Trans African Energy Pty, System and Market Operations - An Overview of Governance and Adminstration

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System and Market Operations

An overview of international experience

in governance and administration

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slEconomics is a boutique economics consulting firm providing specialised

advice to governments, regulators and corporate clients in the area of utilities

and infrastructure. We are based in Sydney Australia and have an international

network of associates to bring global experience to local initiatives.

Contact details

Dr Stephen Labson

[email protected]


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TABLE OF CONTENTS

1 INTRODUCTION AND OVERVIEW 1

1.1 Overview of our study 2

2 TRANSMISSION & SYSTEM OPERATOR 5

2.1 France – RTE 5

3 INDEPENDENT SYSTEM OPERATOR 11

3.1 California ISO 11

3.2 Australia - AEMO 12

4 CENTRAL BUYER / IPP ADMINISTRATOR 17

4.1 Mexico single buyer model 17

4.2 Thailand single buyer model 21

4.3 California’s power purchase administrator 22

5 ENERGY PLANNING 26

5.1 Thailand energy policy and Power Development Plan 26

5.2 Mexico Works & Investment Program of the Electric Sector 32


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1 Introduction and overview

When considering governance and administration of the electricity system and

market operator one finds a number of structural forms in which the basic

activity is carried out – and often bundled with related functions of transmission

operation, central buyer/IPP administrator and energy planning.

The four stylised models shown in the picture below are commonly referred to

when looking at electricity industry structure. However, it is recognised that this

is more of a spectrum rather than discrete and mutually exclusive set of

models. Nevertheless, one needs to put some structure to the matter at hand,

and we hope this provides a good place for departure.

To provide some sense of where one might head in examining these issues

(and for example only) a Transmission & System Operator might also carry out

Central Buyer functions, and have an important role in Energy Planning.

Alternatively, there are examples seen globally where there is full separation

between the Transmission Operator; System Operator; Central Buyer; and

Energy Planning. Needless to say, there are a number of permutations in-

between these polar cases.

Moreover, what we have so far simply called a “Central Buyer” is also more

accurately assessed in terms of a spectrum of models, perhaps ranging from

a literal single buyer monopoly; a central buyer in parallel to a competitive

market; a market operator or aggregator, through to administration of power

procurement and/or legacy contracts as an agent to the power purchaser.

What we have attempted to do in this briefing is to highlight various aspects of

governance and regulation pertaining to these stylised models by way of

providing selected international examples and case studies. The short case

studies we provide here are simply meant to provide some indication of key

issues that would need to be addressed, and provide a starting point for the

detailed analysis, and administrative and regulatory design that would need to

be carried out once one has determined the preferred model based on

comparative analysis of the options at hand.

We have tended to use examples from the same country across a couple of

functions (i.e. Thailand Single Buyer and Energy Planning; and California’s

Transmission & System Operator

Independent System

Operator

Central Buyer / IPP

Administrator

Energy Planner


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ISO and Power Purchase Administrator as they can shed some light on

linkages between the various functions and models providing a more holistic

view (to the degree we have had time to bring out these points).

Finally, we wish to note that we have taken large excerpts from external

sources and have attempted to attribute those references. However, given the

severe constraints on time to complete this study we have perhaps not been

as rigorous in this regard as we would normally be. We will be happy to provide

more detailed citations of reference documents and sources of information as

time allows.

1.1 Overview of our study

While we do not wish to imply that there is a single ‘finding’, or set of

recommendations stemming from our selected review of international

experience, we hope it is help to provide in a consolidated format some of our

broad thinking as related to governance and regulation of the activities

considered here.

Transmission & System Operator

Countries such as France and the UK have created separate Transmission &

System Operators (TSOs) from what was previously a state owned vertically

integrated monopoly structure. In the case of the stand-alone TSO, high

voltage transmission networks and systems operations are combined in one

entity with its own governance and regulatory structures. In this regard, primary

governance structures for a TSO are usually cast within fairly standard

corporations law pertaining to the country at hand (whether state owned or

private) in line with ownership of significant transmission assets.

Given the significant role a TSO plays within the electricity supply industry

(ESI) detailed sets of rules and regulations apply. Where some level of cross

ownership is allowed between the TSO and other segments of the industry (i.e.

as in France where the parent company is also a generator) rules and

regulations pertaining to non-discriminatory access and dispatch become of

particular importance to mitigate any incentives the TSO might have to favour

related companies over competitors in that segment of the market.

Independent System Operator

For the purpose of this study we look at what is commonly referred to as an

Independent System Operator (ISO). In practice however, ISO can vary

significantly in roles and responsibilities and might carry out a range of

functions such as:

Market operator / balancing market

Ancillary services and reserve power purchases

Energy planning (e.g. provision of information in regard to needed

investment).


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Moreover, there are unique aspects to consider in design of regulatory

approaches for revenue allowances for an unbundled ISO are that:

A stand alone ISO does not typically have a large fixed asset base (i.e.

RAB). Following from the point above, the balance sheet of an ISO

might not be substantial, although its financial risk might be

considerable. A reserve account and other such features might be

needed to address prudential requirements. This would become

considerably more important if Single Buyer responsibilities were rolled

into the ISO.

If the cost of ancillary services is attached to the ISO (which is often the

case) a large proportion of total costs will be driven by external and

potentially volatile costs necessitating a more direct recovery of actual

costs of operations than might be found in a TSO.

The specific activities carried out by ISO will vary across jurisdictions.

Many have Market Operations responsibilities, and some might share

some system control responsibilities with regional entities.

The ISO would often have a broader base of governance, perhaps with cross

industry representation, and might be set up as a ‘not-for-profit’ organisation,

or as an entity of government.

From a broader perspective many of the scope of rules pertaining to the TSO

would be applicable to the ISO (excepting for the way in which the revenue

allowance and funding is managed as discussed above).

Central Buyer / IPP Administrator

What discussed in the beginning of this section, what we refer to generally as

a “Central Buyer / IPP Administrator” in fact covers a spectrum of models

perhaps ranging from a:

Single Buyer – where literally applied provides a statutory monopoly on the

purchase and sale of power. This is often bundled with the role of generator,

and TSO, perhaps with sales to separate distribution business.

Central Buyer – that might have significant power procurement

responsibilities, but not a complete monopoly in regard to power purchase and

on-sale.

Market operator or aggregator – e.g. providing balancing services to a

competitive wholesale market, or aggregating bulk power supplies and costs

in sale to suppliers.

IPP traders / administrators - that are responsible for:

trading and administration of pre-existing (legacy) PPAs as an agent to

the counterparty to the PPA, or in some cases with counterparty

liability; and/or

responsibility for procurement of new power purchases, also with or

without direct financial ownership of PPAs.


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From a governance and regulatory standpoint, perhaps the key differentiator

of the stand-alone Buyer is that it may have significant financial exposures as

counterparty to power purchase agreements (PPAs) but a limited balance

sheet. The Buyer will usually have significant capital at risk and will need to

satisfy prudential requirements in the purchase of power. In such cases

substantive reserve accounts may need to be provided for to fill this role.

Moreover, the Buyer activity is not generally conducive to simple fixed revenue

or price cap type regulatory models often applied to other segments of the ESI.

Theoretically, one might try to set some benchmark purchase price and

incentivise the Buyer to outperform against that benchmark, but accurately

defining such benchmarks will in most cases be problematic. It will be

impossible to determine if under or over performance against benchmarks is

due to management’s actions; driven by purely external factors; or simply due

to error in setting the initial benchmark rate placing it in a financially

unsustainable position. We provide further discussion of this matter in the later

part of this section.

Energy planning

The energy planning role and associated governance structures are tied

directly to the nature of the market in a given jurisdiction.

Decentralised competitive electricity markets typically tend towards less

prescriptive planning structures, whereas centralised markets tend

towards more prescriptive regimes.

Governance of planning agencies in markets primarily served by private

sector suppliers is often broad based - inclusive of industry players,

customers and government; whereas planning in state-owned electricity

supply industries is more often overseen by governmental bodies.

The scope for competition also drives approaches to planning and

governance across the supply chain.

o For example, in countries where there are competitive wholesale

electricity markets the role of generation planning is largely

addressed by way of information disclosure, and where there is

centralised generation investment, it tends to be limited to

procurement of short to medium term reserve capacity.

o Alternatively, transmission and distribution investment and

planning is not often carried out in a competitive environment

(although there are counter examples) and more centralised and

prescriptive investment and planning regimes apply to these

segments of the industry.


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2 Transmission & System Operator

Countries such as France and the UK have created separate Transmission &

System Operators (TSOs) from what was previously a state owned vertically

integrated monopoly structure. In the case of the TSO, high voltage

transmission networks and systems operations are combined in one entity with

its own governance and regulatory structures. In this regard, primary

governance structures for a TSO are usually cast within fairly standard

corporations models (whether state owned or private) in line with ownership of

significant transmission assets. As will be explained in a section that follows,

this contrasts to the Independent Operator (ISO) which would often have a

broader base of governance, perhaps with cross industry representation, and

might be set up as a ‘not-for-profit’ organisation.

However, given the significant role a TSO plays within the electricity supply

industry (ESI) detailed sets of rules and regulations apply. Where cross

ownership is allowed between the TSO and other segments of the industry

rules and regulations pertaining to non-discriminatory access and dispatch

become of particular importance to mitigate any incentives the TSO might have

to favour related companies over competitors in that segment of the market.

We provide below an overview of the TSO established in France to highlight

some of the key issues of governance and regulation. (We note that greater

detail on rules pertaining to the system operator function of the TSO will be

provided in our section on ISOs).

2.1 France – RTE1

The French power sector has traditionally been dominated by Electricité de

France (EDF) one of the world’s the world’s largest utilities with revenues of

some €64 billion, operating a diverse portfolio of 120,000+ megawatts of

generation capacity in Europe, Latin America, Asia, the Middle-East and Africa.

EDF held a monopoly in the distribution of electricity in France until 1999, when

the first European Commission directive to harmonize regulation of electricity

markets was implemented. Generation in France is still dominated by EDF,

which holds around 85% of the generation capacity, but a wholesale market

and open access provisions allow for market participation by competitors. The

four main alternative generators operate a total generation capacity of 6%, with

the remaining 9% belonging to a large number of small-sized generators and

industrial companies.

Around 60 operators take part in trading activities, which mainly consist of

carrying out arbitrage transactions in the various wholesale market segments.

These operators are mainly subsidiaries of European energy groups, but there

are also banks present in the field.

Until November 19, 2004, EDF was a government corporation, but it is now a

limited-liability corporation under private law (société anonyme). The French

government partially floated shares of the company on the Paris Stock

Exchange in November 2005, although it retains roughly 80% ownership and

is required that the government retains at least 70% of shares.

1 Source: Rte web site


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2.1.1 Establishment of the TSO – legal separation of RTE from EDF

High voltage transmission and system operation is carried out by RTE, a

subsidiary of EDF. The Law of 9 August 2004 states that RTE as the network

and system operator:

retains responsibility for maintaining, operating and developing the

electricity transmission system,

becomes the owner of its industrial assets, and

is a company whose capital continues to be held entirely EDF, the State

or other firms or institutions belonging to the public sector.

Suppliers of electricity to end consumers are composed of incumbent suppliers

(EDF and 166 local distribution companies) and 26 alternative suppliers, 9 of

which propose commercial offers to small-sized sites, 10 to medium-sized

sites, and 25 to large-sized consumption sites.

RTE Board structure

RTE is a limited company with an Executive Board and a Supervisory Board.

In accordance with its statutes, the Executive Board is the only body competent

to carry out operations relating directly to the operation, maintenance and

development of the public electricity transmission grid, under the missions

entrusted to the company.

Executive Board

The Executive Board is made up of four members, each appointed for a period

of five years.

The Supervisory Board

It is made up of 12 members, each appointed for a five-year mandate: Six

representatives of the shareholder EDF, two representing the State, and four

representing employees.

2.1.2 Rules and regulation facilitating non-discriminatory access

Given that RTE is a subsidiary of EDF, a robust set of rules and regulations

are essential component of non-discriminatory access and use of the network

within the context of the European Union. The European directives of 1996,

1998 and 2003, transposed into French law, organised the opening of the

electricity and gas markets to competition by providing for:

the free choice of the electricity and gas supplier for customers;

freedom of establishment for producers and suppliers;

a right to non-discriminatory, transparent access available at a fair price,


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for all users of distribution and transmission grids and networks, LNG

terminals and underground natural gas storage facilities.

To ensure the fulfillment of these three major principles, the directives have

made the independence of the transmission and distribution system operators

mandatory (for distributors serving more than 100,000 customers) with regard

to the production and trading activities of integrated companies, but without

demanding grid or network ownership unbundling. These markets are

organised today between activities open to competition (production, trading

and supply of all consumers) and monopoly activities which are nevertheless

regulated (transmission and distribution, LNG terminals, natural gas storage

facilities).

In reconciling the needs of the French market with the construction of the

European internal market France established Commission de régulation de

l'énergie (CRE). The role of the CRE is to:2

“Guarantee the right of access to public electricity grids and natural

gas networks and facilities. To perform this mission, CRE:

• proposes tariffs to the government for the use of the electricity and gas

transmission and distribution systems, and of the LNG terminals;

• settles disputes pertaining to the access and use of the public electricity

grids and natural gas facilities, and imposes penalties on operators or users

of electricity or gas infrastructures for failing to meet contractual obligations.’

Ensure the satisfactory operation and development of electricity grids

and gas networks, as well as the independence of their operators. To

perform this mission, CRE:

• endorses the investment programmes of the transmission system

operators, both for electricity and for natural gas;

• approves the principles of legal and account unbundling between

transmission, supply and distribution activities, and monitors compliance

with codes of good conduct and the independence of the gas and electricity

system operators;

• supervises the organisation of the balancing mechanism on the electricity

grids and the satisfactory balancing of the natural gas transport networks;

• in close cooperation with the regulators of all the Member States, approves

the methods for calculating and allocating interconnection capacity.

Contribute to the construction of the European internal market for

electricity and gas, by the harmonisation of the rules of access to the

grids and networks and the optimization of interconnections between

domestic markets. To perform this mission as a member of ERGEG,

CRE:

• participates in European deliberations pertaining to regional “electricity”

and “gas” initiatives, designed to achieve progressive breakthroughs in

terms of the management of exchanges at cross-border interconnections

and the emergence of European regional markets;

2 Source: CRE web site


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• monitors the coherence and consistency of regional initiatives, a

prerequisite for market integration;

• participates in drawing up the operating rules of the European internal

market.

Overseeing transactions conducted on wholesale markets, organised

or not, for electricity and natural gas, as well as cross-border

exchange. To perform this mission,

CRE exercises oversight combined with powers of enquiry and

sanction, alongside the Competition Authority.

Contributing to the implementation of support mechanisms for

electricity generation and the supply of electricity and gas. To perform

this mission, CRE:

• implements the calls for bids issued by the French Minister for Energy in

connection with the multiannual programming of energy generation

investments;

• issues consultative opinions on retail tariffs for electricity generated by

cogeneration or from renewable energies;

• manages the compensation mechanism for suppliers assuming public

service duties (assessment of the costs to the suppliers and associated

contributions, collection and compensation of suppliers bearing costs in

connection with the French Deposit and Consignment Office (Caisse des

Dépôts). These charges result:

• for electricity, from the support mechanisms for generation by

cogeneration and from renewable energies (calls for tender, purchase

obligation), from tariff equalisation in favour of customers of non -

interconnected areas and from mechanisms set up for persons in a

vulnerable situation;

• manages the mechanism for compensation of suppliers bearing costs

connected with the French transitional regulated tariff for balancing

markets.

2.1.3 Transfer capacities – outages and system constraints3

One of the more significant matters related to non-discriminatory access is in

regard to how transmission capacity is allocated to users when there are

system constraints and financial transfers (payments or charges) that would

be made in such cases.

In view of the geographical situation within the European network, RTE is

called upon to a considerable extent by the players of the market to set up

exports or imports between France and the interconnected neighbouring

countries. Demand has increased and this has resulted in the growth of cross-

border exchanges while, at the same time, the environmental regulations make

it more difficult to build new transmission facilities.

This situation tends to create congestion phenomena, sometimes leading RTE

3 This section is taken from material on the RTE web site


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to limit electricity transfers on some interconnections, whereas the play of the

market may result in exchange volumes that are higher than the transmission

capacity available. To cope with these difficult situations, RTE can either limit

the access to the network or adapt the generation programmes so as to provide

additional capacity whenever possible. In this case, the customers who have

access to the network may bear an extra congestion price which serve to

compensate for the costs of these adaptation of schedules.

Considering the fact that the physical characteristics of the network limit the

interconnection capacity, RTE has set up conditions for the allocation of this

capacity to meet the requests in a transparent and non-discriminatory way.

These conditions have been set up, either in co-ordination with the

neighbouring TSO's (England, Belgium and Italy), or unilaterally when the

context has not yet allowed or required a bilateral agreement with the

neighbouring TSO's (Germany, Switzerland and Spain).

To guarantee a good degree of transparency and ensure that all parties fully

understand the process by which flows are reconstituted, RTE publishes the

following data regarding the calculation of imbalance settlement and

reconciliation:

National reference load curve.

This curve corresponds to net extraction by the Public Distribution Network

on the Public Transmission Network, calculated on the basis of metering

data measured at RTE HV/MV delivery point substations.

National Profiling Imbalance.

This curve corresponds to the difference between net extraction of Public

Distribution Network (PDN) on the Public Transmission Network metered

by RTE and aggregated Balance Responsible flows on PDN calculated by

Grid Operators by the way of remote metering, profiling and estimating

losses.

National alignment coefficient.

This curve corresponds half-hour by half-hour points to the coefficient that

correct the consumption estimated by the Grid Operators on Public

Distribution Network for all Balance Responsible flows in order to adjust her

to the real level.

National Residual load curve, financial amount of residue, annual energy

consumed nationally as estimated by profiling.

During temporal reconciliation, there exists an imbalance during the half-

hourly period, between the national reference load curve and the sum of the

load curves allocated to the balance responsible entities within the Public

Distribution System. This imbalance corresponds to the lack of precision

with regard to the profiles. This imbalance, calculated over a period of a

year, constitutes the load curve for the national residue. Its annual energy

is nil by construction.

Imbalance settlement price

http://clients.rte-france.com/lang/an/visiteurs/vie/vie_reconst_flux_C10.jsp





http://clients.rte-france.com/lang/an/visiteurs/vie/mecanisme/jour/prix.jsp


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For a given half hour, if the balancing mechanism trend is the reverse of the

results of the Balance Responsible, the Settlement Price of the Negative

Imbalances (resp. Positive) is the Average Weighted Price of the Balancing

carried out Upwards (resp. Downwards) over this same period, adjusted by

a multiplier the value of which is : 1 + K. Otherwise, the Powernext price is

the one that is applied. As from July 1st 2006, the coefficient K is equal to

0.05.

The Physical Consumption of the Balance Responsible Entity is subject to

a monthly payment by the Balance Responsible Entity to RTE.

From February 1st, 2009, the price charged is 0,11 €/MWh.

2.1.4 The Balancing Mechanism

The power network is constantly affected by a range of unforeseen factors that

can disrupt the balance between the supply and demand for electricity. These

are mainly compensated for by automatic control systems, which are installed

directly at generating facilities. However, some such unforeseen factors can

be major (e.g. the sudden shutting down of a generating facility). To re-

establish the balance between supply and demand for electricity, RTE needs

a real-time backup energy reserve. It obtains this reserve by calling upon

generators and consumers connected to the network to modify their operating

schedule at short notice. This is the role of the "balancing mechanism"

introduced by RTE in 2003.

Via a system of upward and downward offers, market players with flexibility

reserves give details of the technical and financial conditions in which RTE can

call upon them to adjust their consumption. RTE selects these offers according

to their price and the technical restrictions indicated by the players

concerned.This mechanism also enables RTE to ease "congestion" on the

network, when the transmission of electricity is held up by bottlenecks. This

can occur, for example, when a power line trips out, if the capacity of adjacent

lines is insufficient to carry the electricity.

The creation of the balancing mechanism in France was a major step on the

road to building the European internal electricity market. It has since been

extended to cover generators outside France (Switzerland, Spain and the UK).

It works according to market rules, and helps to guarantee the security of the

power system. As of 31st December 2004, 18 balancing players were

declared and the volume called by RTE reached 12 TWh (7.8 TWh downward

and 4.2 TWh upward). To give players greater visibility and to help them

understand how the system works, every day RTE provides them with a range

of information intended to enable them to make offers (operating margins,

balancing prices, etc.). In addition, RTE publishes historical records of all the

data validated since the mechanism was launched.


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3 Independent System Operator

For the purpose of this study we look at what is commonly referred to as ISOs.

In practice however, system operators might carry out a range of functions

such as:

Market operator / balancing market

Ancillary services and reserve power purchases

Energy planning (e.g. provision of information in regard to needed

investment).

Moreover, there are unique aspects to consider in design of regulatory

approaches for revenue allowances for an unbundled ISO are that:

A stand alone ISO does not typically have a large fixed asset base (i.e.

RAB). Following from the point above, the balance sheet of an ISO

might not be substantial, although its financial risk might be

considerable. A reserve account and other such features might be

needed to address prudential requirements. This would become

considerably more important if Single Buyer responsibilities were rolled

into the ISO.

If the cost of ancillary services is attached to the ISO (which is often the

case) a large proportion of total costs will be driven by external and

potentially volatile costs necessitating a more direct recovery of actual

costs of operations than might be found in a TSO.

The specific activities carried out by ISO will vary across jurisdictions.

Many have Market Operations responsibilities, and some might share

some system control responsibilities with regional entities.

3.1 California ISO4

The California ISO (CAISO) is a not-for-profit public benefit corporation brought

on line in 1998 when the state restructured its electricity industry, and is

responsible for the operation of the long-distance, high-voltage power lines that

deliver electricity throughout most of California (the California grid) and to

neighboring control areas and states, as well as with Canada and Mexico. The

Board of Governors is composed of five members appointed by the California

Governor and confirmed by the California State Senate.

CASIO operates day-ahead and hour-ahead markets for transmission

congestion and ancillary services, operates a real-time market for balancing

energy, and administers reliability-must-run (RMR) contracts. RMR contracts

allow the CASIO access to power at contractually agreed-upon prices from

generation units which, due to their location and other factors, must be

operated at certain times to ensure the local transmission reliability. CAISO

also performs a settlement and clearing function by collecting payments from

users of these services and making pass-through payments to providers of

such services. Any market defaults are proportionately allocated to market

4 Sourced from CAISO annual report 2008


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participants based on net amounts due them for the month of default.

CAISO’s principal objective is to ensure the reliability of the California grid,

while fostering a competitive wholesale marketplace for electrical generation

and related services in California. CAISO operates pursuant to tariffs filed with

the Federal Energy Regulatory Commission (FERC).

3.1.1 Revenue requirement

CAISO charges a Grid Management Charge (GMC) to market participants to

recover the company’s operating costs, capital expenditures and debt service

costs, and to provide for an operating reserve. GMC revenues are recognized

when the related energy transactions take place. All of the company’s

receivables are due from entities in the energy industry, including utilities,

generation owners, financial institutions and other electricity market

participants. For the years ended December 31, 2008 and 2007, approximately

54 percent and 53 percent, respectively, of GMC revenues were from two

market participants. In the event of a payment default by a market participant,

GMC revenues have a priority claim against any market-related receipts, which

means that even if an entity defaults on a GMC invoice, the CAISO receives

the full GMC so long as sufficient funds were received on market invoices.

The 2008 and 2007 unbundled GMC rates were comprised of the following six

service categories: core reliability services; energy transmission services;

forward scheduling; congestion management; market usage; and settlements,

metering and client relations.

An operating reserve is calculated separately for each GMC service category

and accumulates until the reserve becomes fully funded (at 15 percent of

budgeted annual operating costs for each rate service category). In

accordance with the tariff, any surplus operating reserve balance is applied as

a reduction in the revenue requirement for the following year. These operating

reserve amounts are included in the net assets of the company. The tariff

requires GMC rates to be adjusted not more than once per quarter in the event

that projected annual billing determinant volumes differ by more than five

percent from those projections used to set rates.

The following table summarizes the pro forma bundled GMC rate based on the

budgeted revenue requirement divided by the estimated control area

transmission volume.

2008 2007 2006

Pro forma GMC rate per MWh . . . . . . . . . $ 0.755 $ 0.760 $ 0.724

Estimated volume in millions of MWh . . . 253.70 250.00 249.20

3.2 Australia - AEMO5

The Australian Energy Market Operator (AEMO) was established to manage

5 AEMO, An Introduction to Australia’s National Electricity Market, 2009.


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Australia’s National Electricity Market (NEM) and gas markets from 1 July 2009

by consolidation of various pre-existing entities. AEMO’s core functions cover

the following areas:

• Electricity Market - Power System and Market Operator

• Gas Markets Operator

• National Transmission Planner

• Transmission Services

• Energy Market Development

Created by the Council of Australian Governments (COAG) and developed

under the guidance of the Ministerial Council on Energy (MCE). AEMO

operates on a cost recovery basis as a corporate entity limited by guarantee

under the Corporations Law. Its membership structure is split between

government and industry, respectively 60 and 40 percent, with this

arrangement to be reviewed after three years of operation. Government

members of AEMO include the Queensland, New South Wales, Victorian,

South Australian and Tasmanian state governments, the Commonwealth and

the Australian Capital Territory.

A key aim of AEMO is to provide an effective infrastructure for the efficient

operation of the wholesale electricity market, to develop the market and

improve its efficiency and to coordinate planning of the interconnected power

system. AEMO’s primary responsibility is to balance the demand and supply

of electricity by dispatching the generation necessary to meet demand.

AEMO’s key financial objective of being self-funding is achieved through the

full recovery of its operating costs from fees paid by market participants.

With respect to the electricity market AEMO has two core roles:

• Power System Operator

• Market Operator

AEMO manages the market and power system from two control centres in

different states. Both centres operate around the clock, and are equipped with

identical communication and information technology systems.

The entire NEM, or individual regions within it, can be operated from either or

both centres. This arrangement ensures continuous supply despite the risks

posed by natural disasters or other critical events, and provides AEMO with

the flexibility to respond quickly to dramatic changes in the market or the power

system.

3.2.1 Governing legislation

When the NEM commenced, a National Electricity Code provided guidelines

for how the market was to operate. These guidelines were developed following

comprehensive consultation and extensive trials conducted between

governments, the electricity supply industry and electricity users as part of a

government-driven deregulation and reform agenda.

In June 2005, the National Electricity Code was replaced by the National

Electricity Law and Rules. The Law and Rules were recently amended to


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replace NEMMCO with AEMO as the national electricity market and system

operator. AEMO’s functions are prescribed in the National Electricity Law while

procedures and processes for market operations, power system security,

network connection and access, pricing for network services in the NEM and

national transmission planning are all prescribed in the Rules.

3.2.2 Key responsibilities of AEMO

AEMO is required to operate the power system efficiently and ensure agreed

standards of security and reliability are maintained.

Security of Supply

AEMO’s highest priority as power system and market operator of the NEM is

the management of power system security. Security of electricity supply is a

measure of the power system’s capacity to continue operating within defined

technical limits despite the disconnection of a major power system element,

such as a generator or interconnector. The maintenance of power system

security ensures the power system is operated in a way that does not overload

or damage any part of it or risk overload or damage after a credible event.

Power System Reliability

Reliability is a measure of the power system’s capacity to continue to supply

sufficient power to satisfy customer demand, allowing for the loss of generation

capacity. The shortfall of supply against demand is referred to as unserved

energy. Reliability standards are established in the NEM that determine that

unserved energy per year for each region must not exceed 0.002 percent of

the total energy consumed in that region that year.

Supply Reserve

The power system is required to be operated at all times with a certain level of

reserve in order to meet the required standard of supply reliability across the

NEM. Calculation of the minimum reserve requirements recognises reserve

sharing in a national context. The minimum reserve levels across the different

NEM regions are listed in the Electricity Statement of Opportunities on the

AEMO website.

Managing Security and Reliability

In all but extraordinary circumstances, market forces keep supply and demand

in the NEM in balance. However, during periods of supply shortfall when

system security or reliability of supply is threatened, the Rules endow AEMO

with authority to use a variety of tools to restore supply and demand balance.

The tools include demand side management, the power of direction, load

shedding and reserve trading.

Security and Reliability Directions

AEMO has the power to direct registered generators into production when a

supply shortfall is expected and some generators are known to have withheld

some of their total capacity from the market. AEMO only uses this power of

direction to protect power system security or supply reliability.


15

Load Shedding

In the event that demand in a region exceeds supply and all other means to

satisfy demand have been implemented, AEMO can instruct network service

providers to shed some customer load. This action is only taken when there is

an urgent need to protect the power system by reducing demand and returning

the system to balance. Load shedding involves a temporary suspension of

supply to customers in a specific part or region of the NEM where system

security is at risk.

During a period of load shedding, supply is withdrawn from those NEM regions

affected by the shortfall in proportion to the demand levels at the time the

shortfall began. The proportioning process determines the amount of load

shedding for each affected region up to the point where interconnectors are

operating to their maximum transfer capacity. Once the interconnectors reach

their maximum transfer capacity, the importing region must bear any additional

load shedding locally.

By implementing load shedding, AEMO protects the integrity of power system

operation so that widespread and long-lasting blackouts are avoided. It also

ensures that the hardship caused by a sustained supply shortfall is shared in

an equitable fashion.

Reserve Trading

When there is sufficient notice of an upcoming shortfall of supply that threatens

to compromise minimum reserve margins, AEMO may tender for contracts for

electricity supply from sources beyond those factored into AEMO’s usual

forecasting processes. At these times, emergency generators and other

generators connected directly to the distribution network who submit tenders

may enter contracts to boost supply in the NEM so the widespread supply

interruptions that may otherwise have occurred can be avoided. In the same

way, some electricity consumers may offer for a financial consideration to

decrease their demand at times of supply shortfall so that demand and supply

are brought into balance.

3.2.3 Revenue requirement

AEMO operates on a break-even basis by recovering the costs of its

operations by levying fees on industry participants. This is done on the basis

of proposed costs of operations with funding for fixed assets on a needs basis

and levying fees to market participants. The fees comprise both fixed and

variable components that take into account the type of participant and their

share of trade in the market. The structure of fees payable to AEMO is

determined periodically, while the actual fee levels are set annually.

More specifically, AEMO’s annual revenue allowance/budget is based on:

operating costs;

a depreciation charge recovering capital expenditures;

a charge for finance costs of borrowings; and

amortisation of establishment costs


16

In accordance with its Members’ Agreement, AEMO produces a Statement of

Corporate Intent (SCI) each year providing details of the areas for focus in the

upcoming year. The SCI also includes its budgeted revenue requirements. In

this case AEMO’s governance structure acts as a self regulating device, with

Members’ and users’ interest meant to be addressed through representation

on the board of directors.6

6 We note that this form of ‘self regulation’ even for not-for-profit entities is not universal. For example, in the US, RTO fees are regulated by FERC under typically complex US rules and regulations.


17

4 Central Buyer / IPP Administrator

What we refer to generally as a “Central Buyer / IPP Administrator” in fact

covers a spectrum of models perhaps ranging from a:

Single Buyer – where literally applied provides a statutory monopoly on the

purchase and sale of power. This is often bundled with the role of generator,

and TSO, perhaps with sales to separate distribution business.

Central Buyer – that might have significant power procurement

responsibilities, but not a complete monopoly in regard to power purchase and

on-sale.

Market operator or aggregator – e.g. providing balancing services to a

competitive wholesale market, or aggregating bulk power supplies and costs

in sale to suppliers.

IPP traders / administrators - that are responsible for:

trading and administration of pre-existing (legacy) PPAs as an agent to

the counterparty to the PPA, or in some cases with counterparty

liability; and/or

responsibility for procurement of new power purchases, also with or

without direct financial ownership of PPAs.

From a governance and regulatory standpoint, perhaps the key differentiator

of the stand-alone Buyer is that it may have significant financial exposures as

counterparty to power purchase agreements (PPAs) but a limited balance

sheet. The Buyer will usually have significant capital at risk and will need to

satisfy prudential requirements in the purchase of power. In such cases

substantive reserve accounts may need to be provided for to fill this role.

Moreover, the Buyer activity is not generally conducive to simple fixed revenue

or price cap type regulatory models often applied to other segments of the ESI.

Theoretically, one might try to set some benchmark purchase price and

incentivise the Buyer to outperform against that benchmark, but accurately

defining such benchmarks will in most cases be problematic. It will be

impossible to determine if under or over performance against benchmarks is

due to management’s actions; driven by purely external factors; or simply due

to error in setting the initial benchmark rate placing it in a financially

unsustainable position. We provide further discussion of this matter in the later

part of this section.

4.1 Mexico single buyer model 7

Since the nationalization of the industry in 1960, the Mexican Constitution

strongly limits private participation in the energy sector. By constitutional

mandate, the government has control of transmission, distribution, and

generation when aimed at “public service”. There are two key state-owned

7 This section has been taken directly from: Alejandra Núñez-Luna, Private Power Production in Mexico: A Country Study. 2005; and from, Getting the Deal Through – Electricity Regulation 2009, published in November 2008 by Law Business Research.


18

enterprises which have a monopoly over the energy industry as a whole:

Petróleos Mexicanos (PEMEX), the state’s oil enterprise37, and Comisión Federal

de Electricidad (CFE), the electricity company which controls generation,

transmission and distribution of power.

The Secretaría de Energía (Ministry of Energy) is responsible for planning and

formulating energy policy, as well as for approving exploration activities related

to natural resources, and the Comisión Reguladora de Energía (CRE or Energy

Regulatory Commission) is responsible for the regulation and oversight of

private power generation and gas distribution. At the federal level, beyond the

electricity industry, the Ministry of the Treasury (Secretaría de Hacienda)

approves –in practice, sets- the electricity tariffs proposed by CFE (retail

distribution).

4.1.1 A Single Buyer model and private sector investment

In 1992, partly in response to Chapter VI of the North American Free Trade

Association, the Electric Power Public Utility Law was amended to allow private

participation in the generation and transmission of power, establishing six

permit modes for power-related activities that are excluded from the concept

of public service. Since then, the government has encouraged the participation

of private developers in the electricity sector. This has been mainly driven by

a lack of government funds to meet the significant increase in demand during

the past decade.

The statutory amendment in 1992 opened the door to private participation in

generation “not for public service”. Private generators are allowed, but must

sell their production through long-term power purchase agreements to CFE,

unless energy produced is used for export or self-supply. Private companies

cannot compete with the SOEs. CFE generates more than 4/5 of the total

electricity produced in the country (43,534 MW of installed capacity as of

2002). The LFC (recently amalgamated into CFE), which serves parts of

Mexico City, Morelos, Hidalgo and Puebla, generates 2% and PEMEX 4% (for

selfsupply). CFE also control the transmission grid, and distributes electricity

to 25 million users. That leaves 10.5% of total electricity generation to the

private sector, of which 5% comes from cogeneration and self-supply, and

5.6% from IPPs.

4.1.2 Transition to competitive models

The federal government is looking to foster the participation of private

companies in the electricity sector, particularly in power generation. Although

its independent power production programme has proved successful, with

private independent power producers accounting for a considerable

generation capacity of more than 11,450 megawatts (MW), the CFE may be

restricted in continuing its programme by public debt ceilings affected by the

programme's contingent liabilities. In order to keep pace with demand between

2007 and 2016, Mexico will need:

an additional 16,286MW in generation capacity (achieved through the

installation of facilities generating 22,153MW and the decommissioning

of facilities generating 5,867 MW);


19

over 13,000 kilometres of transmission lines, and transformation

substations with over 29,300 megavolt amperes capacity; and

a significant number of distribution lines and distribution substations.

These activities require approximately $60 billion in investment. The lack of

public resources to cope with demand has become one of the leading drivers

for structural reform in the sector, along with the lack of scrutiny and

transparency of CFE rates and service conditions; and the excessive costs of

power for industrial processes.

The federal government and the main political parties have proposed bills for

some form of structural reform. Most of the proposed bills to restructure the

electricity sector have a number of common factors, namely:

the creation of a wholesale energy market;

the segregation of the national electric grid from the CFE;

the creation of an independent system operator in charge of

dispatching the system and operating the national electric grid as a

common carrier; and

greater authority for the Energy Regulatory Commission as the

independent regulator of the electricity sector.

4.1.3 The current single buyer model in Mexico

While these options for restructuring continue to be debated, the current model

remains that of the single buyer, with private participation is allowed in activities

such as:

independent power production - private power generation facilities

aimed at supplying all of their capacity and power output to the CFE;

self-supply - private power generation facilities aimed at supplying

power for self-supply purposes to a holder of the relevant permit and

its shareholders;

co-generation - private power co-generation facilities aimed at

supplying power to establishments associated with the co-generation

process and the shareholders of the co-generation company;

small-scale production - private power generation facilities with a

capacity not exceeding 30MW, operating for export purposes or

supplying all of the power to the CFE;

private power generation facilities - installations with a capacity not

exceeding 1MW, developed by cooperatives or non-profit associations

to supply power to rural communities or isolated areas;

exports / imports - private power generation facilities that export the

entire associated output; and imports - importing power for self-supply

purposes.

An independent power production company may also be entitled to hold other

permits with respect to the same generation facility (eg, co-generation, self-

supply or export permits).


20

Source: CFE

4.1.4 Administrative Rules for Independent Power Producers.

As mentioned above, IPPs can generate more than 30 MW of electricity, but

under the statute they are obliged to sell it to CFE. Power projects are initially

determined by CFE – which determines the amount of installed capacity

needed, the type of plant and technology as well as the duration of the contract-

and then offered for bidding, pursuant to the Ministry of Energy’s approval and

through their inclusion in CFE’s plans and programs (Programa de Obra e

Inversiones del Sector Eléctrico or POISE, which stands for “Work Program

and Investments of the Electricity Sector”).

The contract is awarded through competitive bidding on the basis of the lowest

average generation price. The CFE also facilitates the signature of fuel

contracts – in some cases with PEMEX. Once the contract has been awarded,

an administrative authorization must be obtained from the regulator (CRE).

Because permits for IPPs are only granted to Mexican citizens or corporations

organized under Mexican law and domiciled in Mexico, foreign corporations

must set up subsidiaries or Mexican joint ventures for the purpose of building

and operating power plants, in most cases the subsidiary being incorporated

solely for the IPP project. Once authorization has been granted, investments

are entitled to national treatment and protection against expropriation.


21

4.2 Thailand single buyer model

The Thai electricity sector is dominated by the Electricity Generating Authority

of Thailand (EGAT) which operates as a state-owned enterprise involved in

the generation and transmission of energy throughout Thailand, and as single

buyer, selling wholesale power to both the state-owned Metropolitan Electricity

Authority (MEA) and the Provincial Electricity Authority (PEA). The group

produces over 15,000 megawatts (MW) of electricity each year and purchases

additional power from independent power producers and small power

producers.

4.2.1 Generation, Single Buyer, Transmission and System Operator

EGAT remains the principal entity in the power sector of Thailand, with

responsibility to provide electricity for the whole Kingdom by generating,

transmitting and selling bulk energy to two state owned distributors.

Since 1992 EGAT had started to form subsidiaries in compliance with the

government's privatization policy in order to increase private sector

participation in the electricity supply industry and reduce investment burden of

both EGAT and the government. Private sector participation in the power

sector had been initiated in the form of IPPs and Small Power Producers

(SPPs). The Electricity Generating Company Plc (EGCO) had been formed as

a subsidiary of EGAT with a total installed capacity of 2,056 MW (with EGAT

selling down its shareholding over time). In 2001 Ratchaburi Power Company

was created as a wholly owned subsidiary of EGAT, of which a partial

shareholding was listed in the Thai stock exchange.

During the 1990’s EGAT concluded negotiations with seven IPP bidders for a

total capacity of 6,677 MW of capacity. The SPP program includes projects of

4,638 MW, of which part is sold to EGAT, and some directly to large

commercial end users. This broad structure of the Thai ESI since the late

1990’s is illustrated below:

Thai ESI Structure and position of single buyer


22

Perhaps the key characteristics of the ESI relevant to this study are that the

state-owned EGAT:

Owns and operates a significant proportion of total generation supply

in the Kingdom.

Owns and operates the high voltage transmission system.

Responsible for systems operations and planning (with planning

guided by government policy, and needing endorsement of Cabinet).

Acts as power purchaser from SPPs, and IPPs (with limited direct sales

from SPPs to end users under specific circumstances).

Sells power by way of bulk supply agreements with the two state owned

distribution businesses.

While EGAT is the single buyer and is the counterparty to PPAs, the Ministry of

Energy (through its Energy Policy and Planning Office, and in a recent solicitation

its IPP Power Purchase Proposal Evaluation and Selection Subcommittee) has

responsibility for the procurement process.

EGAT does, however, provide and publish key inputs (such as the overall Power

Development Plan which is guided by government policy and needing endorsement

by Cabinet). (We discuss this further in section 5.1 on Energy Planning on the Thai

PDP).

4.3 California’s power purchase administrator

As a consequence of California’s energy crisis and electricity sector

restructuring in the early 2000’s, the State Department of Water Resources

(DWR) responsibilities for power purchases for the state were significantly

increased. DWR now oversees a large portfolio of power purchase contracts

and recovers its costs by way of an annual revenue determination process set

out in legislation. While the current role of DWR in respect to power purchase

and on-sale to distribution businesses was born out of crisis, it nevertheless

provides a interesting example of how a stand-alone PPA administrator can

work in practice.

For the purpose of this study, we have focused on how financial requirements

are funded within the context of its regulated revenue allowance.

4.3.1 Funding the PPA administrator and regulated revenue allowance

DWR's California Energy Resources Scheduling (CERS) division manages

billions of dollars of long-term electricity contracts. CERS division was created

in 2001 with the passage of AB1X during the state's energy crisis. CERS

function was to procure electricity on behalf of the state's three largest investor

owned utilities (IOUs), such as Pacific Gas and Electric and Southern

California Edison, which were experiencing extreme financial difficulty during

the crisis.

The CERS division is financially responsible for the long-term contracts

entered into by DWR, with funding for the contracts provided by $13 billion in


23

ratepayer-supported Power Supply Revenue Bonds. However, the IOUs

manage the receipt and delivery of the energy procured by the contracts.

The material below is taken directly from DWR’s revenue determination as

submitted to the California Public Utilities Commission.8 We have provided a

portion of that document (with some minor paraphrasing done by us) in the

section below that we hope illustrates key components of that regulatory

approach to revenue regulation that are rather unique to this sub-sector of the

ESI.

_____________________________________________________________

DWR - SCOPE OF REVENUE REQUIREMENTS

The costs of the Department’s purchases to meet the net short requirements of retail

end use customers in the three California investor-owned utilities’ (“Utilities” or

“IOUs”) service territories, including the costs of administering the long-term

contracts, are to be recovered from payments made by customers and collected by the

IOUs on behalf of the Department.

The terms and conditions for the recovery of the Department’s costs from customers

are set forth in the Act, the Regulations, the Rate Agreement and orders of the

Commission.

Among other things, the Rate Agreement contemplates a:

“Bond Charge” (as that term is defined in the Rate Agreement) that is designed

to recover the Department’s costs associated with its bond financing activity

(“Bond Related Costs”); and a

“Power Charge” (as that term is defined in the Rate Agreement) that is

designed to recover “Department Costs”, or the Department’s “Retail Revenue

Requirements” (as those terms are defined in the Rate Agreement), including

power supply related costs.

During 2009, the Department projects that it will incur the following power

procurement-related Costs:

(a) $3.691 billion for long-term power contract purchases to cover the net short

requirement of customers;

(b) $28 million in administrative and general expenses; and

(c) $(76) million in other net changes to Power Charge Accounts (including operating

reserves).

This projection results in a revenue requirement of $3.642 billion.

OPERATING RESERVE ACCOUNT

In each Revenue Requirement Period, the Department calculates the Operating

Reserve Account Requirement (“ORAR”) as the greater of

8 State of California Department of Water Resources, Revision to the Determination of Revenue Requirements For the Period January 1, 2009 through December 31, 2009. Submitted To The California Public Utilities Commission Pursuant To Sections 80110 and 80134 of the California Water Code. Oct. 2008


24

(a) the largest aggregate amount projected by the Department by which Operating

Expenses exceed Power Charge Revenues during any consecutive seven calendar

months commencing in such Revenue Requirement Period; and

(b) 12 percent of the Department’s projected annual Operating Expenses; provided,

however, that the projected amount will not be less than the applicable percentage of

Operating Expenses for the most recent 12-month period for which reasonably full and

complete Operating Expense information is available, adjusted in accordance with the

Indenture to the extent the Department no longer is financially responsible for any

particular Power Supply Contract. All projections are to be based on such assumptions

as the Department deems to be appropriate after consultation with the Commission and

taking into account a range of possible future outcomes (i.e., “Stress Cases”).

Additionally, the ORAR shall include, but shall not be limited to, the Priority Contract

Contingency Reserve Amount (“PCCRA”). The PCCRA is the maximum amount

projected by the Department to be payable by the Department under and pursuant to

Priority Long Term Power Contracts in any calendar month during such Revenue

Requirement Period. All projections are to be based on such assumptions as the

Department deems to be appropriate after consultation with the Commission. Based

on the Stress Cases described below under “Sensitivity Analysis”, the Department

determines the ORAR for the 2009 Revenue Requirement Period to be $543 million,

reflecting an amount equal to the PCCRA. The Department projects to meet the ORAR

on or before June 1, 2009.

DEBT SERVICE RESERVE ACCOUNT

For purposes of calculating the amount of the Debt Service Reserve Requirement from

time to time, interest accruing on Variable Rate Bonds during any future period will

be assumed to accrue at a rate equal to the greater of

(a) 130 percent of the highest average interest rate on such Variable Rate Bonds in any

calendar month during the twelve (12) calendar months ending with the month

preceding the date of calculation, or such shorter period that such Variable Rate Bonds

shall have been outstanding, or

(b) 4.0 percent. For the 2009 Revenue Requirement Period, the Department will

calculate projected interest on unhedged Variable Rate Bonds at 4.935 percent.

For the 2009 Revenue Requirement Period, the Department has determined the Debt

Service Reserve Requirement to be $950 million. The Department projects to maintain

this amount at all times during the Revenue Requirement Period.

RESERVE ACCOUNT STRESS TESTS

The Rate Agreement requires the Department to evaluate its costs and cash flows on a

monthly basis and to notify the Commission of its Retail Revenue Requirements no

less than once annually, thereby ensuring that Bond Charges and Power Charges are

adequate to meet financial obligations associated with the Bonds and the power supply

program. From the date the Department first initiates any necessary revised Retail

Revenue Requirement proceeding, it expects no more than seven months will elapse

before it receives modified levels of revenues associated with the filing.

As explained in prior Department revenue requirement determinations, during this

seven month period the Department would endeavour to identify any material changes

in its revenue requirement, proceed through its own administrative determination of


25

its modified revenue requirement, notify the Commission of the new revenue

requirement for purposes of allocating the costs among customers, and finally begin

receiving the modified level of revenue. To ensure its ability to meet its financial

obligations during this seven month period, the Department must maintain reserves

that are adequate to meet normal anticipated expenses, unexpected variations in these

expenses, and/or reductions in revenue receipts resulting from factors beyond the

Department’s control.

_________________________________________________________________


26

5 Energy planning

The energy planning role and associated governance structures are tied

directly to the nature of the market in a given jurisdiction.

Decentralised competitive electricity markets typically tend towards less

prescriptive planning structures, whereas centralised markets tend

towards more prescriptive regimes.

Governance of planning agencies in markets primarily served by private

sector suppliers is often broad based - inclusive of industry players,

customers and government; whereas planning in state-owned electricity

supply industries is more often overseen by governmental bodies.

The scope for competition also drives approaches to planning and

governance across the supply chain.

o For example, in countries where there are competitive wholesale

electricity markets the role of generation planning is largely

addressed by way of information disclosure, and where there is

centralised generation investment, it tends to be limited to

procurement of short to medium term reserve capacity.

o Alternatively, transmission and distribution investment and

planning is not often carried out in a competitive environment

(although there are counter examples) and more centralised and

prescriptive investment and planning regimes apply to these

segments of the industry.

In preface to this section on energy planning, we also note that legislation in

South Africa sets out the various roles and responsibilities in this regard. We

do not mean to provide comment on the overall approach set out in relevant

South African legislation, nor have we aimed to provide a comparative analysis

of various approaches to energy planning. Our simple aim here is to provide

a few examples of how energy planning is carried out in several other countries

so as to highlight issues and options one might consider in undertaking such

comparative analysis.

5.1 Thailand energy policy and Power Development Plan

The Thai electricity sector has a number of similarities to that of South Africa

including a dominant state-owned utility acting as the single buyer of private

sector power in transition to more competitive market approaches.

The landscape of Thailand's energy sector was shaped in the 1990s when

government began entertaining the idea of privatizing a large portion of its

state-owned entities, including those in its energy sector. In 1992, the

government created the National Energy Policy Council (NEPC). This council

amended the EGAT Act of 1968 in order to end EGAT's longstanding

monopoly on power generation, which in turn allowed for the private production

and sale of electricity. The NEPC also laid the groundwork to allow IPPs and

small power producers (SPPs) into the Thai market.

In October 2002, after the bureaucratic reform of the Thai government, the


27

Ministry of Energy was established. Various energy-related agencies that used

to be scattered under different ministries were transferred to be under the

Ministry of Energy so that the energy sector management and the planning

and development of national energy programs, including regulation, would be

more streamlined. The Energy Policy Committee (EPC) was renamed as the

Committee on Energy Policy Administration (CEPA), chaired by the Minister of

Energy.

Current Structure of Thailand's Energy Sector Management

Members of the above-mentioned governing bodies, their respective authority

and duties are summarized as follows:9

The National Energy Policy Council (NEPC)

Members:

Prime Minister - Chairman

Deputy Prime Minister (as assigned by the Prime Minister) - Vice Chairman

Minister to the Prime Minister's Office (as assigned by the Prime Minister)

Minister of Defence

Minister of Finance

Minister of Foreign Affairs

Minister of Agriculture and Cooperatives

Minister of Transport

Minister of Natural Resources and Environment

Minister of Energy

Minister of Commerce

Minister of Interior

Minister of Science and Technology

9 From EPPO web site, Energy Sector Planning in Thailand, August 2009.

National Energy Policy Council

(NEPC)

Natural

Cabinet

Committee on

Energy Policy

Ministry of Energy

Energy Policy and Planning Office

The Office

of the

ElectriPolicy Frameworks

Energy

Regulat


28

Minister of Industry

Permanent Secretary of the Ministry of Energy

Secretary-General of the Council of State

Secretary-General of the National Economic and Social Development Board

Director of the Bureau of the Budget

Director-General of the Energy Policy and Planning Office - Member and Secretary

Authority and Duties:

1) To recommend national energy policies and national energy management

and development plans to the cabinet.

2) To set criteria and conditions for energy pricing in accordance with national

energy policies and national energy management and development plans.

3) To monitor, supervise, co-ordinate, support and expedite the operations of

all committees with authority and duties related to energy, including

government agencies, state enterprises and the private sector, to ensure that

their operations are in accordance with national energy policies and national

energy management and development plans.

4) To evaluate the implementation pursuant to national energy policies and

national energy management and development plans.

5) To perform other functions as assigned by the Prime Minister or the cabinet.

The Ministry of Energy (MOEN)

The Ministry of Energy was established on 3 October 2002, pursuant to the

Act on Organization of Ministries, Sub-Ministries and Departments, B.E. 2545

(2002). Various energy-related agencies that used to be scattered under

responsibilities of different ministries were then transferred to be under the

Ministry of Energy so that the energy management and the planning and

development of national energy programs, including regulation, would be more

streamlined.

The Departments under the Ministry of Energy:

Office of the Minister

Office of the Permanent Secretary

Energy Policy and Planning Office (EPPO) - formerly the National

Energy Policy Office (NEPO), Office of the Prime Minister

Department of Mineral Fuels (DMF) - formerly the Natural Fuels

Division/ Department of Mineral Resources, Ministry of Industry

Department of Energy Business (DOEB) - formerly the Bureau of Fuel

Oil/ Department of Commercial Registration, Ministry of Commerce, the

Petroleum Industry Division, Ministry of Industry, and the Fuel Storage

Safety Control Division/ Department of Public Works, Ministry of Interior

Department of Alternative Energy Development and Efficiency (DEDE)

- formerly the Department of Energy Development and Promotion


29

(DEDP), Ministry of Science, Technology and Environment

The State Enterprise and Autonomous Public Companies under the Ministry

of Energy:

Electricity Generating Authority of Thailand (EGAT), formerly a state

enterprise under the Office of the Prime Minister.

PTT Public Company Limited (PTT), from the Ministry of Industry

Bangchak Petroleum Public Company Limited (BCP), from the Ministry

of Finance

The Public Organization under the Ministry of Energy:

The Energy Fund Administration Institute (EFAI) - an independent

agency responsible for procurement of fund to stabilize domestic retail

oil prices and for other tasks in compliance with the government

policies relevant to the Energy Fund Administration.

The Independent Organization under the Ministry of Energy:

The Energy Regulatory Commission (ERC) - appointed on 1 February

2008 under the Energy Industry Act.

Remarks: Another two energy-related state-enterprises, i.e. the Metropolitan

Electricity Authority (MEA) and the Provincial Electricity Authority (PEA) are

currently under the Ministry of Interior.

Structure of the Ministry of Energy (since October 2002)

The Committee on Energy Policy Administration (CEPA)

Members:


30

Minister of Energy - Chairman

Permanent Secretary of the Ministry of Energy

Permanent Secretary of the Ministry of Transport

Permanent Secretary of the Ministry of Natural Resources and Environment

Permanent Secretary of the Ministry of Commerce

Permanent Secretary of the Ministry of Industry

Secretary-General of the National Economic and Social Development Board

Secretary-General of the Council of State

Director-General of the Fiscal Policy Office

Director-General of the Energy Policy and Planning Office - Member and Secretary

Representative of the Energy Policy and Planning Office - Member and Assistant

Secretary

Authority and Duties:

1) To recommend national energy policies, national energy management and

development plans, and energy-related measures.

2) To provide comments on energy-related programs and projects of various

agencies and suggest priorities for the programs and projects.

3) To monitor petroleum prices and determine contribution rates to be collected

for the Oil Fund in accordance with the framework and guidelines prescribed

by the NEPC, including other tasks as may be assigned by the Prime Minister

with regard to the Oil Fund management and in pursuance to the law on

remedy and prevention of fuel oil shortage.

4) To recommend policies and measures on energy pricing and monitor

electricity tariff adjustments pursuant to the automatic tariff adjustment

mechanism.

5) To consider and recommend to the NEPC royal decrees, ministerial

regulations and other measures to be enacted under the Energy Conservation

Promotion Act.

6) To bid ministries, bureaus, departments, local administrations, state

enterprises and any individuals to present technical, financial, statistics

information and/or other details pertinent to the national energy policies and

national energy management and development plans.

7) To perform any other task as may be assigned by the NEPC or its Chairman.

8) To appoint sub-committees to assist with particular tasks as deemed

necessary.

Energy Policy and Planning Office (EPPO)

Serves as the Secretariat to the NEPC, the CEPA and the ENCON

Fund Committee and hence carry out duties as stipulated in, among

others, the National Energy Policy Council Act (1992), as amended up


31

to No. 2 (2007) and No. 3 (2008); the Energy Conservation Promotion

Act (1992), as amended up to No. 2 (2007); and the Emergency Decree

on Remedy and Prevention of Shortage of Fuel Oil (1973), as amended

up to No. 3 (1977);

Recommends to the NEPC and/or the Minister of Energy national

energy policies, energy management and development plans,

including energy measures to ensure adequate and efficient energy

supply in line with the economic conditions of the country;

Proposes measures for the solution and prevention of oil shortages, in

accordance with the Emergency Decree on Remedy and Prevention of

Shortage of Fuel Oil (1973) and co-ordinate the implementation of

these measures with related agencies;

Recommends policies and measures on petroleum pricing and

taxation, and determine the framework for the Oil Fund management;

Sets energy conservation and alternative energy measures and

determine the framework for the Energy Conservation Promotion Fund

management with a view to promoting energy conservation and

alternative energy;

Coordinates, monitor and evaluate outcomes of the implementation

pursuant to the energy policies and energy management and

development plans of the country, as well as manage energy funds;

Collects, process and disseminate data and statistics related to the

energy sector, analyze energy situations/trends and develop energy

outlook of the country.

Thailand Power Development Plan10

The Power Development Plan is a detailed planning guide setting out

Thailand’s medium term power needs in terms of factors such as reliability of

power supply, fuel sources and diversification, generation technology types,

power purchases, transmission expansion, etc. The current PDP covers the

period 2008-2021.

- EGAT formulates the PDP under the policy framework of the Ministry of

Energy.

- The PDP is to be approved by the National Energy Policy Council (NEPC).

- The PDP is to be endorsed by Cabinet.

The PDP is an important document as it sets out the intended split of

generation projects in terms of:

- EGAT power plant projects

- IPP power purchase projects

10 See EGAT Thailand Power Development Plan 2008-2021, revision 2. May 2009 (EGAT web cite)


32

- Renewables

- SPP power purchase projects

- VSPP power purchase projects

- Imports from cross-border power projects

The PDP also sets out transmission expansion projects fpor the planing period

aligned with the generation plan.

Energy Regulatory Commission (ERC)

Formerly, the government, through the National Energy Policy Council, would

both determine energy policy and regulate the operation of the energy industry.

Since 11 December 2007, Thailand's Energy Industry Act, B.E. 2550 (2007),

has come into force. Under the Act, the Energy Regulatory Commission (ERC)

was appointed on 1 February 2008 to regulate the electricity and natural gas

industry under the policy framework of the government, with the establishment

of the Office of the Energy Regulatory Commission (or OERC) to function as

the Secretariat to the ERC. Therefore, since February 2008, the energy

industry regulatory function has been transferred from the NEPC to the ERC.

Major Authority and Duties of the ERC:

To regulate the energy industry operation to be transparent and

standardized so as to protect the benefits of energy consumers, and to

ensure its compliance with the objectives of the Energy Industry Act

and the policy framework of the government;

To establish a license issuance process, including issuance of

announcement on the categories of licenses for energy industry

operation and recommendation of issuance of a royal decree specifying

categories, capacities and characteristics of energy business that are

exempted from a license requirement;

To determine measures enhancing security and reliability of the power

system;

To establish regulations and criteria regarding power supply and issue

requests for proposal for power purchase, and ensure that the selection

procedures are fair for all parties concerned; and

To provide comments to the Minister of Energy regarding the Power

Development Plan, plans for investment in the power sector, natural

gas procurement plan and plans for energy network system expansion.

5.2 Mexico Works & Investment Program of the Electric Sector

The broad structure of energy planning and investment are:

Comisión Federal de Electricidad: It prepares energy demand studies, it

prepares its electrical prospective, it formulates the program for works and

investment of the electric sector, prepares feasibility studies of each plant,


33

discloses and develops project bids, supervises work execution, carries out

negotiations with inhabitants and owners of the regions affected by projects.

Ministry of Finance: It analyzes and approves of the budgets prepared by the

Comisión Federal de Electricidad and it assesses the expense execution and

the compliance of goals and objectives of projects.

Ministry of Energy: It participates in the Coordination, Planning, program

authorization, budget execution and project bidding, and it tracks the

construction of Power Plants.

5.2.1 Works & Investment Program of the Electric Sector

Mexico’s dominant state-owned utility Comisión Federal de Electricidad (CFE)

platys a substantial role in planning the National Electric System. CFE produce

annually the “Works & Investment Program of the Electric Sector” with a 10

year horizon (the spanish acronym is POISE). POISE defines a detailed

physical and financial investment program updated yearly for the next 10-year

period. It is prepared including the necessary infrastructure projects to meet

the demand for the planning period. The Work and Investment Program

prepared by the CFE is subject to the consideration and authorization of the

Ministry of Energy.

Important areas covered in the POISE for the planning period include:

Demand growth forecast

Overall generating capacity needed

Required investments by source of funding (i.e. CFE or IPP).

Generation types and technologies

Fuel sources

Specific project cites

Anticipated tender dates (IPPs and/or construction of CFE projects)

Gas pipeline investments (per fuel supply requirements)

Transmission and distribution upgrades and expansion

***End of document***

Economy & Finance

Trans African Energy Pty, System and Market Operations - An Overview of Governance and Adminstration