9 May 2012 – South Africa’s Association of Municipal Electricity Undertakings (AMEU) has commented on the National Electricity Regulator of South Africa’s (Nersa’s) recently published regulatory rules for use of system (UOS) charges to facilitate transmission and distribution system access to sellers of new generation capacity.

The Electricity Regulations on New Generation Capacity dated 04 May 2011 (Government Gazette No. 34262) provide the framework for the procurement of new generation capacity but are only applicable to such procurement by organs of state and not for wheeling arrangements. The Nersa rules are therefore intended to provide independent power producers (IPPs) and renewable energy generators with guidelines on the costs involved in network access and transportation of electricity.

UOS charges are tariff structures and rates that recover the costs associated with making capacity available on an electricity network. These charges are the unbundled regulated tariffs, charged by the Network Services Provider (NSP) for making transmission or distribution capacity available to the generators and other distributors. The application of UOS tariffs allows for the recovery of the fixed and operation and maintenance (O&M) costs, recovery of transmission losses as well as costs for ancillary services procured by the system operator. These UOS charges do not recover connection charges, which should be charged separately.

The AMEU says that there are number of important points to note arising from these rules. For distribution generator connections, all upstream costs are included in the rate base and not charged directly to the customer. Wheeling will be allowed for generators connected at greater than 11 kV and for any load customer. A 300 MW embedded generator capacity limit for wheeling is applicable until a balancing mechanism is in place. There is compensation to generators for poor network performance (below the 98% and 95% availability limits for transmission and distribution systems). Uneconomic bypass of distribution services shall be addressed on a case-by-case basis to be approved by Nersa. These regulatory rules are applicable to the current electricity supply industry structure and will be aligned with the Independent System Market Operator (ISMO) once it is approved. Generator UOS charges will be indexed to the consumer price index and load UOS charges will be indexed to the transmission portion of the price increase; for municipalities this means that wheeling charges will not be aligned to the price increase but linked to Eskom transmission increases.
The AMEU sees the formulation of the rules as a progressive move forward by Nersa in developing a national standard for the implementation of use-of-system charges, particularly to encourage the establishment of IPPs.  However, the implications of the rules will need to be understood by each affected distributor and further engagement with Nersa on the possible impact and implementation challenges may be necessary.