ISLAMABAD: National Electric Power Regulatory Authority (Nepra) is said to have supported establishment of a new entity with the name of Independent System and Market Operator (ISMO) by clubbing both CPPA-G and NPCC, subject to resolution of some issues to make the new system operate smoothly and independently, sources close to Chairman Nepra told Business Recorder. The power sector Regulator offered these comments in response to the Power Division’s letter of July 5, 2024, regarding the summary for Operationalisation of Independent System and Market Operator of Pakistan.
According to sources, the Authority has supported the restructuring of the System Operator (SO) and the Market Operator (MO) aligned with the National Electricity Policy, National Electricity Plan, decisions of the CCOE, Federal Cabinet and Prime Minister for establishment of the ISMO.
The Regulator noted that the merger of these two functionally independent entities is a significant step forward towards the successful operationalisation of upcoming competitive wholesale electricity market in the country; therefore, the Authority suggests that following aspects may also be considered for effective restructuring and merger of the SO and the MO: (i) pursuant to the Regulation of Generation, Transmission, and Distribution of Electric Power Act, 1997, the MO and the SO are independent entities regulated through separate licenses and codes granted on May 31, 2022, and March 21, 2023, respectively.
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The MO is governed under Sections 23A and 23B, while the SO is regulated under Sections 23G and 23H of the Nepra Act. Therefore, in the meanwhile legal, policy, regulatory and techno-commercial aspects may be thoroughly reviewed so that the merger and operationalization is carried out in line with the applicable policy and regulatory framework; (ii) cost-benefit assessment for the establishment of the ISMO may also be carried out to evaluate how the merger will benefit the power sector compared to the current structure where the SO and the MO operate independently and are obligated in their respective licenses for legal separation from parent organizations; i.e., NTDC and CPPA-G respectively; (iii) previously, the regulatory framework, including licences, Grid Code, Market Commercial Code, relevant rules and regulations, has been developed and made applicable, keeping in view the independent functions of the SO and the MO.
Accordingly, in the meanwhile review and adjustment of the applicable regulatory framework may be required to support the successful implementation and operationalization of the ISMO; (iv) specific plans and details for the proposed ISMO, including key features of the Business Transfer Agreements, the human resource and staffing policy/ manual may be finalized for effective and successful merger. A clear transition plan for existing resources and employees of the SO and the MO may be developed prior to the merger to ensure the on-boarding and inclusiveness of human resources; (v) independence of the ISMO Board is of critical importance and may be ensured similar to that of developed markets and the best practices functional around the globe so that the ISMO performs as an independent, corporatized, and credible institution to demonstrate credibility and aspire confidence and trust among market participants to achieve the competitive wholesale electricity market/ CTBCM objectives. Furthermore, the two functions may be ring-fenced to avoid any conflict of interest between the SO as technical and MO as commercial pillar of the market.
The sources said the Authority considers that these functions may complement each other; however, the functional independence and performance should not be affected, advising that the two functions should be aligned with established organisational structure of the ISMO around the world.
Copyright Business Recorder, 2024