Portfolio Committee on Energy: final deliberations on Independent System and Market Operator Bill [B9-2012]

Meeting report

The Chairperson stated that the meeting was the last one for the Independent System and Market Operator (ISMO) Bill. Both the A version (Portfolio Committee amendments alone) and B version (Portfolio Committee Amendments incorporated into the Bill) of the Bill would be considered together. The Department of Energy (DoE) had a few issues to highlight before they went through the Bill clause by clause.

Mr Maduna Ngobeni, DoE Deputy Director General: Energy Regulation, noted that the Portfolio Committee amendments in the A-list had been incorporated into the B version of the Bill. However the referencing in the Bill was not correct as it was aligned to the old Bill and still had to be corrected. Secondly, the A-list had been revised and omissions corrected and the document sent to the printers. However the printed A-list did not reflect these changes. He asked if the DoE should indicate the changes on the A-list throughout the presentation.

The Chairperson replied that the DoE should indicate the changes to the A-list throughout their presentation.

Portfolio Committee Amendments to ISMO Bill (Morning session)
Mr Ngobeni went through the Portfolio Committee amendments (see A-list).

Clause 1: Definitions
The following definitions were added:
- System Operations
- Transmitter

Clause 6: Subsidiaries and accountability
Clause rejected.

Clause 14: Resignation, removal from office and vacancies of Board
Mr S Mayathula (ANC) referred to the titles for Clause 13 and Clause 14, which read ‘Appointment of non-executive members of Board’ and ‘Resignation, removal from office and vacancies of Board’ respectively and asked if “members of Board” should not be added at the end of each title.

Clause 37: Intervention by Minister

Clause rejected and a new Clause inserted.

The Chairperson stated that DoE was suppose to highlight only sections which still needed to be discussed on the A-list and those drafting changes not yet introduced into the Bill. He argued that Clause 37(3)(b) was supposed to have been deleted from the A-list as per the previous meeting’s discussion.

Mr K Moloto (ANC) referred to Clause 37(1)(c) and argued that it was also suppose to be deleted. Seeing that the A-list under discussion was to indicate which changes had been effected since the previous meetings’ discussion.

Ms Vania Mahotas, DoE Executive Director, Electricity Regulation, noted the comments and stated that Clause 37(1)(c) would be deleted.

Mr Ngobeni referred to Clause 37(10) and argued that “a competent court” should be changed to “a court of law”.

Mr Theo Hercules, Principal State Law Advisor, said that according to the law, “a competent court” would refer to any court of law. Therefore the wording as it stood was not an issue which needed changing.

Mr Mayathula argued that if the “competent court” was not clearly defined, it could be assumed to mean any court.

Mr Hercules replied that it was known under current convention that “a competent court” was referring to any court of law and no other court.

Mr Ngobeni said that cross-referencing between the A-list and the Bill needed to be effected. Therefore the current numbering in the A-list was incorrect and would be changed.

Mr Hercules added that the numbering in the B-list had been changed. However, the A-list, which was solely for discussion purposes, still had errors on it. Wherever a clause was deleted, all the numbering would change.

Proposal on the way forward:
Mr Moloto asked if the Committee was going to adopt the Bill with the assumption that the changes missing in the A-list would be incorporated into it. If not, he proposed that the DoE be given an hour’s break to incorporate the final changes into the A-list, so they could present a complete Bill. The cross-referencing could be done later, but the Committee needed to approve the content before adopting the Bill.

The Chairperson agreed to Mr Moloto’s proposal and said that it was important that the Committee approved the content of the Bill as it was presented to them as accountability for the Bill rested on their shoulders.

Mr Thabang Audat, Chief Director, Electricity, DoE reiterated the current proposal for clarity and asked if the Committee’s proposal was that the DoE take a break for an hour, come back and present the Bill with all the changes effected to it.

The Chairperson responded that that was what DoE had to do.

[Break]

Once the meeting resumed, Ms N Mathibela (ANC) asked if it would not be appropriate for DoE to go through the Bill line-by-line so that the Members could pick up any mistakes.

The Chairperson responded that the suggestion would take the whole day, and was therefore not feasible.

Mr J Selau (ANC) argued that it was a waste of time to go through the Bill clause-by-clause seeing that the Members had proposed that DoE resubmit a ‘new’ Bill to the Committee after the break. As agreed, the current Bill had cross-referencing mistakes that DoE still needed to rectify. Mr Moloto agreed.

Clause 2: Objects of Act
The Chairperson referred to Clause 2(d) and said that “maintenance” should be omitted and in Clause 2(f) “schedules” should be changed to “rules”.

Clause 4: Functions of ISMO

Mr J Smalle (DA) asked for a point of clarity from the state law advisor about Clause 4(a) and (b), and asked if there was enough flexibility for the Minister to alter any contracts which might come up from Independent Power Producer (IPP) or Eskom should there be a need to change the generation capacity from one entity to another. He highlighted that the Integrated Resource Plan (IRP) operated on a two-year cycle, so this needed to be looked at.

Mr Hercules responded that there were certain functions which were to be taken from Eskom at a later stage, however of the functions stipulated in Clause 4(a), these were the functions which ISMO had to perform. The terms of the contracts would therefore determine any changes envisaged when ISMO takes over some of Eskoms’ functions.

Mr Ngobeni said that the Power Purchase Agreement (PPA) which was a contract which determined the terms of energy, would be signed by ISMO and the Minister. The Implementation Agreement establishes issues such as commitment of the IPP leader, and the contract came with a progress report on the IPP. Therefore the contract would be signed by the Minister and would accompany the government package to ISMO. Government therefore separated these contracts to cover issues that pertained to the company, and issues which pertained to government support to the company. The ISMO Bill therefore did not need to cover issues which pertained to government support.

Mr L Greyling (ID) referred to Clause 4(a) and argued that one of the functions of ISMO was to turn electricity planning into a technical matter, informed by certain policy imperatives. However, certain factors which informed the grid, such as the development of IPPs, were not adequately addressed in the Bill. He wondered if energy planning should not be migrated to ISMO, with the Minster giving the final approval. Clause 4(a) therefore needed to be strengthened so as to include energy planning.

Mr Ngobeni responded that the Minister’s mandate was to deal with policy issues, while ISMO dealt with the technical issues. ISMO would handle the modelling, which informed policy decisions. Issues such as pricing, demand and supply, fell under modelling. ISMO would therefore present its different scenarios to the DoE, who in consultation with Cabinet would make the final decision. Cabinet would then give ISMO feedback and instruction on moving forward. ISMO then implemented the agreed-upon modelling strategies for IPPs. The Minister would only come in to deal with policy scenarios.

The Chairperson said that the matter had come up in the past, and there had been much debate. However it was agreed that the final policy decision would be taken by the Minister. The finality of the IRP rests with the Minister. The modelling was currently done by Eskom, but according to the Bill, ISMO would take over that.

Mr Moloto argued that it was very difficult for Members to be working with three documents, and said that that was why it was proposed that DoE come up with one final document. The final document would indicate where changes had been made.

The Chairperson agreed with Mr Moloto.

Mr Ngobeni said that the current Bill was compiled by the printers and DoE did not have any control on how it was presented. He asked if the printers needed to be informed to indicate the changes made to the Bill.

The Chairperson responded that that would be a matter that would be dealt with at another time, the current focus was to finalise the Bill at hand.

The Chairperson indicated that “schedules and costing” be replaced with “rules and costing” in Clause (2)(t). A new paragraph was added, paragraph (2)(u).

Clause 12: Appointment of non-executive members of Board
The Chairperson said that under Clause 12(1) “within the period” would be changed to “within a specified period”.

Clause 13: Resignation, removal from office and vacancies of Board
The Chairperson noted that the Clause title had been changed to include “Members” in the end.

Ms Orateng Motsoai, Legal Counsel, Department of Public Works (DPE), said that it would not read well to say “vacancies of Board Members”.

Mr Smalle suggested that Members stayed with the current wording in the Bill which was “vacancies of Board”.

Mr Mayathula asked how the wording could be separated to indicate ‘resignations and removal’ of Members as being separate from ‘vacancies’ occurring within the Board.

Mr Selau agreed with Mr Mayathula.

The Chairperson said that the clause was a standard clause and asked the state law advisor to explain how it was worded in other Bills.

Mr Hercules suggested that Members retain the current wording. He explained that the title of the Clause was correct as it included all the issues which the Clause dealt with, in the order in which they were explained in the clause. These issues were ‘resignation’, followed by ‘removal’ and the filling of ‘vacancies’.

Clause 14: Disqualification from membership of Board and disclosure
The Chairperson referred to Clause 15(1)(c) and asked if Members were comfortable with the use of a “court of law” rather than a  “competent court”.

Mr Hercules responded that the clause was a standard provision. He argued that only a court of law could declare a person to be mentally ill or disordered. Therefore if Members agreed on referring to “a court of law” or “a competent court”, it did not make any significant difference.

Clause 18: Committees of Board
The Chairperson said that Clause 18(4) was to be omitted.

Mr Mmboniseni Murathi, Advisor, National Energy Regulator of South Africa (NERSA) referred to Clause 18(1) and said that the Board could not ‘appoint’ board committees. He suggested that the word ‘delegate’ be used instead. By using ‘appoint’ too much power was given to the Board; appointment was therefore an executive function.

Mr Mayathula asked if the Board could not appoint board committees. He argued that there was no contradiction in the clause as it stood.

The Chairperson added that ‘appointment’ was not appointing with executive authority, as the board committees would not have any decision-making authority, unless the Board stated otherwise.

Mr Murathi said that the Board was appointed with certain functions which could only be delegated to its members.

The Chairperson responded that the Board could only function by appointing committees; however these committees did not have any authority. The Board still had the final decision-making authority. He then asked about if the advisors had looked at the appointment of the Audit Committee.

Ms Motsoai responded that the King lll Report was looked at, and the Report stipulated that the Audit Committee recommended the appointment of the external auditor to the shareholders. Shareholders then appointed the external auditor at the Annual General Meeting (AGM).

The Chairperson asked if the Bill was restructured to take into account the appointment of the Audit Committee and the external auditor.

Mr Smalle suggested that a new part in the clause be inserted which would make reference to the relevant legislation.

Ms Motsoai responded that the Clause 18(1) read well. The only matter which needed further elaboration was that of the appointment of the external auditor.

Mr Mayathula asked if the Audit Committee went to the AGM.

The Chairperson responded that it was only the external auditor which was appointed at the AGM.

Mr Mayathula added that no reference to the external auditor being appointed at the AGM was made in the Bill. He suggested that it be included somewhere for reference. He also asked if the Companies Act applied to ISMO.

The Chairperson said the Companies Act recognised that the Board could appoint its own committees.

Mr Selau agreed that a provision needed to be made in the clause or in the Bill to indicate that the external auditor was appointed separately from the Audit Committee. Reference to the AGM therefore was needed.

The Chairperson responded that Clause 6 provided the guide about which laws were applicable. The Companies Act therefore provided for the appointment of the external auditor.

Mr Mayathula asked if Eskom had an external auditor.

Ms Motsoai agreed with the Chairperson that there was no need for a different provision about the appointment of the external auditor. Provision was made in the Companies Act, and Clause 6 provided guidance in this regard.

Mr Hercules said that ISMO was a state-owned company incorporated by the Companies Act. The Board therefore had the mandate to appoint its committees, whereas the Companies Act made provision for an external auditor to be appointed at the AGM.

Clause 20: Termination of employment of chief executive and chief financial officer
The Chairperson referred to Clause 20 and said that the Board was to appoint the chief executive officer, with the approval of the Minister. The chief financial officer was also to be appointed by the Board but approval from the Minister was not necessary.

Clause 31: ISMO tariffs, fees and charges
Mr Smalle referred to Clause 31(1) and said that no reference was made to the role played by NERSA in determining fairness of tariffs, fees and charges to ISMO customers. All costs that ISMO must get back from customers were determined by NERSA on an annual basis.

Mr Ngobeni responded that the section dealt with fees and tariffs. ISMO was regulated under the Electricity Regulation Act (ERA), meaning that whatever ISMO does should fall under ERA’s conditions. One condition relates to tariffs. Therefore any reference to ‘legislation’ in the Bill was a reference to ERA.

Mr Hercules added that tariffs were subject to ERA’s determination.

Mr Smalle said that what he was referring to was the actual pricing set by ISMO to cover its operational costs. The question therefore related to NERSA’s role in making sure that these costs were fair.

Mr Murathi responded that the Eskom Act did not have provision for Mr Smalle’s question. However the ERA was there to regulate how Eskom handled its pricing. ERA allows that ISMO could recover its costs.

Mr Smalle asked if the covering of return of investment by ISMO was regulated by NERSA.

Mr Murathi responded that the formula applying to all licensees was approved by the regulator.

The Chairperson said that existing legislation guided all operations. He asked if there could be gaps in current legislation in how ISMO could recover its costs.

Mr Selau said that there was a wide range of legislation which dealt with Mr Smalle’s concern. A suggestion had been made about consistency in the wording of the Bill, and that every reference to ‘court’ be changed to ‘court of law’.

The Chairperson agreed that there was adequate coverage on how ISMO should determine its fees and tariffs. Covering it again in the ISMO Bill was not necessary.

Mr Hercules asked that the legal advisors go back and discuss ‘court’, and get back to the Members, seeing that ‘court’ could refer to different levels of courts.

Mr Selau responded that the issue was not about the different levels of courts.

Mr Mayathula referred to Clause 36 and asked if ‘competent court’ would also be changed to ‘court of law’.

Mr Moloto argued that a decision needed to be taken on the matter, as the Bill needed to be finalised.

The Chairperson agreed.

Mr Molot responded that wherever it was written ‘competent court’ or ‘court of law’ it was acceptable. The debate was unnecessary.

Mr Mayathula said that the context needed to be looked at.

Clause 36: Intervention by Minister
The Chairperson noted that Adv Vanara, the Parliamentary Senior Legal Advisor, had excused himself from attending the meeting. However he had asked that Clause 36(3)(a) be reviewed in relation to Clause 36(9). Clause 36(3)(a) said that the Minister may dissolve the Board after giving the Board a reasonable opportunity to be heard. Clause 36(9) said that the Minister may dissolve the Board on good cause shown and subject to the Promotion of Administrative Justice Act (PAJA). There was therefore a need for consistency

Mr Moloto asked if the PAJA section should not be removed in the clause.

Mr Hercules said that it was not necessary to include reference to PAJA in that clause.

Mr Smalle seconded the proposal that the reference to PAJA be removed.

The Chairperson ruled that the reference to PAJA in the clause be removed.

Clause 38: Regulations and policy
Mr Smalle said that the functions of the subcommittees fell under regulations and referred to Clause 38. However he suggested that reference in Clause 18 was made to Clause 38.

The Chairperson referred to Clause 18(2)(b) and asked if these were the only areas where the Minister could make regulations.

Mr Moloto responded that the Minister made regulations pertaining to any matter covered in the Bill. However, to address Mr Smalle’s concerns, that needed to be indicated explicitly somewhere in the Bill.

Ms Motsoai responded that there was no need to explicitly make such provision in the Bill as that was covered in the Companies Act.

Mr Moloto said that currently no provision was made in the Bill to cover the Minister when he or she made policy. As it stood, the Bill restricted the Minister in Clause 38 to attend only to specific matters.

Mr Selau referred to Clause 39 and argued that the Minister could make any regulations regarding any matter relating to the functions of ISMO.

The Chairperson reiterated that the Companies Act made clear provisions on how Board committees should be established as well as their composition and authority.

Mr Selau added that since ISMO was a public company, did Clause 6 need to be retained?

The Chairperson responded that Clause 6 was very important in the establishment of ISMO.

Ms Mahotas said that Clause 38(1)(e) was omitted by mistake in the Bill, and would be added. That section therefore dealt with Mr Smalle’s concern.

Mr Smalle suggested that a new clause (e) be added to include the resolution that the Minister could make regulations regarding any matter relating to the functions of ISMO.

Mr Hercules noted that the bulk of the Bill was operating with current legislation in mind. He argued that there were certain provisions which could not be included in the ISMO Bill as they were included in standing legislation. The matter was therefore a standing provision.

Mr Selau said that ISMO as a state-owned company would not only be controlled by the Act, but there were other Acts which would be relevant to ISMO, such as the Labour Relations Act. He then asked if the Minister could make regulations based on other legislation.

Mr Hercules responded that the Minister could only make regulations based on the provisions made in all relevant legislation, with the ISMO Bill as its main base.

The Chairperson referred to Clause 38(1)(b) and asked about the splitting of contracts between energy and wheeling.

Mr Ngobeni responded that DoE had a debate on this. A proposal was made that instead of the ‘energy’ and ‘wheeling’ being used separately, the wording could be revised to indicate that wheeling was about the transportation of energy or energy transportation.

Mr Smalle agreed with the use of ‘energy transportation’ instead.

Mr Greyling asked if ‘wheeling’ could not be included in the definitions as meaning ‘energy transportation’.

Mr Mthokozisi Mpofu, DoE Deputy Director General: Electricity, responded that ISMO would be selling energy, but the networks would belong to Eskom in the current state of affairs. When contracts were entered into, and the ISMO customer entered into a contract for energy with ISMO, ‘wheeling’ could be replaced with ‘network costs’.

Mr Greyling said that the establishment of ISMO was to deal with the fact that a lot of IPPs felt frustrated by the fact that Eskom could charge them tariff charges for wheeling. The fact that networks still belonged to Eskom did not seem to solve the problem. This was a shortcoming of the Bill. He then asked if ISMO had no control over what Eskom charged IPPs.

Mr Mpofu responded that NERSA approved wheeling charges. ISMO would have nothing to do with network related issues. Tariffs would always be approved by NERSA.

The Chairperson added that the ERA amendment covered this issue.

Mr Murathi said that NERSA had just finalised the Transmission Use of Systems, meaning that there would be rules in place for the charges charged by Eskom for persons connecting to the grid.

The Chairperson said that wheeling either had to be defined or reworded in the Bill. He asked which option was to be considered.

Mr Moloto added that there was also an option for ‘network charges’.

Mr Ngobeni responded that ‘wheeling’ was equivalent to transportation. However the dictionary also gave other definitions.

Mr Smalle asked if the proposal made by Mr Greyling’s suggestion to add ‘wheeling’ in the definitions could not be adopted.

Mr Hercules responded that from a drafting perspective, a reason needed to be provided about why there was a need to include a term in the definitions. A term included in the definitions needed to be one which was used frequently throughout the Bill. However, ‘wheeling’ was only used once.

Mr Greyling said that his understanding of ‘wheeling’ was different. Wheeling had a specific meaning with regard to IPPs wheeling energy throughout the grid.

Mr Ngobeni responded that Eskom would not always be the dominant player. The DoE’s thinking was that the IPPs context should not be used as a unique situation. As the industry evolved, Eskom itself would have to separate the costs of wheeling and energy.

Mr Moloto said that the dictionary meaning and the context would need to be considered. Therefore there was no need to worry too much about the matter.

The Chairperson added that the area of ‘network costs’ was a new one to consider. Due to the splitting of the contracts, one factor which had to be taken into consideration was the impact it has on network costs.

Mr Ngobeni said that whoever was wheeling needed to apply to the energy regulator for their charges to be approved. Wheeling charges cover a lot of issues such as returns, assets and other things which dealt with the capital programme. With these in mind, the regulator would then agree or disagree. Therefore the fact the DoE referred to ‘wheeling’ did not mean that it referred to transportation of energy alone, but also to other costs such as employee costs and operational costs.

Clause 39
The Chairperson referred to Clause 39(1)(c) and Clause 39(2)(a) and asked to what ‘organ of state’ was both sections referring.

Mr Ngobeni responded that Clause 39(2)(a) explained that if there was reference in any patent or trademark to ‘an organ of state’, that reference was deemed to be referring to ISMO.

The Chairperson reiterated that DoE would take about an hour to effect all changes necessary and submit a complete Bill.

Afternoon Session

Mr Moloto said that DoE seemed to be struggling to produce the required document. He suggested that DoE present the required document the next day. He argued that there was nothing new in the document.

Ms Mathibela and Mr Greyling agreed with Mr Moloto.

Mr Radebe asked if DoE knew what was expected of them.

Mr Ngobeni agreed that the DoE should go back and work on the document. However the document which would be presented in the next day would not be the document which would go to the printers. The printers wanted the A-list document.

Mr Hercules said that the understanding was that DoE fix the A-list. However if the Members required a B-list document with all the changes indicated, DoE could produce that.

The Chairperson asked for a common understanding of what was required.

Mr Moloto responded that there was a need for one document with the changes indicated, clause-by-clause. The Committee wanted the final document which would be the final Bill. Members could not adopt the amendments alone.

The Chairperson reiterated that in the next meeting, Members wanted the final Bill document for adoption.

Mr Moloto added that the document must not have underlined or bolded words. It must be the final version.

The Chairperson agreed with Mr Moloto.

Mr Ngobeni reassured the Committee that the required document would be provided.

The Chairperson said that the document which the Committee was expecting was the final document which would be going to print - with all changes factored in.

The meeting was adjourned.

Apologies: Ms B Tinto (ANC), Ms B Ferguson (COPE)