1. Independent System and Market Operator Bill.
Progress Report on further Due Diligence incorporating transfer of assets.
18 September 2012

2. Background on ISMO

3. The Conundrum
SA urgently needs new generation capacity and, in turn, Eskom needs
Scarce Government capital to fund new projects
Tariff increases that have social and industrial impact
Additional Debt that have, as prerequisite, a viable ESI to repay them
Minimizing Government exposure requires
Mobilizing private sector funding
Private sector, in turn, needs a level playing field and clarity of rules
Minimizing inevitable tariff increases requires
Reducing overall sector risk with correct allocation of risks and reward
Better allocation of resources with correct electricity pricing signals 3 3

4. What is an ISMO? Acronym for “Independent System and Market Operator”
“Independent” = Autonomy from generation and distribution
“System” = National Electricity Transmission System
“Market” = Buying of electricity from electricity generators and Selling thereof to customers at a wholesale level
ISMO = Operator of National Electricity Transmission System who buys electricity from generators and sells it to customers at a wholesale level 4 4

5. Impact of ISMO on IPPs
ISMO is key in facilitating introduction of IPPs
Inclusiveness, Transparency, Accountability for a level play field in Planning/Dispatch
Transparency in governance and decision making
No conflicts of interest as both player and referee
Benefits of IPP participation in electricity generation with limited demand for government support
Objective: purchase/sale of electricity in the best interests of the country
Correct risk allocation and pricing

6. ISMO Functions
ISMO Bill establishes, an autonomous state owned company, mandated to execute the following functions
Development of the Generation Resource Planning
Buying of power from generation
Electricity trading at a wholesale level
System Operations
A package empowering ISMO as an “honest broker” wholesale electricity buyer, a role Eskom, as generator, can never play.
Sends out message to the market to know that responsibility to meet these obligations rests with ISMO

7. Current industry structure
ESKOM HOLDINGS SOC LTD
PRODUCTION
TRANSMISSION
RETAIL
WIRES
Gn1…
Gn1….
KSACS DX
GnX…
Gn2…
MUNICS
Imports
Imports
SYSTEM OPERATOR
National Control
Wholesaler
IPP’s
Single Buyer
RE-IPP
Dispatch
Trading (Aggregation)
MW Flow

8. Final Structure: (ISMO & Transmission separate entities )
ESKOM GX
ESKOM TX
ESKOM DX
Generation
Transmission
Distribution
“wires”
Gn1….
Gn1… DX
GnX…
Gn2…
Imports
Imports
ISMO SOC
KSACS
System Operator
National Control
Wholesaler
MUNICS
IPP’s
Single Buyer
RE-IPP
ISMO-TX agreement

9. Main Presentation

10. Introduction
Pursuant to the public consultation process on the ISMO Bill the PPC requested a due diligence to be conducted on the establishment of a TSO.
A multi-party project under leadership of the DoE has been launched, including Eskom, DPE and NT
In his letter dated 8 August 2012 the Minister of Public Enterprises authorised Eskom to participate in the due diligence and provided the terms of reference

11. Scope
Due diligence was undertaken Eskom upon publication of ISMO Bill by the Department of Energy (13 May 2011 –GG34289).
Scope of ISMO due diligence was confined to the functions in the ISMO bill (Energy Planning, Procurement, Market Administration and System operator).
The due diligence currently undertaken includes the transmission grid, assets, people, systems and all support functions. Given limited time constraints this will be a very high level impact assessment.
A comprehensive implementation plan may be required in future, before final implementation of the chosen option.

12. Scope Eskom The future SOC (ISMO or TSO) The Fiscus (for support)
Impact to be assessed on:
Eskom
The future SOC (ISMO or TSO)
The Fiscus (for support)
The due diligence will consider the following areas:
Financial
Legal and Regulatory
Technical
Human Resources
A business case for a way forward is not part of the scope of work.

13. Scenarios Two scenarios will be modelled:
Scenarios 1 & 2 will be modelled with and without the transfer of Eskom customers to the SOC.
Definition
Description
Base Case
Status Quo
Retain Eskom as a vertically integrated utility. This is the default scenario and is the base case against which the impacts of the other scenarios can be assessed. 1
Independent System Market Operator (ISMO)
Perform the duties as set out for the ISMO as contemplated in the ISMO Bill. 2
Transmission System Operator (TSO)
Perform the duties as set out for the ISMO as well as the duties of Transmission, including ownership of the transmission grid.

14. Project Plan A project plan has been developed (see spread sheet).
Target completion date is mid December 2012 to January 2013
The financial impact assessment is on the critical path
The appointment of consultants, permitting them adequate time to perform a proper job and a review by government will take the bulk of the amount of time indicated.
Consultation with principals could affect time-line
National Treasury nominated 3 people to participate in the review of Eskom’s credit rating and to provide government oversight.

15. Conclusion
The team will endeavour to shorten the project duration as far as possible, however the project plan indicates a minimum project duration of 4 to 6 months (subject to approval by principals).
Resources are now fully mobilised to perform the work and there is a high level commitment to complete as soon as possible.
The PPC chair will be provided with fortnightly progress reports, via the DoE (as project leader). Setting of dates for the next written reports and presentations will assist the team with forward planning.

16. Thank You

17. Project Plan (1)
Present time

18. Project Plan (2) Activity Responsible 1 2 3 4 5 6 7 8 9 10 11 12 13 141 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

19. Project Plan (3) Activity Responsible 1 2 3 4 5 6 7 8 9 10 11 12 13 141 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

20. Project Plan (4) Activity Responsible 1 2 3 4 5 6 7 8 9 10 11 12 13 141 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

21. Project Plan (5) Activity Responsible 1 2 3 4 5 6 7 8 9 10 11 12 13 141 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

22. Project Plan (6) Activity Responsible 1 2 3 4 5 6 7 8 9 10 11 12 13 141 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16