newly

upgraded substations in

Komatipoort and Malelane.

The service provider was

appointed in July 2015 for

this function.

Non-compliant

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Inadequate lock out

facilities:

All transforming and

switching equipment

must be locked.

New padlocks were purchased

and installed on all

transforming, switching and

distribution equipment.

Completed Completed 100% completed

Lack of maintenance on

OH lines:

OH lines - redundant

wooden poles must be

replaced. Lines must be re-

tensioned.

3 x Overhead lines were

already refurbished by

replacing redundant poles,

pole boxes and re-tensioning

the lines. R1,267,200 .00 is

available on the new

financial budget for

refurbishments. OH lines will

be restored according to

priority (worst condition first).

14 April 2014 Continuous • 4x Overhead lines were

refurbished (LV);

• 2x Overhead lines were

refurbished (MV); and

• 1x New Overhead line was

build (MV)

Only a section of the line in

Hectorspruit was re-stringed.

More work still need to be done

and some of the poles were still

supported by stumps of poles.

Line losses:

Investigate high line losses.

Line losses will also be

addressed by the

implementation of smart

metering.

01 July 2014 30 June 2016 Seventeen (17) smart meters

were installed for the largest

municipal consumers.

Immediate revenue increase

were noticed.

This project will be continued

in the 2015/16 FY since 37

large consumers are still

outstanding.

Figures to be provided.

This project is still to be continued

and accurate figures are still to be

provided.

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The table above indicates that Nkomazi Local Municipality did not implement

the majority of the activities outlined in the CAP as highlighted during the

audit. Implementation of the CAP will improve the Licensee’s level of

compliance with the distribution licence conditions. At the time of the

monitoring, about 26% of the CAP had been implemented by the Licensee.

During the office session of the monitoring, some supporting documentation

to substantiate the above feedback was provided to NERSA officials.

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.

Corrosion on terminals of the backup batteries Terminals of the backup batteries corrosion free

No safety signs on the fence at the time of audit No safety signs on the fence at the time of monitoring

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Open cable trench in the substation during the audit Cable trench in the substation closed during the monitoring

Very low battery solution during the audit Battery solution at acceptable level during the monitoring

Old Hectic 1 mini-substation with broken door Old Hectic 1 mini-substation with broken door during monitoring

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Unlocked 4 way switch behind Erf mini-substation Locked 4 way switch behind Erf mini-sub

Uncovered switch at Komatipoort Central in 2013 Worse and uncovered switch at Komatipoort Central in 2015

Expired fire extinguishers at Komatipoort in 2013 Expired fire extinguishers at Komatipoort in 2015

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Bad pole-mounted transformer during monitoring Transformer replaced with a mini-substation in Eerste Street

The photos indicate that the condition of Nkomazi Local Municipality’s

network has not improved since the audit. The old (type A) mini substations

with magnefix switches, which are obsolete and unsafe to operate, has not

yet been replaced. During the monitoring, the audit team discovered a lack

of commitment to implement the CAP, especially in Komatipoort.

9. CONCLUSIONS

Nkomazi Local Municipality, has managed to close only five out of 19

instances of non-compliance that were identified during the audit. However

the Licensee has made noticeable progress on four instances of non-

compliance that were identified during the initial audit. These are shortage

of personnel, vehicles, bulk stores and Quality of Supply monitoring. It was

observed during the monitoring exercise that the service providers or

responsible personnel appointed to rectify the non-compliances relating to

expired fire extinguishers did not apply due diligence in executing these

tasks.

The unavailability of the maintenance and master plans are making it difficult

if not impossible for the Licensee to conduct proper maintenance and

planning on the network equipment. The installation of the smart meters by

the Licensee indicated willingness and commitment to reduce the line losses

as these are closely related to revenue collection improvement.

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10. RECOMMENDATIONS

It is recommended that Nkomazi Local Municipality should prioritise the

implementation of the CAP to improve the level of compliance with licence

conditions and impose a self-monitoring regime to ensure that it does not

deteriorate back to non-compliance. The Licensee was advised to submit an

application for the correction of the areas of supply, as well as to indicate the

challenge faced at Marloth Park based on the NERSA resolution made in

2004 that was not implemented.

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 corrective action plan 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 corrective action plan 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 then

implement a self-monitoring regime to ensure that the improved areas do not

deteriorate back to a situation of non-compliance. On the self-monitoring

report, the Licensee will be able to indicate any additional projects

implemented to improve its level of compliance with the licence conditions.

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

Electricity Licensing, Compliance and Dispute Resolution

National Energy Regulator

PO Box 40343

Arcadia

0007

Fax: +27 (0)12 401 4700

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