Independent System and Market Operator Bill [B9-2012]: Department response to submissions

Energy

29 May 2012
Chairperson: Mr S. Njikelana (ANC)
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Meeting Summary

The Department of Energy took the meeting through its lengthy document summarizing 142 comments made by 18 entities during the Public Hearings. Most of the comments made in the submissions related to Clause 4 on the functions of ISMO. Clauses 40 and 41 also attracted a lot of comments relating to the definition of customers for ISMO.

Members raised that it was important to deal with the issue of transferring the entire grid across to ISMO. Some expressed surprise at hearing for the first time, the day before that another entity would be created that would deal with the transmission and were not sure what the rationale was for that and why it just did not rest with ISMO. The different implications would need to be drawn up. A Member proposed that the ownership of the grid should at least revert to ISMO and a timeline could be put on it. The Bill would really need to talk to that principle and to look at the different scenarios.

The Department requested a period of two weeks to go through the changes proposed and to bring back the various scenarios on how they would proceed with the amendments to the Bill.

Meeting report

Independent System and Market Operator Bill: Department of Energy (DOE) response to submissions
Mr Ompi Aphane, DOE Acting Deputy Director General, and the Committee discussed the comments received from the various entities in detail. The Department had compiled the list of comments from the specific entities and had presented it in a matrix document. Mr Aphane guided the Committee through the list of comments to which the Committee gave feedback. The matrix document listed a summary of 142 comments submitted by 18 entities on proposed amendments to the Bill. This report outlines the changes agreed to by the Department.

Amendments to the Bill
Most of the comments made in the submissions related to Clause 4 relating to the functions of ISMO. Clauses 40 and 41 also attracted quite a lot of comments relating to the definition of customers for ISMO.

Definition of Customer
The Department said that it was generally agreed that all transmission customers would become ISMO customers, save for willing buyer/willing seller arrangements and generation for own use. However, other customer categories that will become ISMO customers still need to be addressed, hence the need for Ministerial determination thereof. It was accepted that there were various issues relating to customers and the transfer of customers and related agreements to ISMO (such as forcing customers to purchase from ISMO, splitting of contracts between energy and transmission services, dealing with existing long terms contracts) that need to be addressed, hence the Bill would need to ensure that this could take place.

Phased Approach
Comments referring to Clause 4, 40 and 41 proposed for ISMO to be structured with a phased approach in mind, taking into account the transfer of assets and staff. The Department said that wording would be included in Clause 41 to allow for the transfer of functions in a phased-in manner.

Chapter 5: Framework for financial stability.
The Department noted and agreed for the purpose of Chapters 5 and 7 to ensure financial stability. National Treasury agreed to provide the needed financial support to ISMO to ensure financial stability. However, it was noted that the legislation did not provide for the transfer of transmission assets. The Department indicated that a business case for ISMO would be developed in consultation with National Treasury to ensure the financial stability of ISMO prior to its operation. Such business case would need to be approved by National Treasury

Criteria for Asset Values
The proposals for criteria for asset values needing to be developed, was noted. The Department said that a framework for Eskom would have to be discussed within government. Due diligence would be conducted on ISMO with regard to the impact associated with the transfer of assets to ISMO. Based on the outcome of the due diligence study, government in consultation with Eskom, would have to decide on the form of compensation required for Eskom

Labour Relations Act (LRA) Clause 40
Clause 40 relating to the transfer of employees would be deleted and reference to the LRA would be made and used as a guide in the transfer of employees.

Definitions
It was proposed that definitions needed to be aligned to the Companies Act, ERA and codes (ancillary services, grid code, integrated power system, split of ISMO customer definition between buying and selling and not combined, national control centre). A number of definitions would be reviewed such as “generation licensee” and “Integrated Transmission System”. The Department pointed out that it was important to ensure that the ISMO Bill did not depend on new definitions under ERA. ISMO should stand on its own in terms of definitions that were currently not approved in terms of the ERA.

Objects of Act
The phrase “maintenance and” would be deleted from Clause 2(f). The words “manages electricity dispatch and” would be replaced with “is responsible for”.

General Catch All function: Clause 4
The new subclause 4(2)(u) “ perform any other functions as may be required in accordance with grid code.” would be added to provide for further functions should the need arise. “dispatch” in Clause 4(2)(f) would be change to “dispatch rules”.

Asset Transfer: Clause 40
Requests were made for clarification of how assets would be transferred and paid for and what to do with the liabilities of Eskom. The Department said that further discussion was needed to determine the form of compensation and liabilities. Due diligence studies would assist in understanding the kind of liabilities associated with assets.

Generators outside of SA: Clause 4(3)(d)(i)
Clarification was requested on generators outside SA not being licensees. The Department said that the word “generation” has been deleted and the clause referred to licensees, so that a trading license would be required in terms of the ERA for imports. The importer would need to deal with the generator outside the country through its contractual arrangements

ISMO Staff: Clause 20(2)
The phrase “consider applications received” would be added at the end of the sentence.

ERA Amendments: Clause 4(3)(d)
It was raised in the submissions that the ISMO Bill assumed that ERA had already been amended, which was not the case. The ISMO Bill should as far as possible stand “on its own feet”. Clause 4(3)(d) referred to generation licences exempted from selling to ISMO in terms of ERA whilst ERA contained no such provisions. The Department noted that ERA did not provide for such exemption. It was suggested therefore to just refer to ERA without mentioning the exemption. Whatever changes made to ERA would apply to ISMO
.

Ministerial Intervention in Commercial Entity: Clause 37(1)(c)
It was raised that in relation to the Ministerial intervention in ISMO, ISMO was a commercial entity and hence its commercial decisions should not be administrative-law based with “fairness” and “equitability” a complaint factor/ground for intervention in commercial situations. The Department accepted the suggestion and said that the clause would be amended.

Transitional provisions: Clause 40, Clause 41
It was suggested that a general clause be included empowering the Minister to make transitional regulations aimed at dealing with issues as they arose. The Department acknowledged the point raised saying that there would be a general clause included, empowering the Minister to make transitional regulations aimed at dealing with issues as they arise

Timelines: Clause 40, Clause 41
In relation to the point that the timelines for transition of ISMO functions were unclear, the Department said that the Bill would include sufficient enabling regulation-making powers for Minister to ensure that implementation and transition issues that arise around asset and staff transfer, customer contracts and transfer of customers as well as detail issues that were unknown, could be dealt with including the possibility to determine timelines.


Criminalising non-compliance: Clause 37(1)(d); 37(4)(c) ; 38(1)(c)
It was pointed out that Clause 37(1)(d) read with 37(4)(c) and 38(1)(c) criminalized non-compliance with policy, whilst policy was neither law nor subordinate law. The Department noted the comment and said that it was not the intention to criminalise using a policy and that the solution would be to replace the Board by an Administrator. Clauses 37 and 38 would be adjusted accordingly.

Market Operator Definition: Clause 4(2)(k); Clause 4(3)
It was raised that Market Operator was not defined. The Department said that the definition would be added accordingly.

Subsidiaries; Clause 6
The clause on subsidiaries would be removed.

Offences and Penalties: Clause38(1)(a),(b) and (c)
The Department agreed in principle that the clauses would be modified so that actions against employees should be dealt with via labour legislation and not criminalised

Public Consultations: Clause39(1) and (2)
It was agreed in principle that the clause would be amended to add “ invite public comments and duly consider such comments”.

Clause 40(1)
It was agreed that the words “on the effective date” would be deleted from the Clause 40(1).

Clause 13(8)(a)
The Clause would be amended to reflect that vacancies would be filled in six months.

Clause 40(4) to (9)
The Department agreed to delete the above clauses.

Discussion
The Chairperson asked in relation to Clause 4(1) if the point raised about ISMO being responsible for planning contained a proposal for ISMO to do the technical work and the Minister approve it.

The Department explained that it was the case and that expansion of technology was associated with building more lines as well.

Mr J Smalle (DA) pointed out that Clause 4(3) referred to Section 34 of ERA and the alignments that were needed and he wondered how Section 34 was going to be weakened if it was implemented the way it was suggested.

Mr Aphane replied that ISMO would need to provide input to planning and the procurement process. ISMO would have oversight.

In relation to the transmission function needing to be transferred to ISMO, the Chairperson asked if different scenarios and their implications had been worked out.

Mr Aphane said that there were scenarios for the Committee and also those for the Department. The Department has set the 14 June 2012 as a tentative date to have completed the various scenarios by, of which approach to take. The Department would look at transfer of assets, the detail of what would be in the regulations. The Department would need about two weeks before coming back to the Committee.

Mr Moloto said that he supported the view of getting the transmission network out of Eskom, but the question was when. The Department would also need to say what the risks Eskom would be exposed to and other problems. He also asked about how Eskom would honor its liabilities.

Mr L Greyling (ID) said that it was important to deal with the issue of transferring the entire grid across to ISMO. He expressed his surprise at hearing for the first time, the day before, that another entity would be created that would deal with the transmission and he was not sure what the rationale was for that and why it just did not rest with ISMO. The different implications would need to be drawn up. He proposed that the ownership of the grid should at least revert to ISMO and a timeline could be put on it. The Bill would really need to talk to that principle and to look at the different scenarios.

Ms
Nelisiwe Magubane, Director General, Department of Energy, acknowledged the guidance her Department was getting from the Committee that the system operations needed to be separated from transmission and generation. She requested more time for the Department to look at the intention for transmission and that certain conditions needed to be explored.

Mr Moloto said that the resolution for the Committee to play an oversight role was not in the Bill but he would like to request the assistance of the lawyers on how to frame it.

Mr Smalle said that if ISMO was responsible for planning and did not have control of the grid, then such plans would fail eventually. It was also important to note that the Committee had agreed that there would be a phased in approach and it was also important for the Department to agree to that.

Mr Smalle disagreed with Mr Moloto in placing the resolution for Committee oversight in the Bill saying that the option can be there and the Department would need to say where in the Bill it would go.

Ms Mokholo from the Department of Public Enterprise agreed with Mr Smalle that if such was going to be provided for in the Bill, it needed to be clear.

The Chairperson requested the Department of Energy and the Department of Public Enterprise to work out the scenarios and bring them to the Committee to bring the implications, the purpose and the products.

Mr Moloto asked if the customers could not be defined in the regulations.

Mr Aphane said that customers were quite tricky mainly around the fact that they could be transferred. The question would be, who would be transferred. If they were taken out of Eskom, it would create a concern.

In reference to Clause 32, Mr Smalle asked where the dispute appeal would fall for matters relating to disconnection.

Mr Aphane explained that the framework was in the ERA where issues of the penal regime would need to be revisited. NERSA’s determinations could only be challenged through a review process. NERSA’s own ability to instruct that certain things happen would need to be revisited. Under ERA, the Department was suggesting that such needs would need to be addressed in contracts. There were only a few customers that had been disconnected under a NERSA directive. The Department was saying that if someone did not pay, ISMO would give instructions to disconnect. The Department would want to revisit such but not in ISMO but in ERA through contracting arrangements.

The Chairperson asked where else such a matter could be discussed if it was not possible in the regulations.

Mr Aphane said that within the contractual framework, supply agreements and provisions could be made to allow for disconnection. The Department would need to look at the legalitites of contractual mention of disconnections

The Chairperson asked for clarity in reference to Clause 4(3)(d)(i) referring to generators outside of RSA
Mr Aphane replied that it was talking about generating licences outside of the border and that that is the problem was, NERSA was not licensed there as it was outside its jurisdiction.

The Chairperson asked for clarity on the Technical Board in reference to Clause 4 of the Bill.

Mr Aphane said that a proposal had been made that the Board would be an expert one not a stakeholder one. ISMO would provide the support function to the process on the technical side but the Minister would engage with the stakeholders.

The meeting was adjourned.

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