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

Energy

04 June 2012
Chairperson: Mr S. Njikelana (ANC)
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Meeting Summary

The Department of Energy, Department of Public Enterprise, and Eskom presented three Scenarios to the Committee on how to take the process of the ISMO Bill forward.
Scenarion 1 i
nvolved a process which would require looking at the current legislation afresh. That would be, to draft it irrespective of the risks that the Government was aware of and the bill would incorporate the transfer of transmission assets in a manner that would require dealing with the risks or make known the unknowns that were currently not clear. A due diligence process would be undertaken with financial regulatory elements. The outcome of the due diligence would lead to a strategy to mitigate against the risks. That would be how drafting of the bill would be informed.

Scenario 2 would facilitate the incorporation of transmission without unpacking the unknowns. Bill would be redrafted to facilitate transfer of transmission. Incidentally, the definition would no longer be ISMO but ISMO Cross Transmission (TISMO). As such, it would depart from the notion of independent market and system operator with no big assets. Option 2  would facilitates, that law would be drafted, but not wait until the due diligence to unpack the risks. That would be, legislation would not get to be operational in any event.

Scenarino 3 would look at running two parallel processes,  one would be the legislature where due diligence would be done like in option one. No matter how long it would the milestones would be defined.  The transmission and end state would also be defined. In a parallel process, the Committee would impose certain conditions where the Departments would be required as Government to come back with modalities emanating from the due diligence as to how transmission would be incorporated into the bill.

The Committee instructed the Departments to come back with a Project Plan and a Terms of Reference on how to continue, to the next meeting.

Meeting report

Department of Energy Presentation.
Mr Ompi Aphane, Acting Deputy Director General, Department of Energy continued the presentation from the previous week. 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 remainder of 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 Section 4 relating to the functions of ISMO. Sections 40 and 41 also attracted quite a lot of comments relating to the definition of customers for ISMO.

Section 41(4)
The Department agreed with the suggestion to provide for phasing of functions saying that the wording has been provided for in the regulation.

Definitions
In relation to the proposal that “trading” should be used in the Bill and not used interchangeably with “buy and sell”  and that if  “buy” and “sell” would be used, then it should be used consistently.

Section 4(2)(q)
The Department noted the suggestion that the Terms of old Bill must be re-instated and said that Changes have been made in certain definitions to ensure alignment

Section 6
The Clause on subsidiaries would be removed.

Section 13(8)(a)
The clause would be amended to reflect that the Board vacancies would be filled within six months.

Section 40 (4) to (9)
These sections have been and reference would be made to the Labour Relations Act accordingly.

The second item on the agenda was the scenarios the Department of Energy had been requested by the Committee to bring to the meeting.

Mr Apane explained that a team made up of the Department of Energy, Public Enterprise, and Eskom met to deliberate over the scenarios in relation to how the transmission assets would be transferred out of Eskom. The question raised was about what it would entail and if legislation that had been drafted had made provision for it, and how it could be done in the face of the unknown around that particular process.

The background was, some of the unknowns related to the extent of the impact, the financial impact of transfer of assets on Eskom itself and what had happened to Eskom’s long term loan governance they have entered into. Furthermore, it would look at what would happen to the financial sustainability of Eskom going forward, and what would happen to the extent to which the national balance sheet was being opened up and exposed to financial risk. Lastly, what would happen to the financial sustainability of ISMO itself to the extent that it would fulfil such functions.

The Government Team had considered a number of matters including around fact that SA had a real issue with energy security that there was a concern that as the functions would be transferred, there was a tight electricity supply and demand, a situation that could not be ignored. In relation to transfer of actions, one of the functions under ISMO would require key industrial customers of Eskom to be taken out of Eskom’s control to become ISMOs and ISMO would be the middle man to collect revenue to distribute to Eskom and other generators. There was a specific risk in relation to Eskom’s lenders.

Scenarios Considered.
Scenario 1
This would involve a process which would require looking at the current legislation afresh. That would be, to draft it irrespective of the risks that the Government was aware of and the bill would incorporate the transfer of transmission assets in a manner that would require dealing with the risks or make known the unknowns that were currently not clear. A due diligence process would be undertaken with financial regulatory elements. The outcome of the due diligence would lead to a strategy to mitigate against the risks. That would be how drafting of the bill would be informed.
 The current situation involved ISMO contemplating devolution of the mechanism to deal with risks to regulations and would phase those regulations as and when the unknowns became known. ISMO as it was did not contemplate the transfer of all functions on day one. It would phase the functions from Eskom into ISMO and in terms of a particular process. Option one would have certain implications for the legislation and the Committee Programme. The Team would have to go away complete the due diligence before coming back to continue with finalisation of this legislation in a manner that dealt with the unknowns. The process would have to defined at interdepartmental level with timelines and milestones before some clarity could be reached.
Scenario 2
This option would facilitate the incorporation of transmission without unpacking the unknowns. Bill would be redrafted to facilitate transfer of transmission. Incidentally, the definition would no longer be ISMO but ISMO Cross Transmission (TISMO). As such, it would depart from the notion of independent market and system operator with no big assets. Option 2  would facilitates, that law would be drafted, but not wait until the due diligence to unpack the risks. That would be, legislation would not get to be operational in any event.

Scenario 3
Option 3 looks at running two parallel processes,  one would be the legislature where due diligence would be done like in option one. No matter how long it would the milestones would be defined.  The transmission and end state would also be defined.

In a parallel process, the Committee would impose certain conditions where the Departments would be required as Government to come back with modalities emanating from the due diligence as to how transmission would be incorporated into the bill. The big difference with this option would be to say that the process would not be concluded when the bill goes to Parliament but kept alive until the due diligence had been done. The bill would not be withdrawn. In another scenario, the bill would be completed and amendments would be made. The process could take up to 6 to 8 months.

Discussion.
Mr L Greyling (ID) said that the timeline of six to eight months was unacceptable as he was sure studies had been done throughout process. He emphasized that the independence of ISMO needed to be maintained in any scenarios considered.


Mr J Smalle (DA) reminded the meeting about what the Speaker of the House said about how legislations were made and said that the Committee needed to do it right the first time. He also emphasized that independence needed to be maintained. He requested a hard copy of the options the Department was presenting in a format that would indicate where in the bill it would fit.

Mr E Lucas(IFP) said that he was feeling a bit nervous about the Scenarios and requested that the Committee should not send anyting to Cabinet that was not well thought through.

Mr K Moloto (ANC) also agreed with the other Members to do it right from the beginning. He said the ideal situation would be to take transmission out of Eskom and put it in ISMO. He also supported the previous speakers that the due diligence needed to be sped up. It was also important to understand the impact on the security of electricity supply.

An Official of the Department of Public Enterprise said that the times lines proposed by Government was not fixed and could be sooner than indicated.

Mr Greyling said again that it was important to wait for the due diligence but wanted the Departments to work faster.

The Chairperson having considered the discussion concluded that the Team would need to bring a Project Plan including timelines and a Terms of Reference to the meeting the following Tuesday. They would need to send it to the Committee Secretary by 9.00am Monday morning to give Members enough time to go through it.

The meeting was adjourned.

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