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Eskom presentation

NERSA public hearing on the


Regulatory Rules on Network Charges
for the Third Party Transportation of
Energy
5 July 2011

Introduction
The regulatory rules are welcomed by Eskom and goes a long way in
establishing a framework for use of system charges and wheeling of
energy for the industry, in particular a use-of-system charges
framework for generators.
Many important concepts were captured in the proposed regulatory
rules and the majority of the proposals are supported.
However, more clarity could have been provided on the industry structure
referred to the document.

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Example of a generic industry structure

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Use of the system

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Summary of use of system charges payable


(Wires and Retail costs)

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TUoS framework for generators

PRICNG ZONES FOR GENERATORS:

TUoS charges for generators to be


aggregated into six zones (Cape, Karoo,
KZN, Mpumalanga, Vaal, Waterburg)

Zones derived from the tariff code


principles: PTDFs, MLFs, load and
generators centres

Zones reviewed every five years

TUoS Network Charge

Locationally varying network charges

Zero network charge for the Cape and


Karoo zones

TUoS Losses Charge

Locationally varying loss factor

Negative loss factors for the Cape and


Karoo zones

Reliability services charges raised


from all Transmission connected
generators.
Service and administration charges
raised from Transmission
connected generators.
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TUoS framework for loads

All the demand customers will pay retails tariff


as published and approved by NERSA.
Network and losses charges
Network charge in R/kVA per month and
based on the Reserved Capacity.
Geographically differentiated
based on
four
concentric
zones
with
tariff
differentiations of 0 to 3%.
Reliability charges raised from distributors
based on the volumes purchased at the
Main Transmission Substation

Reliability services
network meters account for only the net
volumes at interfacing busbars.
This anomaly is grossly discriminatory.
The current approach to be reviewed in the
medium to longer term.
In the short term the methodology to be
retained

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DUoS framework for generators


The DUoS charges for generators should comprise:

network charges,
network charge rebate,
reliability services charges and
service and administration charges.

The Distribution network charge will comprise


For HV - A R/kW tariff network charge calculated on the same basis
used for determining the average cost for loads.
The HV network charges are rebated based on losses benefit
For medium voltage (<66 KV mainly 11 and 22 kV) connected
generators, no network charges to be raised

The charges applicable to generators that are also loads (cogenerators) will be the higher of the export (generator) or
import (load) charges will apply - not both
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DUoS charges for loads


The structure should comprise:

Fixed and variable network charges,


Losses charge
Reliability services charges and
Contribution to subsidies

Connection charge
Recover all dedicated (shallow) costs upfront
Upstream (deep) connection costs socialised included in the rate base.
To provide the signal for these costs and to cover the risk of early termination
an early termination guarantee is raised

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DUoS framework for generators


Not based on a zonal approach but on voltage (Distribution cost driver)
Losses rebate based on the reduction of (technical) losses to Eskom and the
amount of energy produced by the generator

Not beyond extinction


Based on standard tariff loss factors.
Justified by assumed reduction of cost of losses on the Distribution network.
Incentivises generators:
To have higher load factors and to produce energy in peak and standard TOU
periods
To locate in areas with high loss factors
The rebate should not be applied to the service, administration and reliability service
charges.
This negative loss charge will be applied against the network charge

The justification for the rebate is:


Gives the generator credit for reducing losses based on the published loss factors
Incentivises the generator to have a good load factor i.e efficient as possible production

Incentives the generator to generate in peak and standard periods (the rebate will be
higher in these periods (assists Eskom and reduces Eskom cost during those periods)
Levels the playing field between generators selling though regulated programmes versus
bi-lateral trades
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Eskom comments of the proposed regulatory rules


Background section:
The current Transmission zonal difference applicable to loads should remain a more cost
reflective approach would impact the poorer areas of the country.

Network costs should be allocated at different voltage levels, be based on location and or
density, unique to each distributor, also taking into account equity, cost-reflectivity and
affordability

Logical cost and network pools - unique circumstance to each distributor based on an approved and
justifiable segmentation.

Network tariffs should be designed to facilitate bi-lateral trade, but this should not be any
different to any other network tariffs
DUOS and TUOS should be designed to reflect average costs and not marginal costs this
will ensure stability in pricing and reduce complexity
The concept of an unbundled cost reflective tariff structure, reflecting network, energy,
losses and retail costs separately is a necessity to be able to facilitate wheeling and this
needs to be determined for each distributor.

For smaller customers, it would be appropriate to have fixed charges that reflect use-of-system
charges. This is very relevant under a future scenario where the concept of net-metering or offset is
allowed for own generation

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Eskom comments of the proposed regulatory rules


Use of system charges:

Non-Eskom and Eskom generators / loads must be treated equally regarding network
access. UoS framework should uphold government economic, social and environmental
objectives.

It is not prudent to provide no cost signal to generators. Generators over time will cause
significant costs to distributors with regard to design, maintenance, operations and losses as has been shown internationally.

Network charges for generators should not be raised for MV and LV connected generators
and that the recommended approach should apply to generators connected within a specific
time frame e.g. 5 years. Thereafter the proposed framework for all generators should be
revised to re-assess the impact on Distributors.

TUoS charges (network, losses and reliability) will be recovered equally (50/50) from
generator and load customers.

Transmission investments costs are driven by capacity requirements than system utilisation.
To promote economic grid expansion, TUoS charges should be set with reference to MW.

Service and administration charges to be raised from generator and load customers for costs
incurred (billing, meter reading).
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Eskom comments of the proposed regulatory rules


SAPP:

Cross-border wheeling will be treated in terms of the SAPP rules as contained in the SAPP Agreement
between operating members and the SAPP Operating Guidelines which governs trade between SAPP
members. Charges for incremental losses incurred as a result of these wheeling transactions will also be
treated according to these SAPP rules.

Generator use of system charges for imports and load use of system charges for exports will be raised at
the relevant transmission station at which these imports or exports take place.

Connection Charges:

Shallow connection charges for all local generator and load customers.

Upstream network strengthening cost to be approved by NERSA and recovered in UoS charges.

Connecting customers to pay any additional incremental and acceleration costs arising from the fasttracking of projects

All generators to provide guarantees for deep network reinforcement, to guard against early termination.

Distribution connected generators should not be charged for upstream costs (SNC) as a connection charge
- rather that this costs should be socialised. The Distribution Code would need to be revised.

The latest NERSA guidelines on Transmission connection charges should be applied.


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Eskom comments of the proposed regulatory rules


Wheeling:

All users of the network should be given equal access

The rules accommodate larger customers - there will be a future need to further
develop rules for smaller customers

Inter-distributor wheeling is reliant on each distributor being willing to be party to the


transactions required.

The rules of reconciliation of accounts where there is wheeling should be done on the
basis of an unbundled tariff structure, where network, energy, losses and retail costs are
reflected.

Customers that buy wheeled energy should pay the approved network charges, losses
costs, reliability services costs, service and administration costs, contributions to
subsidies (or any other network related cost approved by NERSA)

The credit on the account for the wheeling transaction should be for energy costs only.

Irrespective from whom the energy is bought, the same charges will be raised for
the use of the system , including subsidies

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Conclusion
This framework is vital to provide direction for all network providers and
to give more certainty to the industry
Eskom thanks NERSA for the development of this framework and the
opportunity to comment

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Thank you