TRANSMISSION COMPLIANCE MONITORING FRAMEWORK FOR THE SOUTH AFRICAN ELECTRICITY INDUSTRY

Transcription

1 TRANSMISSION COMPLIANCE MONITORING FRAMEWORK FOR THE SOUTH AFRICAN ELECTRICITY INDUSTRY

2 TABLE OF CONTENTS 1. PURPOSE OBJECTIVE BACKGROUND REGULATORY INTERFACE AND COMMUNICATION CHANNELS GRID CODE CAPEX AUDITS IBR AND THE EFFICIENCY STUDY POWER QUALITY REPORTING TRANSMISSION LICENCE CONDITIONS THE NATIONAL TRANSMISSION LICENCE GRID CODE AND OTHER DIRECTIVES MECHANISMS TO COLLECT DATA AND INFORMATION ALTERNATIVE COMPLIANCE MECHANISMS REGULATORY COMPLIANCE AUDIT SELF MONITORING AND REPORTING INDEPENDENT COMPLIANCE AUDIT COMPLIANCE FRAMEWORK GENERAL TRANSMISSION BUSINESS TRANSMISSION NETWORK SERVICE PROVIDER (TNSP) SYSTEM OPERATOR (SO) TRANSMISSION SYSTEM PLANNER (TSP) GRID CODE SECRETARIAT COMPLIANCE FOLLOW-UP PROCESS INVESTIGATIONS INTERACTION

3 1. PURPOSE The purpose of this document is to outline the process the National Electricity Regulator (NER) will follow to ensure Eskom Holdings complies with the National Transmission Licence. This is a living document and the intention is to incorporate new ideas and processes into this document as further developments are taking place. 2. OBJECTIVE The prescribed framework needs to meet the following regulatory objectives: To establish a monitoring process that facilitates the measurement of compliance to licence conditions. Ensure that all non-compliances are identified, corrective measures are instituted to rectify these non-compliances, monitored and followed through. Ensure that the transmission system is reliable and power transmission is sustainable during times of an increase in power consumption. Ensure that customers and regulatory requirements are met through high reliability, and that outages or possible outages are not as a result of negligence or carelessness. 3. BACKGROUND Some of the activities the NER entered into in the past are very useful for the way forward with regard to Transmission Compliance Monitoring. A number of activities as well as their status are listed below. These activities will be developed further to enable the NER to ultimately regulate transmission services effectively. 3.1 REGULATORY INTERFACE AND COMMUNICATION CHANNELS A transmission regulatory interface was established by Eskom in One of the major contributing factors that led to the establishment of the interface was the constant interaction between NER and Eskom regarding the Grid-Code exemptions and the Transmission licence that was amended at that time. The Transmission licence was amended to enforce and accommodate the Grid Code and other industry changes that occurred since the first Transmission licence was issued. Since then the NER and Eskom Transmission s regulatory interface communicated on an ongoing basis on operational issues. Issues regarding 2

4 compliance were discussed and Eskom was made aware of the NER s requirements with regard to compliance to the licence conditions. In 2004 the first official meeting took place between the NER and Eskom through their Transmission regulatory interface. Both the NER and Eskom were represented at executive level and the NER made use of the opportunity to present to Eskom what would be expected and required from them in future. As far as official communication channels are concerned, the Managing Director (MD) of Transmission will be the channel of communication through which the NER will conduct compliance audits and also monitor Eskom s compliance to licence conditions. All correspondence will be copied to the appointed representative. 3.2 GRID CODE During 2003 the NER indicated that a Grid Code is required for the Electricity Supply Industry (ESI) and a Grid Code Advisory Committee (GCAC) was established. Special expert teams were then appointed by the Grid Code Advisory Committee to develop a Transmission Grid Code. The Grid Code was completed and the amended Transmission license enforced the Grid Code on 1 April The Grid Code is a living document and is updated on an ongoing basis. The expert teams and the GCAC are industry representative bodies established to ensure the views of the affected parties are obtained. The committee consists of NER, Eskom, Municipal, Independent Power Producers (IPP), Black Economic Empowerment (BEE) and large customer representatives. Eskom is required to adhere to all the requirements of the Grid Code except for approved exemptions and derogations. Where non-compliance is identified, Eskom will be given the opportunity to rectify, failing which appropriate action will be taken by the NER 3.3 CAPEX AUDITS Eskom is a regulated entity and would continue to be regulated by virtue of being a monopolistic business. Since they are also a National Transmission Network Service Provider (TNSP), they are responsible for making investments in the transmission business according to the approved and non-discriminatory criteria to ensure acceptable performance levels. The Transmission Investment Framework of the NER is mainly about the regulation of such investments in the transmission business. In planning transmission investments, the Transmission Business needs to develop detailed investigation reports, which contain the evaluation of 3

5 alternatives over the expected life of the assets and economic justification of the expenditure. Since the NER approves prices for transmission services, it has to take cognisance of these investments and the manner in which they were arrived at i.e. (whether it is in line with the relevant regulations, including the Grid Code). Eskom should in future as part of this compliance-monitoring framework continue submitting projects for review by the NER. 3.4 IBR AND THE EFFICIENCY STUDY The NER has acknowledged that shortcomings exist in the Rate of Return methodology (ROR) approach to regulation. The NER decided to implement Incentive Based Regulation (IBR) in transmission. The date of implementation will be communicated with all stakeholders by giving adequate advance notice. The NER believes that IBR will benefit the regulator, the licensees and the customers. The NER also embarked on an Efficiency and Capital Expenditure/Investment study of Transmission. The aim of this study is to have an understanding between the regulator and the regulated entity about levels of cost and everything else that is considered for inclusion in the determination of allowed revenue. This information is critical for the success of the IBR methodology. The setting of efficiency and technical performance targets will be done as a separate exercise, and is not included specifically in the Compliance Monitoring Framework. 3.5 POWER QUALITY REPORTING Given the nature of the South African Electricity Supply Industry (ESI), some regulatory requirements on Power Quality (PQ) are required by the NER. The NER developed a PQ Directive under the guidance of its PQ Advisory Committee. According to this PQ Directive, Transmission is expected to report annually on their performance. They are also responsible for the PQ levels delivered to all their customers and the management of network incidents and quality degradation by customers connected to the Transmission Grid. 3.6 POWER QUALITY ADVISORY COMMITTEE Power Quality Advisory Committee was established in This group was a representative body consisting of experts from the stakeholders, experts from manufacturers, licensees and academics. The primary role was to give direction and the technical knowledge on how to get the Electricity Distribution Industry (EDI) going forward in terms of power quality. After the successful development of the Power Quality Directive, the name of the working group changed to the Technical Advisory Committee, and the mandate has been expanded to cover a 4

6 wider range of industry issues and other technical related matters. This activity is chaired by the NER and ongoing meetings will take place as required. 4. TRANSMISSION LICENCE CONDITIONS 4.1 THE NATIONAL TRANSMISSION LICENCE The NATIONAL TRANSMISSION LICENCE NO. 1 (Variation 2) was issued to Eskom Holdings on 1 April Eskom must comply with all the conditions as set out in the licence including applicable laws and especially those governing the electricity supply industry including regulations, codes, directives, and guidelines as effected from time to time. The transmission licence clearly instructs Eskom to undertake specific activities. Some of these activities are: Transmission Network Service Provider (TSNP), System Operator (SO), Transmission System Planner, Grid Code Secretariat and the Integrated Resource Planner. Transmission Network Service Provider (TNSP) This activity gives Eskom Holdings the responsibility to operate and maintain the licensee s assets. It spells out that the licensee may own, operate and maintain assets on its Transmission System in accordance with the licence and that the licensee will deal with new connections in accordance with the Grid Code. System Operator (SO) This activity is to ensure system reliability, safety, stability of the power system and personnel. The licensee should also dispatch generation, set operational procedures, control the operation of the Interconnected Power System (IPS), ensure that ancillary services are acquired, that operational information is provided for the industry etc. The SO shall also facilitate the import and export of electricity in accordance with whatever agreements may exist regarding international trading. *The Wholesale Administrator It will be necessary to establish an independent administrator to oversee all of the wholesale transactions once the future Regional Electricity Distributors (REDs) are established. The administrator will assume responsibility for the following: Custodianship of all Wholesale Agreements Reading of meters Reconciliation of Meter Readings Production and Issue of Monthly Bills 5

7 Administration of all Applicable Levies (including the Distribution Network Levy) Administration of Wholesale Electricity Pricing System (WEPS) surcharge Note: The calculation of the levies will be done by the respective parties, approved by the NER and administered by the Wholesale Administrator. The Administrator will govern the transactions between the following entities:. Eskom Wholesaler RED (Transmission Use Of system (TUOS) and Energy) Eskom Wholesaler Eskom Distribution (TUOS and Energy) Eskom Wholesaler Eskom Retailer (TUOS and Energy) RED RED (Distribution Use Of system (DUOS)) RED Eskom Distribution (DUOS) RED Eskom Retailer (DUOS) The most suitable entity to perform this task at present is Eskom Transmission Division. The Eskom Transmission licence will be modified when the REDs are established to allow for this function. The function is to be ringfenced within Eskom Transmission. *Subject to amendments of Transmission licence and an agreement with the license holder. Transmission System Planner The Transmission System Planner shall plan and augment the Transmission System in accordance with the Grid Code and enter into a connection agreement with a customer where a new connection or extension to an existing connection is made. Grid Code Secretariat This function is with the licensee and is responsible for administrating the application of the Grid Code. The Grid Code Secretariat processes changes to the Code. However these recommendations are subject to NER approval. Integrated Resource Planner This function will in future move to the NER. The license will be amended accordingly. 6

8 4.2 GRID CODE AND OTHER DIRECTIVES The licensee needs to prove compliance with all of the activities as listed in the National Transmission License as well as with all the Grid Code requirements, which are described in the following codes: Preamble. Governance Code. Network Code. System Operations Code. Information Exchange Code. Metering Code. Tariff Code. Furthermore the compliance to the Power Quality Directive will also be monitored. 4.3 MECHANISMS TO COLLECT DATA AND INFORMATION Applicable conditions extracted from the license: COLLECTION AND EXCHANGE OF INFORMATION states the NER shall be entitled to collect such information from the Licensee or its customers, as it deems necessary. The Licensee is further obliged to ensure that it provides such information as is necessary to customers, to facilitate the development of a market, in accordance with the prevailing Grid Code. POWERS OF ENTRY AND INSPECTION states that the NER, or any person authorised by it in writing, may enter upon premises of the Licensee and be entitled to inspect any equipment, plant, machinery, books, accounts and other documents of the Licensee. FURNISHING OF RETURNS states that the NER may call upon the Licensee to furnish to it such periodical or other returns in such form as the NER may from time to time prescribe, and such particulars in respect of the undertaking as the NER may from time to time demand. 7

9 FAILURE TO CARRY OUT CONDITIONS OF LICENCE states that the Licensee shall not derogate from the conditions contained in this licence with reference to the conduct of its Transmission Division under this licence for the provision of any services conducted under this licence, unless it can demonstrate good cause to the NER for such derogation. The NER shall decide what constitutes good cause, by taking into account all matters pertinent to the case under consideration. In the event of non-compliance by the Licensee with any of its duties and obligations under this Licence, NER may take any or all of the following enforcement actions: Issue a notice requiring the Licensee to remedy the breach within a set period; In the event of the breach not being remedied, issue such penalties as may be permitted by legislation or regulation; Require the Licensee to deliver a report by a set date, setting out the causes of the failure to comply with its duties and obligations, and the action taken to prevent a re-occurrence of the breach; Undertake an enquiry into the failure to comply. The Licensee shall cooperate with such enquiry and failure to co-operate shall be considered a further breach of its obligations; Issue directives as to how the Licensee shall in future act so as to prevent further failures to comply; and Revoke the Licence in terms of Section 12 of this Licence. COMPLIANCE WITH LAWS AND REGULATIONS states that the Licensee shall comply with all applicable laws and especially those governing the electricity supply industry including regulations, codes, directives and guidelines as effected from time to time. The catch all provision in respect of the offences and penalties is contained in section 27(1). Section 27(1) provides as follows: 27. Offences and penalties. - (1) If any person carries on an undertaking in contravention of any provision of this Act or of the conditions of his licence or if any undertaker fails to carry out a directive of the Minister under section 15(2), or any order or decision of the regulator, or fails to comply with any condition imposed by the regulator, he shall be guilty of an offence and liable on conviction to a fine not exceeding the amount which the Minister may from time to time prescribe by regulation for each day on which the undertaking is so carried on or the failure continues. 8

10 5. ALTERNATIVE COMPLIANCE MECHANISMS There are various recognised methods through which the NER could assess compliance to the National Transmission License. Below is a summary of the options the NER considered. 5.1 REGULATORY COMPLIANCE AUDIT The NER staff will conduct audits on Transmission Division. The audits would comprise of evaluation of compliance to all licence conditions, codes and directives. The exercise will be conducted periodically, and from that assessment a report will be compiled from which the results will be communicated to the licensee. During the remainder of the period, the NER compliance team and the licensee will engage to rectify non- compliance and put appropriate remedies in place. 5.2 SELF MONITORING AND REPORTING With this method Eskom will be expected to monitor their compliance with all requirements as set out in the conditions in their licence. Eskom must prove to the NER that there exists a working mechanism and/or processes, i.e. a corporate audit function that performs a verification exercise. Eskom will then be expected to submit a report to the NER on an annual basis highlighting their compliance. NER staff will then assess the information received and enter into discussions with Eskom. Non-compliances will be investigated and the reasons for these non-compliances will be evaluated before the appropriate remedy is applied. The NER Compliance Monitoring team may then audit a selection of the findings on an ad-hoc basis. Some international regulators embark on this method for ensuring compliance monitoring. Mechanisms need to be in place to verify if compliance requirements are met. 5.3 INDEPENDENT COMPLIANCE AUDIT Independent auditors will be appointed to audit Eskom. One option is for the NER to formulate an audit scope of work and also to appoint the auditors. Another option is where the NER directs Eskom to appoint independent auditors. In this scenario the NER will formulate the audit scope of work and the NER will also approve the proposed auditor. The Essential Services Commission in Victoria, Australia follows this method of auditing, mainly in the distribution industry. 6. COMPLIANCE FRAMEWORK The INDEPENDENT COMPLIANCE AUDIT method will be used to assess compliance. Although a sound working relationship exists between the NER and Eskom Transmission Division, it is important to obtain independent input into the 9

11 process to ensure objectivity and improvement of service delivery in general. The nature of the audit is fairly complex; therefore it will be difficult to have consultants operating at arms length of the regulator. The scope of work will be difficult to be isolated from the compliance process. This form of audit will therefore require supervision and interaction between the NER and the independent auditor. Due to the extensive nature of the compliance requirement, Eskom Transmission Division should be audited only every third year on all applicable licence conditions, including codes, directives and guidelines as effected from time to time. The licensee will be informed in advance about the technical compliance audit confirming a date and scope of the audit. The NER will from time to time inform the licensee about information required concerning the audit and the content as well as the format of the reporting which will be agreed upon. The audit report findings will be forwarded to the licensee who will be given at least one month to respond to the findings. From the response the licensee will be expected to submit an action plan with target dates. Once the licensee has confirmed the findings, the NER Board will be informed of the outcome of the audit. The audit results will be used to formulate the process to be followed by the NER in enforcing compliance. During the two year period after the audit the NER will give Transmission Division sufficient time during which all non compliances will be addressed as informed by the outcome of the audit report. Based on the outcome of the audit, necessary steps and corrective action will be instituted. The NER may review the process in the light of the success of the first audit. The Licensee will be audited on all aspects of the Transmission business, however the following is highlighted to summarise the minimum requirements that the NER will address by the audit. 6.1 GENERAL TRANSMISSION BUSINESS a) Ring fencing of all operating costs of the license activities from existing accounts and report accordingly. b) Audit compliance in implementing the NER approved tariff. c) Audit on disputes and the status of the disputes that is not yet resolved. d) Audit schedules as required by the National Transmission License. 10

12 e) Quality of Supply reporting. 6.2 TRANSMISSION NETWORK SERVICE PROVIDER (TNSP) The NER will ensure auditing of compliance to the Grid Code relative to the activities of the TNSP and to compare actual performance to requirements. 6.3 SYSTEM OPERATOR (SO) The SO will be audited in ensuring compliance to the following: a) Ensure system reliability, safety, stability of the power system and personnel; b) Dispatch generation; c) Set operational procedures; d) Control the operations of the IPS; e) Acquire sufficient ancillary services; f) Provide operational information to the industry; and g) Define, on an annual basis in agreement with customers, the demarcation for the IPS. 6.4 TRANSMISSION SYSTEM PLANNER (TSP) The NER will audit compliance to the Grid Code relative to the TSP. The Licensee must: a) Submit details for connection agreements of the past year; b) Indicate long term System Development Plan as required by the Grid Code; c) Submit a list of approved projects in past year; d) Demonstrate compliance to section 7 of the Network Code. e) Submit project motivations as requested by the Regulator. 6.5 GRID CODE SECRETARIAT The NER will audit compliance to the Grid Code applicable for the Grid Code Secretariat. The Licensee must: a) Report proposed changes to the Grid Code; and b) Report actual changes to the Grid Code during the year. 11

13 6.6 LIASON MEETINGS There will be ongoing meetings as may be required during the audit and subsequent in order to implement corrective action. 7. COMPLIANCE FOLLOW-UP PROCESS Eskom Transmission will be expected to report annually on progress made with the non-compliances as identified in the audit report. Furthermore Eskom is to submit on an annual basis a report on the level of compliance with licence conditions in general. All conditions that are not been complied with shall be identified. The report format and level of detail will be determined in consultation with Eskom, and the submission should be made by 30 June of each year. The justification of the transmission capital projects will also be audited annually, to verify compliance to the Grid Code. Eskom will be requested to submit a list of projects approved in the last financial year, from which a selection will be audited. The Power Quality Report shall also be submitted on an annual basis, within three months of closure of the financial year. A report will thereafter be submitted to the NER Board on the performance. 7.1 INVESTIGATIONS The NER may embark on an investigation at the offices of the licensee if it is of the opinion that certain aspects need to be verified. The NER will give the licensee an advanced notification of minimum of two weeks for those issues selected from the detailed report for verification. 8. INTERACTION Official communication such as notifications will be sent to the Managing Director of Transmission. For normal operational issues, communication will be sent to the person nominated by Transmission Division from time to time to receive such communication. 12