third party transportation of energy

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Eskom presentationNERSA public hearing on the“Regulatory Rules on Network Charges

for the Third Party Transportation ofEnergy

5 July 2011


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Introduction

• The regulatory rules are welcomed by Eskom and goes a long way inestablishing a framework for use of system charges and wheeling ofenergy for the industry, in particular a use-of-system chargesframework 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 structurereferred 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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• 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.

TUoS framework for generators


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• 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

TUoS framework for loads


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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 (


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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 terminationan 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 theamount 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 TOUperiods

• To locate in areas with high loss factors

• The rebate should not be applied to the service, administration and reliability servicecharges.

• 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 behigher 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 tradesEskom, 5 July2011 10


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Eskom comments of the proposed regulatory rules

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Background section:

• The current Transmission zonal difference applicable to loads should remain – a more costreflective approach would impact the poorer areas of the country.

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

• 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 anydifferent to any other network tariffs

• DUOS and TUOS should be designed to reflect average costs and not marginal costs – thiswill 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 thisneeds to be determined for each distributor.

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

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Use of system charges:

• Non-Eskom and Eskom generators / loads must be treated equally regarding networkaccess. UoS framework should uphold government economic, social and environmentalobjectives.

• It is not prudent to provide no cost signal to generators. Generators over time will causesignificant 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 generatorsand that the recommended approach should apply to generators connected within a specifictime frame e.g. 5 years. Thereafter the proposed framework for all generators should berevised 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 costsincurred (billing, meter reading).


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SAPP:

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

• Generator use of system charges for imports and load use of system charges for exports will be raised atthe 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 fast-tracking 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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Wheeling:

• All users of the network should be given equal access

• The rules accommodate larger customers - there will be a future need to furtherdevelop 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 thebasis of an unbundled tariff structure, where network, energy, losses and retail costs arereflected.

• Customers that buy wheeled energy should pay the approved network charges, losses

costs, reliability services costs, service and administration costs, contributions tosubsidies (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 forthe use of the system , including subsidies

Eskom, 5 July2011


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Conclusion

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• 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 theopportunity to comment

Eskom, 5 July2011


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Thank you

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