Establishing the Independent System & Market Operator. (ISMO) 30 January 2013 2 Table of Contents Background Recap: ISMO Concept/Structure Recap on the purpose of the ISMO Bill ISMO Public Hearings Recap on issues raised Terms of Reference for the DoE committee Due Diligence Report Outcomes of the high level due diligence Issues raised by the Workgroups DD Conclusion ISMO Approved by Cabinet to be established in 3 phases. The ISMO Bill was drafted in consultation with the affected government departments. The Bill was later published in the government gazette for public comments and all comments received were considered. During the public consultation process the issue of the independence of Tx Grid, among other things, was raised. Background Recap on the Phases 1 st Phase Ring-fencing of ISMO within Eskom for the purpose of transferring the identified functions. 2 nd Phase Establishment of ISMO through legislation. ISMO to be independent of Eskom. 3 RD Phase Independence of the transmission business. Background Drafting of the Bill The Bill was drafted with the Cabinet approval in mind. There was a need for more work to inform the transfer of transmission assets. There was a need for Cabinet to pronounce on ISMO customers in a transitional manner. First phase is promulgation of legislation, second phase consideration of customer transfer. Background Issues of concern to the public The independence of the transmission assets from Eskom generation. The need to allow for willing buyer willing seller. Alignment between the ERA, NERA and ISMO Progress: ERA report currently at NEDLAC NERA report currently at NEDLAC These comments were addressed in the current Bill to a certain extent except for the independence of the Tx Background Recap: ISMO Concept/Structure. Wholesale tariff National Control TRANSMISSIONRETAILPRODUCTION SYSTEM OPERATOR Gn1 GnX WIRES Single Buyer Wholesaler KSACS Trading (Aggregation) Dispatch MW Flow DX Imports RE-IPP IPPs Current industry structure Gn1. Gn2 Imports ESKOM HOLDINGS SOC LTD MUNICS Wholesale tariff National Control TRANSMISSIONRETAILPRODUCTION SYSTEM OPERATOR Gn1 GnX WIRES Single Buyer Wholesaler KSACS Trading (Aggregation) Dispatch MW Flow DX Imports RE-IPP IPPs Interim Structure (ISMO ring-fenced) Gn1. Gn2 Imports ESKOM HOLDINGS SOC LTD MUNICS Wholesale tariff National Control Distribution Generation System Operator Gn1 GnX wires Single Buyer Wholesaler KSACS DX Imports RE-IPP IPPs Final Structure 1?: (ISMO Holdings + Transmission Holdings) Gn1. Gn2 Imports MUNICS ESKOM HOLDINGS ISMO HOLDINGS Transmission TX HOLDINGS ISMO-TX agreement MW Flow Wholesale tariff National Control Distribution Generation System Operator Gn1 GnX wires Single Buyer Wholesaler KSACS DX Imports RE-IPP IPPs Final Structure 2?: (TSO Holdings) Gn1. Gn2 Imports MUNICS ESKOM HOLDINGS Transmission TSO HOLDINGS MW Flow ISMO to be: 1. an independent Public Entity which is financially viable to deliver on its mandate. 2. an electricity wholesaler providing future opportunity for qualifying customers to purchase electricity at wholesale prices. 3. a buyer of power from electricity generators (incl Eskom GX) in a transparent manner and promote efficiencies within the electricity value chain. Recap on the purpose of the Bill 4. Planner for new generation capacity in accordance with government policy. ISMO Bill Public Hearings. The committee: Was concerned about the issues raised by the public in relation to the independence of the Tx. Instructed DoE, DPE, NT and Eskom to conduct a high level due diligence of the removal of Tx from Eskom. Requested the work to be completed latest by January Recap on issues raised Instructed the DoE as the lead department to provide a bi-weekly progress report to the PCE chair on the Tx due diligent. Key focus areas Financial Impact of transferring the Tx assets. Impact on both Eskom and ISMO. Barclays Capital was appointed to undertake this work. Legal impact was conducted by the Eskom Team, presented periodically at inter-departmental meetings. Human Resource Impact was conducted by the Eskom Team, presented periodically at inter-departmental meetings. Terms of reference for the Inter-Departmental Committee Technical impact was conducted by the Eskom Team, presented periodically at inter-departmental meetings. High level Due Diligence Report The report Covers the Financial Impact of transferring Tx on both Eskom and ISMO but there are no solutions proposed. Legal impact different contracts were reviewed and the impact associated with each contract were outlined. No solutions proposed. Human Resource Impact an overview of the labour implication was outlined and the cost implications thereafter. No solutions proposed. Outcomes of the high level due diligence Technical impact overview of the technical implication is covered by the report. No solutions proposed. It was not the scope of the working group to look at the mitigatory measures for each impact hence NT commissioned study looking at the impact outlined in the report. No solutions proposed. The report Financial Impact - only key points are covered in the presentation but the report gives more details. Legal and Regulatory impact only key points are covered in the presentation, the report gives more detail. Human Resource Impact not covered by the presentation but the report covers this point. Outcomes of the high level due diligence Technical impact not covered by the presentation but covered by the report. The report also make comparison between ISMO and TSO and there impact thereafter. Key Issues raised by the Workgroups DD. 20 Issue & Mitigation Matrix (Legal & Regulatory) 21 Issue & Mitigation Matrix (Legal & Regulatory) 22 Issue & Mitigation Matrix (Legal & Regulatory) 23 Issue & Mitigation Matrix (Legal & Regulatory) 24 Issue & Mitigation Matrix (Legal & Regulatory) 25 Issue & Mitigation Matrix (Legal & Regulatory) 26 Issue & Mitigation Matrix (Legal & Regulatory) 27 Issue & Mitigation Matrix (Legal & Regulatory) 28 Issue & Mitigation Matrix (Financial) 29 Issue & Mitigation Matrix (Financial) 30 Issue & Mitigation Matrix (Financial) 31 Issue & Mitigation Matrix (Financial) 32 Issue & Mitigation Matrix (Financial) Issues to note The working group report gives high level overview of the impact for each discipline and more detailed work is required prior to the transfer of the Tx assets to ISMO. A separate report has been attached outlining possible mitigatory measures at a high level, based on the issues raised within the working group report. The two reports acknowledge that additional work is required prior to the transfer of the Tx assets. Further discussion is required at the inter- departmental level with regards to the proposed mitigatory measures relating to the transfer of assets. Conclusion Option 1 The ISMO bill may be processed without the transmission assets whilst allowing the working group to continue resolving the issues pertaining to the transfer of Tx assets. In the process of finalising the bill, the concerns raise by Eskom should be addressed The working group may be instructed to give update on the issues that requires further work prior to the transfer of the Tx assets. The Bill may be amended at the later date if necessary to provide for the transfer of the transmission assets. Recommendations Option 2 ISMO Bill to be place on hold whilst giving to the working group more time to finalise the outstanding work. In this option, the Bill will not be finalised this year given time required to conduct a full due diligent and mitigatory measures thereafter The working group may be instructed to continue giving regular update on this work. The committee will then adopt a bill which takes into account Tx assets. Recommendations Thank You