Independent System Market Operator Bill [B9-2012]: deliberations, Performance overview of Committee work 2012

Energy

25 February 2013
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Committee firstly assessed the performance of the Committee in 2012, against the twelve objectives that it had set for itself, and which had been outlined in the Committee’s Strategic Plan for 2009 to 2014. The objectives were quite detailed, covering empowerment and transformation, assessing the impact of governmental strategies and facilitating review of policies, monitoring the restructuring of the fragmented electricity industry, achieving universal access to electricity, monitoring progress in the gas sector, monitoring use of clean energy sources, safety practices, promoting private sector participation, monitoring the implementation of existing and new legislation and climate change. The Committee Researcher detailed the meetings, public hearings, visits and work pertaining to each of these goals. The Committee Secretary outlined the expenditure of the Committee, although it was noted that there was still a little uncertainty as to which items were paid for from Committee funds, and which from the Consolidated fund. The Chairperson assured Members that he would clarify this point. In general, Members felt that the Committee had achieved well and commended the initiative for a self-assessment. However, they felt that in future it would be useful to hold more meetings with other committees on cross-cutting issues, wanted future reports to outline the challenges and areas where there was less than satisfactory performance. They also felt that the Report should have mentioned the Multi-Year Price Determination and the Independent System Market Operator Bill (ISMO Bill), and suggested that the Committee’s resolutions during the year should be listed. The Chairperson noted that there had been quite a lot of “behind-the-scenes” work with other committees, and this too should have been mentioned. The Department of Public Works was noted as hindering some efforts to electrify. The Chairperson highlighted the areas that he felt the Committee must still address or focus upon.

The Committee Content Advisor briefed the Committee on the background to and progress on the ISMO Bill. A Member questioned the value of this, saying that the Content Advisor had not been present at the meetings and it was expected that this briefing should have been done by the Department of Energy (DoE). However, the presentation proceeded, although after it Members commented that it had not taken the Committee much further as indeed Members wanted to engage with the DoE on its responses to the public hearings.  
The main points raised at the public hearings were summarised, together with the DoE’s response. On very few matters had the Department conceded that changes were necessary to the ISMO Bill, but the explanations given were briefly outlined. It was agreed that future discussions were needed with the DoE.

Meeting report

Overview of the performance of the Portfolio Committee on Energy during 2012: Research Unit presentation
The Chairperson stated that he had asked the Committee Researcher to give an overview of the performance of this Committee during 2012, with a view to improving and exceeding the goals for the following year.

Mr Sivuyile Maboda, Committee Researcher, Parliamentary Research Unit, stated that the performance of the committee was assessed against how it had addressed the strategic objectives set out in the Committee Strategic Plan (2009 to 2014). He had looked at the minutes of meetings for 2012 and sessional reports for 2012, which he explained were compiled quarterly, detailing what the Committee had worked upon. He had investigated whether there was achievement of the strategic objectives.

The key
strategic objectives of the Committee, as set out in the 2009 to 2014 Strategic Plan were to:

1)
Promote the design and implementation of broad based sector or industry empowerment programmes, with clearly defined targets, based on agreements between stakeholders.
2) Assess the impact of the Energy Efficiency Strategy of 2005.
3) Monitor the restructuring of the fragmented electricity distribution industry.
4) Achieve universal access to electricity.
5) Monitor promotion and progress on the utilization of Liquid Petroleum Gas (LPG) as well as transforming the sector.
6) Assess the extent of investment and progress on the utilization of clean energy sources.
7) Facilitate the formulation and review of the energy policies.
8) Assess the extent of transformation in the nuclear industry including assessment of Nuclear Policy.
9) Monitor safety practices and legislation in the energy sector, including assessment of the safety levels of electrical installation.
10) Monitor promotion of private sector participation in the electricity industry – namely the Independent Power Producers (IPPs) and Independent System Market Operators (ISOs).
11) Monitor the implementation of the Energy Act, 2008, (particularly the Integrated Electrification Programme (IEP) and Integrated Resource Plan (IRP) 2010.
12) Monitor Climate Change and Millennium Development Goals.

He looked at the performance against each of those strategic objectives.


Objective 1:
The Liquid Fuels Charter had been “the pioneer of all charters”, as it was signed back in November 2000 and it became law when annexed to the Petroleum Products Amendment Act of 2003. The Charter provided a framework for progress in the empowerment of Historically Disadvantaged South Africans (HDSA) in the liquid fuels industry. It was intended to identify bottlenecks in implementation and specify the interventions required, after having developed standardised criteria to assess and monitor transformation and compliance within the petroleum and liquid fuels industry, throughout the value chain.

A compliance audit was initiated in November 2010. This was a comprehensive, independent and representative assessment of the state of transformation within the industry against the set Charter targets. The compliance audit study was commissioned by the Department of Energy (DoE or the Department), focusing on the period from 2000 to 2010. The companies audited were BP South Africa, Chevron, Engen Petroleum Limited, PetroSA, Sasol Oil South Africa, Shell Marketing and Refining South Africa, and Total South Africa.

According to the report findings, the South African petroleum and liquid fuels industry had achieved a compliance rating of 48% during the ten years since the DoE tabled the Charter. These were extremely disappointing, given the timelines since the signing of the charter in 2000.


Mr Maboda noted that the Committee was briefed by the Department of Energy (DoE) on the audit outcomes and it did oversight and public engagement on the matter, including holding stakeholder meetings on transformation and compliance within the petroleum and liquid fuels industry. However, more work still needs to be done by the Committee.

Objective 2:
Energy efficiency was introduced in all sectors of energy consumption, as specified in the 2005 Energy Efficiency Strategy of South Africa. The strategy set a national target for energy efficiency of 12% by 2015. In response to this objective, the Committee undertook site visits to various energy efficiency projects in Cape Town. These had included a visit to the Council for Scientific and Industry Research (CSIR) focusing on energy efficiency programmes, a visit to the Aurecon Building in Century City- the first building in South Africa to be awarded a five Star Green Star by the Green Building Council of South Africa.


Objective 3:
Electricity distribution was the final but equally crucial stage in the delivery supply chain of electricity to end-users. Electricity distribution was undertaken by Eskom, 187 municipalities and a few private distributors, under distribution licenses issued by the National Energy Regulator of South Africa (NERSA).

The Committee had held joint sessions with other relevant portfolio and select committees to address the challenges of electricity distribution in the industry, and the maintenance and upgrading of electricity infrastructure. Public hearings were also held on the possible restructuring of the electricity distribution industry from 25 to 27 July 2012, in Parliament.

Objective 4:

The South African Government had stated, in 2004, a policy of providing access to electricity to everyone by 2012. According to the 2013 State of the Nation Address, 85% of households now had access to electricity. This meant that the universal access goal had not been realised. The implementation of alternative energy policies to address the 15% of households that were not electrified appeared to be a challenge.

The Committee met with DoE, Eskom, the South African Local Government Association (SALGA), the National Treasury and Financial and Fiscal Commission, who, on 22 March 2012, briefed the Committee on progress of the implementation of Free Basic Electricity and Free Basic Alternative Energy. The DoE also briefed the Committee on its 2011/12 Annual Report, on 11 October 2012.

Objective 5:
In the 2010/2011 financial year, the Department had planned to achieve a 20% increase in LPG usage at the household level. However, only 5% of the target was achieved. The Department heard a briefing from the DoE, on Liquid Petroleum Gas options for expansion, on 17 August 2012. Another  briefing by the DoE and other stakeholders on the transformation of the LPG Sector was given on 17 August 2012. The Committee was briefed by DoE on Liquid Fuels Infrastructure roadmap and Basic Fuel Price, on 13 November 2012.

Objective 6:
In response to this objective, the Committee held meetings of stakeholders in the renewable energy sector,  exploring solutions to the challenges of financing and certification of locally produced renewable energy products, on 30 August 2012. On 17 April 2012, the Committee received updates from DoE and Eskom on the Solar Water Heater programme. On 24 August 2012, a briefing was given by the Africa Institute of South Africa, on investments in the energy sector, focusing on Africa.

Objective 7:
Mr Maboda noted that the Committee did little in meeting this strategic objective for formation and review of energy policies, other than to consider the policy issues as one of the aspects when  receiving annual reports from the DoE.

Objective 8:
The Committee had a discussion with a victim of Fukushima Nuclear Disaster in Japan on 1 March 2012. On 23 March 2012 the Committee was briefed by the Nuclear Energy Corporation of South Africa (NECSA) on its Strategic Plan for 2012- 2015. It also, on the same day, heard a briefing from the National Nuclear Regulator (NNR) on its Strategic Plan for 2012-2015. In December 2012 the Committee paid a visit to the NECSA offices at Philindaba.

Objective 9:
In response to this objective, the Committee heard briefings on Energy Safety issues from Eskom, Paraffin Safety Association of Southern Africa, Liquid Petroleum Gas Association of Southern Africa and National Union of Metalworkers of South Africa, on 20 June 2012.

Objective 10:
In response to this objective, the Committee held public hearings on the Independent System and Market Operator (ISMO) Bill throughout May 2012, thereafter hearing and noting the responses from DoE. On 5 June 2012, DoE delivered a briefing on the different scenarios related to the transmission sector. An energy stakeholder meeting with Independent Power Producers was held on Renewable Energy on 7 June 2012.

Objective 11:

In response to this objective, the Committee was updated by the DoE on Integrated Electrification Programme (IEP) on 20 November 2012

Objective 12:
Climate change presented significant threats to the achievement of the Millennium Development Goals (MDGs), especially those related to eliminating poverty and hunger and promoting environmental sustainability. Even though Goal 7 of the MDG related to Environment and Climate Change, there had been fewer discussions on climate change in that context.

In response to this objective, the Committee heard briefings from the DoE and World Wildlife Fund, listing the outcomes of COP 17, on 17 February 2012, and attended various climate related events, which included a visit by the Chairperson to Doha (Qatar) from 8 to 10 December 2012. Hearings were held by the Climate Parliament from 16 to 18 November 2012, in Sri Lanka and the Committee was represented there. Finally, there was work done by the European Parliament and African Parliaments on climate change on 9 March 2010.

Mr Maboda concluded that
the activities of the Committee during 2012 were aligned with the strategic objectives that were agreed upon during the strategic planning session. Activities that were approved by the House Chairperson, and which were to be funded via the Consolidated Fund included Training by the International Energy Agency and the International Atomic Energy Agency. Other activities that were approved and for which funding was made available included the Pan African Parliament –South Africa Parliament Energy Initiative (PAP-SAEI).

Mr Maboda reiterated the concern that the implementation of  Free Basic Alternative Energy was poor.

Budget of the Committee as at 11 December 2012
Mr Arico Kotze, Committee Secretary, gave an overview of the 2011-12 budget, and stated that the Committee’s  budget allocation was R 777 000 and its total expenditure was R551 594. Expenditure included catering at R 72 000, oversight visits totaling R32 000, and Advertising costs at R 447 267. The amounts did not include the oversight visit to Pretoria from 3 to 7  December 2012, which cost an estimated R 190 000. There was around R35 000 of budget available for the rest of the financial year.

Discussion
Mr S Radebe (ANC) welcomed the report was welcomed and felt the Committee could safely say that it had reached about 95% of its set objectives. However, he felt that the challenges that the Committee faced should also be outlined, so that Members could get a better understanding of where its weaknesses lay, so they could be addressed in future. Collaboration with other portfolio committees was minimal, yet some issues cross cut across committees.

Mr Radebe wanted to know what the progress was on the Energy Policy, which the Committee had briefly touched on in 2012. He noted that the Multi-Year Price Determination (MYPD3) was not reflected in the overview report, nor how this was developed from the MYPD2. Finally, he noted that it should be said that the Committee had not concluded the processing of the ISMO Bill.

Mr L Greyling (ID) asked about the resolutions that the Committee had made, and wondered whether they should not have been part of the overview assessment.

The Chairperson complimented Mr Maboda on the overview report and presentation and noted all the points raised by the Members. This was the first time that the Committee had undertaken a self assessment and there was room for improvement in the structure of the report. He agreed that it should take into cognisance other matters such as the MYPD3, and the earlier resolutions adopted by the Committee. The status of the sessional reports must be clarified, saying whether these reports were internal and whether they should be shared with other Members. Sessional reports were tools that the Committee could use in assessing the work that was done. He finally noted the need to review the strategic plan.

Ms N Mathibela (ANC) enquired about the budget and asked if expenditure listed was taken from the Consolidated Budget or the Committee budget, as the oversight visits were not included.

The Chairperson replied that the matter of the different budgets was confusing and that the Parliamentary Finance Unit had not been very helpful in clarifying this point.

Mr Greyling suggested that perhaps the Chairperson could be more proactive in dealing with that unit to distinguish what amounts fell where.

Mr Kotze clarified that oversight visits were covered by the Committee budget and national study tours were covered by the Consolidated budget.

Mr Greyling also stated that in future the Committee needed to devise a plan to move issues forward. This was not for the Researcher to do, but the entire Committee.

The Chairperson suggested that there be some qualitative assessment of the work of the Committee in order to assess the impact that the work of the Committee had.

He further suggested that the Committee’s overview report be a quarterly initiative. He agreed that the Committee needed to sit in with the finance unit to get a better understanding of the workings of the Committee budget. Responding to Mr Radebe’s comments, the Chairperson stated that efforts made towards the realisation of certain objectives should be noted as part of the Committee’s work, and said that the behind-the-scenes lobbying that this Committee had done with the Portfolio Committee on Human Settlements was a case in point. He commented that the work undertaken by the Department of Public Works (DPW) on energy efficiency was not impressive, and poor performance here  was hindering the work of the health and education departments – for instance, some schools were still without electricity connections and were using generators, and Eskom maintained that it had done its best but DPW had to play its part. He emphasised that this Committee also needed to work with select committees, to reach the set objectives.

Comments from Chairperson on objectives
The Chairperson wanted to make some comments on the specific objectives as outlined by Mr Maboda. Under Objective 1, he said that the
energy industry was still underperforming in relation to transformation. Nevertheless, the study tours had shown that a number of initiatives had been taken in improving energy efficiency. On Objective 3, he said that the fragmentation of the electricity industry needed to be addressed, and the whole industry must improve. The Committee had achieved more on universal access to electricity in the 2011, than in the 2012 year. More work was under way at the moment. The Liquid Petroleum Gas (LPG) industry needed to be looked at as a whole, and the strategy re-examined, to include the level of representation by the industry. The gas infrastructure also needed to be considered, specifically in relation to transport costs, and it would be useful to get a briefing from  Strategic Infrastructure Projects (SIPS).

The Report had not said much about clean energy, but he suggested that the area be strengthened and initiatives increased. In relation to Africa Institute and its improvements on investments, it would be useful also to hear from service providers on how far they were.

He agreed that the Committee had not done much on energy policies. In cooperation with the Researcher and Content Advisor, the Committee needed to refine and redefine policies on energy, nuclear and renewable energy. On objective 8, little had been done, but government would also need to give this Committee clarity on what progress it was making. The Committee had played its part in objective 9, but Members also needed to check on the previous years’ outcomes, paying close attention to the work done by the Paraffin Safety Association and others.

Objective 10 was work in progress, and better results would be reported at the end of the year. In relation to Objective 11, there was very little on the Integrated Electrification Programme, and the IRP had come up from time to time. With regard to climate change, he also agreed that the Committee had not done much work, but there were a number of oversight visits undertaken. Parliament must therefore give further notice and guidance on climate change, and include this and other Committees. The Standing Committee on Climate Change was not very active.

Finally he agreed that he would meet with the Finance Unit to get a more clear understanding of its operations, and what support it could offer to the Committee.

He noted that the remaining Oversight Reports would soon be circulated to Members.

Finally, he thanked the Table Staff.

Independent System Market Operator (ISMO) Bill : Committee deliberations
Mr Kotze, Committee Secretary, outlined the history of the Bill. It was first referred to the Committee on 9 March 2012, and informal briefings on the Bill had been held both on 29 June 2011 and 6 March 2012 (prior to the formal tabling to this Committee), with a formal briefing on 15 May 2012.

Public hearings on the ISMO Bill were advertised in various national and regional newspapers, in various languages, in the week of 18 March 2012. By the closing date of 13 April, the Committee received a total of nineteen written submissions, these included submissions from Professor Anton Eberhard, UCT Graduate School of Business, the National Union of Metalworkers, Eskom, Energy Intensive User Group, and Energy Research Centre. The public hearings on ISMO were held on the 15, 16, 22 and 23 May 2012, and follow up meetings were scheduled for 29 and 30 May 2012, 5 June 2012 and 7 August 2012.

The Committee then had a joint meeting with the Select Committee on Economic Development on the ISMO Bill on 18 September 2012. At this meeting, the committees resolved that the Task Team must brief the Committee early in 2013, on the further due diligence related to the possible transfer of the transmission sector to the ISMO. This was done on 1 February 2013.

ISMO Regulatory Framework: Content Advisor’s briefing

Mr K Moloto (ANC) noted that the Content Advisor had been asked to brief the Committee on the ISMO. However, he thought that this would serve no purpose. The Content Advisor had not sat in on Committee meetings and would not be able to answer any questions raised on the matter.

The Chairperson responded that he had the same concerns, but nobody else was available from the Department of Energy to take Members through the document.

Mr Pradish Rampersadh, Content Advisor, Portfolio Committee on Energy, noted these concerns and reassured Members that in future the DoE officials would be available to lead such discussions. He had isolated some key clauses of the ISMO Bill, and would focus on them.

Background
Mr Rampersadh gave a brief background to the ISMO Bill. The Electricity Regulation Act of 2006 (the ERA) provided for private sector participation in electricity generation through a competitive process. The Minister, through the ERA, would be able to promulgate regulations on this and other matters, including capacity, outlining the procurement process and the cost recovery mechanisms. However, despite the provisions of the ERA, the South African electricity industry had a monopolistic structure regulated by the National Energy Regulator of South Africa (NERSA), which had not provided for independent purchase of power from the private sector. There was therefore a need for an independent structure, focusing on independent power generation issues such as procurement, buying of power and electricity dispatch.

Current Regulatory Framework

The ERA currently required the Regulator (NERSA) to regulate the electricity industry, including private sector participation. The ERA therefore provided for the licensing framework for generation, transmission, distribution, trading, import and export of power, among other things. All licensed entities had to comply with the conditions of the license, failing which penalties were imposed. However, the current regulatory framework did not provide for an Independent System and Market Operator (ISMO). It was still argued that an independent entity must be established to deal with systems and market operations.

Mr
Rampersadh described the chapter headings in the ISMO Bill (see attached presentation), noting that it now dealt with all aspects of the establishment, management, staffing, funding and financial accountability and transition for an Independent System Market Operator.  

Financial Implications for the State
Mr Rampersadh stated that ISMO would be funded through service charges imposed on ISMO customers. The state would be required to fund the establishment costs, listed and presented for approval to the National Treasury in a Business Case. ISMO would be listed under the Public Finance Management Act (PFMA).

In conclusion, Mr Rampersadh stated that the draft Bill had been approved by Cabinet, and inter-governmental consultation had taken place.

Summary of public submissions and DoE responses
Mr Rampersadh stated that there were 142 comments and submissions made. Many repeated other submissions, and he would focus therefore on the key matters raised under each clause.

Prof Eberhard of UCT made many comments. One had focused on clause 4, which dealt with the integration of planning, procurement, purchasing, dispatch and selling. The DoE’s response was that the aim of the ISMO Bill, together with other legislation such as the ERA, was to provide integration. ISMO would be responsible for the policy and technical part of the plan, whilst the Minister would be responsible for consultation with the public on the draft plans and for their gazetting.

Concern was also raised by Eskom about contractual issues pertaining to seconded employees, and how the requirements of the Labour Relations Act would be complied with for transferred employees. The DoE responded that it would deal with this by making regulations to the Bill that would facilitate transitional or implementation issues, to ensure enhancement and integration of functions. The DoE also conceded that there was still a need for further discussion at government to reach agreement on the form of compensation and the liabilities. Due diligence studies would assist in understanding the kind of liabilities associated with the assets.

Mr Rampersadh also drew attention to the question from RES Southern Africa, as to who would decide on the ‘acceptable levels of reliability’, as mentioned in clause 4(2)(p) of the Bill. In response, the DoE had stated that the Regulator, using the ERA, would decide on the acceptable level of reliability, noting that the Regulator developed codes that included quality of supply related matters. No further action was needed on this, in the view of the DoE.

The Chamber of Mines raised a concern about the transfer of assets from Eskom to ISMO, stating that the clause needed to be reworded, to make it clear what assets were being transferred to the ISMO. The Department responded that the clause was purposely broad in scope, and the detail could be decided on at a later stage. It was not convinced that it was possible to have exhaustive lists at such an early stage. It did not agree that there was a need to reword, but did say that provision would be made for the Minister to develop regulations related to the transfer of assets.

NERSA also raised a number of issues, one of which related to the funding. The ERA seemed to assume that there were no ways in which the termination of service to a customer could be achieved, and NERSA suggested that this should be covered in the ISMO Bill. The DoE responded that a licensee could indeed terminate services if a customer failed to honour an agreement, and therefore the ISMO Bill would not contradict the ERA. In any event, the ISMO customers were not the end-users who were contemplated in ERA. For this reason, the DoE did not believe that an amendment was needed. The matter could also be addressed through a contract between the customer and ISMO. ERA would also provide for the termination related to non-payment.

The Chairperson stated that the Committee had expected the Departmental officials to make themselves available. Since they were not present, he noted that nothing further could be achieved, and since the Members actually needed to engage with the DoE on the areas where changes had resulted from the submissions made.

The meeting was adjourned

 

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