Chapter 7: Regimes and regulation
7.2. Results
7.2.5. Regulatory coherence and implementation in the City of Cape Town
178 prematurely. It further highlights that rules developed to facilitate change, directed at implementing agents that do not have the means or guidelines to comply, creates inertia and further resistance to change.
179 Figure 7.2: List of regulatory uncertainties mentioned by City of Cape Town officials
However, efficiency interventions can have relatively long payback periods and hence the contract period would usually exceed three years. Conversely, on reading the MFMA it is evident that the applicable section115 does not set out an absolute restriction on contracts beyond three-years but
115 Section 33
•Can the City enter into a PPA with an IPP?
•Can the City sell excess generation to a customer outside the municipal license area?
Power purchase agreements
•Can the City pay an IPP more for electricity than it pays for Eskom bulk purchases?
•What is the definition of ‘least cost’ in the MFMA? Does ‘least cost’ include economic and environmental cost?
Cost of renewable electricity
•Can local government pursue renewable energy for reasons other than ensuring
‘uninterrupted supply’?
•Are there any caps placed on the amount a generator may produce in terms of own use or for a demonstration plant?
Generation licenses for renewable electricity
•Can the City set an electricity tariff in line with local urban socio-economic goals?
•Can the City introduce an electricity surcharge to be used for RE and EE projects?
•Can the City set a feed-in tariff in conflict with the NERSA guidelines?
Electricity tariff development
•Does Eskom have a legal obligation to supply the City with uninterrupted electricity?
What is the City's right of recourse if Eskom does not supply?
Electricity supply contracts
•What is the legal standing of Regulations for Compulsory Norms to the extent that it places constraints on ripple control?
Energy efficiency and demand-side management
•Can local government use public funding for expenditure on low income private households?
Public funding
•Can local government collect money on behalf of SWH suppliers or use its billing system to allow system owners to pay back?
Billing systems
180 only require additional conditions to be met, including public participation. According to the Head of Energy and Climate Change:
Although the extension process requires additional steps - it is entirely reasonable and achievable. The institutional challenge stems from the fact that supply chain management is often cautious and wary of novel processes and tenders. Smaller municipalities with capacity constraints have found it difficult to manage a lengthier and more complex tender process. But it should not be a problem for Cape Town (Interview 23. 26 August 2012).
This highlights that the actual barrier is institutional rather than regulatory and that ‘legal impediments’ are often perceived, misinterpreted or used to justify a particular position. This demonstrates that although the regulatory system may enable transition initiatives, implementation is often constrained by the structures of organisations tasked with implementation. This is corroborated by De Visser (2012), Collier and Glazewski (2012) and Davison et al. (2015) that find that an overly cautious compliance-culture, enhanced by risks related to personal and criminal liability, rather than regulation create barriers to engage with transition action in the City of CT.
Second, regulatory uncertainties result in divergent interpretations and conflicts around the meaning of rules during implementation. Notably, it is evident that divergent interpretations are not a result of ambiguous language or framing in legal instruments. Rather, interpretations are guided by underpinning motivations related to, inter alia, organisational conditions, visions and regime values.
The implementation of ripple-control116 highlights the manner in which interpretation of rules is underpinned by organisational conditions. In background, the City has a ripple control system that has been active for a long time in the city’s eastern suburbs. Subsequently, national government introduced the Compulsory Norms and Standards (DME, 2008b) which stated that ripple control could only be used during ‘capacity constraints to avoid blackouts’ and only after a request from Eskom to municipalities to reduce demand. This placed limitations on the City’s existing ripple control system. This consequently led to divergent interpretations within the administration between ERMD and the Electricity Department.
According to the Head of Protection and Measurement, the Electricity Department has limited will to continue ripple control for reasons related to ‘costs, additional work and fear of resistance from customers’ (Interview 21. 16 September 2013). Thus, the department interpreted the regulations
116 Ripple control involves relaying a high frequency signal across the grid to shut down non-essential appliances during capacity constraints.
181 alongside the Constitution and Consumer Protection Act, 2009 as prohibiting the City of CT from interfering with customer supply. This position is summarised by the Head of Protection and Measurement:
Ripple control has limited benefit for customers and customers are paying for the electricity and it is their prerogative to have electricity whenever they need it (Interview 21. 16 September 2013).
In opposition, the Energy and Climate Change Unit that promotes demand-side management argued that this interpretation was erroneous. Their position is highlighted by the Principal Engineer: Energy and Climate:
Distributors interfere with electricity supply on a daily basis, like during maintenance.
Ripple control is a means for local government to manage load - as a distributor we are legally entitled and required to manage load. It is in the interest of the City and can reduce our operational costs. And, it would be in the interest of customers because it reduces risks of load shedding. The Constitution gives municipalities the power to use ripple control systems - NERSA has no authority to limit this (Interview 20. 23 August 2013).
The above demonstrates that interpretation of rules by different departments in the City is heavily guided by conditions such as organisational priorities, capacity, cultures and risks. Whereas the Utilities Directorate interpreted the rules in light of costs, risks and capacity constraints, ERMD interpreted the rules primarily in light of the benefits it may have for reducing electricity consumption and achieving targets in the ECAP.
Second, regulatory interpretations are guided by the underlying visions different social groupings have vis-à-vis the type of socio-technical regime they want materialised. This is evident in contestation surrounding City-led renewable electricity supply. In brief, the Electricity Regulations on New Generation Capacity (DOE, 2011d) state that new power stations may be established ‘to ensure uninterrupted supply’ and the MFMA states that local government has to buy electricity at the ‘least cost’. These two provisions have led to different intepretations by ERMD and the Electricity Department.
On the one hand, officials in ERMD that advocate for energy autonomy argue that the regulations do not prohibit new generation for purposes other than ‘uninterrupted supply’ (De Visser, 2012).
For example, the City could facilitate renewable generation in pursuit of low-carbon and diversification of supply and could thus be exempt from the regulations (SALGA, 2013a). ERMD officials further argue for a broader interpretation of ‘least cost’ which includes factors such as reduced load-shedding, price certainty, life-cycle assesments and even health and environmental externalities in quanitifying ‘least cost’. Such an interpretation would make renewable electricity
182 competitive and hence legally permissible. This interpretation is captured in a report on the ‘Role of the City of Cape Town in energy generation’:
A renewable electricity power station could offer the City lower priced electricity than a likely national grid price if not now then within five or ten years as Eskom increases the grid price to cover costs. In the medium-longer term, over the life of the power station investment, it is quite plausible that a significant quantity of power could be procured below the national grid price (CCT, 2011f: 3).
On the other hand, the Electricity Department, opposed to city-led renewable electricity, interpret these rules as meaning only national government can determine new capacity needs on strict
‘uniterrupted supply’ criteria and the MFMA provision means ‘least cost’ in strict financial terms.
This requires municipalities to buy electricity from the national grid (CCT, 2011j; CCT, 2012h). In sum, this example reveals that competing visions of energy autonomy versus a centralised grid for cost sharing117 informs and is contested in the interpretation of rules.
Third, it is evident that implementing agents interpret rules according to the underlying regime values to which they are aligned to and hence employ specific interpretations opportunistically to uphold these values. This is observed in circumstances surrounding a programme to roll-out ceilings in subsidy houses built without them.
On the one hand, the Finance Directorate has been hesitant to support the project due to compliance risks and thus adopt a specific regulatory interpretation to support this position (Meeting 25. CCT Finance Directorate, 07 September 2012). In brief, officials in the Finance Directorate interpret the MFMA as prohibiting expenditure of public funds on private property. The Director: Budgets, for instance, states that local government ‘cannot in any way be involved in spending money on private property - once ownership of a subsidy house is handed over to a recipient it becomes private property’ (Meeting 25. CCT Finance Directorate, 07 September 2012).
On the other hand, this project is supported by ERMD and politicians in the Energy Committee.
Interestingly, this is an example of an alignment of regime values between social groupings that usually clash. These stakeholders argue that ‘providing energy services to low-income households would not contravene public finance management rules’. This position is summarised by the Manager: Property, Environmental and Planning Law:
I have often expressed the view that expenditure on private property is not prohibited by the MFMA or the PFMA, as long as the expenditure is justified in some way as being in pursuance of a purpose which is within the statutory powers and functions of government and is budgeted for in the normal way, and the decision to expend the funds is made in a transparent and accountable way (Interview 25. 09 April 2013).
117 See Chapter 5
183 The above rationalises that public expenditure and the interpretation of public finance management rules has to be considered in light of the potential socio-economic benefits of a project and the underlying principle behind financial management regulation to prevent wasteful expenditure and excessive and corrupt privatisation (O’Sullivan, 2014).
Further, it is evident that divergent interpretations of rules amongst different departments lead to divergence in how solutions are framed. The example of a waste-to-energy project in the City of CT provides a good example. In background, the City has made commitments to implement waste-to- energy projects (CCT, 2010a). In managing this project, the Utilities Directorate resolved to follow a specific regulatory process in the Municipal Systems Act, 2000 and Municipal Public-Private Partnership Regulations (NT, 2005a) in order to enter into a public-private partnership where a private company would extract methane from a City-owned landfill (CCT, 2010e). In order to facilitate this, the Utilities Directorate procured the services of a transaction advisor. According to the Manager: Technical Strategic Support118 the City is legally obliged to follow this approach and a transaction advisor was necessary ‘in order to ensure that the City complies with the complex regulatory framework’ (Interview 6. 30 September 2013).
Conversely, according to the Energy and Climate Change Unit, adopting this approach has resulted in serious delays in implementation. This is reflected in the below statement:
The landfill gas to electricity project has followed the wrong processes and still does. Solid Waste initially contracted with CEF to sell carbon from the project. I said don’t do it, it is going to be too cumbersome. Then they followed a Municipal Systems Act process and it is highly unlikely that this is the right process. Then they spent millions on a transaction advisor although skills were available in-house (Interview 23. 26 August 2012).
Similarly, the Manager: Property, Environmental and Planning Law Unit said:
There is considerable uncertainty as to whether both the process for compliance with the Public Private Partnership Regulations and the Municipal Systems Act process need to be followed simultaneously or whether there is a means to streamline and simplify the procedure (Personal Interview 25. 09 April 2013).
On practical grounds the Director: ERMD held that methane emissions from landfills should rather be seen as an environmental management issue and the ‘City should rather cap its landfill sites and flare the methane to prevent run away emissions’ (Interview 1. 06 February 2013). This highlights that two separate departments have very different interpretations of legal rules and legal process, which in turn lead to different ways of framing a problem and solution. Whilst the Utilities
118 The lead manager of waste-to-energy projects
184 Directorate views landfill gas as an electricity generation opportunity, ERMD regards methane as an environmental hazard that requires urgent action.