ESKOM S CONNECTION CHARGES METHODOLOGY

Transcription

1 ESKOM S CONNECTION CHARGES METHODOLOGY 13 November 2007 This document may be updated from time to time. Please refer to for the latest version.

2 Eskom s Connection Charges Methodology Page 2 of 23 Contents 1 Introduction Connection charges philosophy Connection charges methodology General principles Dedicated vs. shared costs Types of connection charges standard and premium Payment of monthly connection charges The capital allowance Financing of connection charges Allocation of Costs Shared network cost tables Standard vs. premium supplies Connection Fees Conversion Fees Changes in Supply Size/NMD Temporary Supplies Developers Customer self-built power supply option Minimum liability/notice period for termination/transfer of supply Transfer of supply Guarantee for Irrecoverable Costs (GIC) Distributed generation Quotations Commitment fees Recoverable work Ramping of capacity Reserving of capacity Moving of assets/load to balance supply and demand Fast-tracking of projects Transmission connection charges Ownership of assets Allocation of environmental costs Capital allowance for rural tariffs Sharing by allocating common line costs based on distance Customer self-built power supply option Premium supplies Definitions Page

3 Eskom s Connection Charges Methodology Page 3 of 23 1 Introduction All customers make a contribution towards Eskom s costs incurred in providing capacity on the distribution and transmission networks as well as the cost of providing a connection to these networks. This contribution is regulated by the National Energy Regulator of South Africa (NERSA) and is recovered by means of: a) Tariff charges such as network charges or Distribution Use of System (DUoS) charges which recover shared or pooled costs. b) Connection charges which recover dedicated and shared costs associated with the supply. This document looks at the philosophy and methodology associated with the calculation of connection charges. The connection charge is the charge allocated to a customer for the capital costs of new or additional capacity not recovered in the tariff. It is payable as an up-front payment or as a Monthly Connection Charge (MCC) where Eskom provides the option of financing the costs of connection and the customer repays this over a period of up to 25 years. 2 Connection charges philosophy In terms of its licence, Eskom has an obligation to supply any customer who applies for electricity. The investment required to provide the supply must be prudent and justified in terms of the Distribution Grid Code network investment criteria. The costs of providing networks are recovered through charges for connection to the networks (connection charges) and charges for the use of the networks (use-of-system or tariff charges). The boundary between connection and use-of-system charges needs to be defined in order to determine the costs to be allocated to a customer as a connection charge. Eskom s connection charge philosophy and methodology is based on a shallowish approach where all dedicated costs to be incurred as a result of connection to the system are allocated to the customer but the customer makes a contribution to upstream costs. Eskom s approach to charging for upstream network investment is to apply a Rand/kVA shared network charge to all customers, irrespective of whether or not upstream strengthening is actually required in order to make the specific connection. This ensures that there is no free-riding and that all customers make a fair contribution to the cost of upstream networks, while at the same time providing a pricing signal to customers that reflects the cost of providing capacity on upstream networks. As network associated tariff charges recover a portion of network capital costs incurred and the customer is charged for dedicated costs plus shared upstream costs, this customer may be double charged for the cost of the network. For this reason, a capital allowance is granted based on the average amount of capital-related revenue recovered through the tariff network charges. The cost to be allocated to the customer for providing a connection is therefore reduced once-off by the capital allowance.

4 Eskom s Connection Charges Methodology Page 4 of 23 3 Connection charges methodology 3.1 General principles This section sets out the methodology to be applied when raising connection charges. This methodology is aligned with NRS 069. The customer pays for all dedicated costs. Dedicated costs will be based on the investment made to meet the customer s capacity requirements at the minimum technical standards, as stipulated in the Network Code. In addition to the dedicated costs, customers will be allocated a standard R/kVA contribution based on replacement costs for shared upstream costs, whether new upstream investment is required or not. No actual upstream network strengthening costs are allocated to the customer. The costs allocated for a standard supply are rebated by the capital allowance included in the tariff. The connection charge is made up of shared network charges, pro-rated actual costs, shared line costs and dedicated costs less the applicable capital allowance. Rural supplies are required to pay all dedicated costs plus, where applicable, a share of upstream costs as a connection charge. The share of upstream costs may include a pro-rata share of the line, based on distance and customer numbers and SNC based on capacity. 3.2 Dedicated vs. shared costs The concept dedicated or shared is important when deciding how to allocate connection costs. The following table sets out these differences:

5 Eskom s Connection Charges Methodology Page 5 of 23 Table 1 A Dedicated and shared assets Dedicated Dedicated usually refers to assets that no other customer can utilise. It is unlikely that at the time of connection it will be shared by another supply within a reasonable foreseeable period in the distributor s planning horizon. Rural networks and urban HV networks (greater than 22 kv) are considered dedicated. Dedicated costs are always allocated to the customer and may be rebated by the capital allowance. Dedicated costs later shared must be refunded. Costs are fully allocated. Shared Other customers use or will benefit now or in the foreseeable future from the asset being created. It is likely that at the time of connection it will be shared by another supply within a reasonable foreseeable period. Except for the service connection and meter urban MV and LV networks are usually considered shared Shared costs are recovered through the tariff or through SNC. Costs are shared either pro-rated or SNC based on the customers NMD Allocating dedicated costs Where equipment installed is dedicated to one customer, and it is unlikely to be shared, the full cost of that equipment is payable AND no pro-rating of the equipment cost is done. Therefore, if available capacity is unlikely to be shared, the customer is required to pay full cost, i.e. not pro-rated. If costs originally considered dedicated are later shared, any monthly connection charge (previous and/or new) calculated must be reduced to take into account this sharing. Actual costs are payable on new assets created for the benefit of one (or more if they all occur at the same time) customer and shared network charges are payable on any assets shared by other customers, for example: Example 1 A customer is taking supply from an existing MV or HV backbone network, but a portion of MV or HV network has to be built to connect the customer to the backbone network, plus a dedicated transformer. The customer will pay SNC for the shared backbone MV or HV line, plus actual costs for the portion of MV or HV line that is dedicated. The customer will pay actual costs for the transformer and not SNC.

6 Eskom s Connection Charges Methodology Page 6 of 23 Should the customer upgrade in future, SNC will be payable only on assets not allocated in the original charge. A customer cannot be charged SNC and actual costs for the same part of the installation, for example: Example 2 A totally new asset is created such as a new substation and/or new HV or MV network from the substation for a customer. The customer will be charged actual costs for the asset and not SNC. If this new asset is considered likely to be shared in the future, then instead of SNC, a pro-rated allocation of these costs is payable. SNC will not be charged in addition to actual costs. However, if the customer upgrades in future, SNC will be payable for the additional capacity. If due to new capacity being created, upstream strengthening occurs, then according to the above table, this cost is considered shared i.e. other customers benefit/use part of the asset being created, and therefore SNC is payable Allocating shared costs Costs are shared when more than one customer benefit from the provision of network infrastructure. This share may be allocated either through a SNC, a share calculated by prorating capacity or a share calculated by allocating common line costs Shared network charges - SNC New customers taking supply, whose requirements obligate Eskom to undertake upstream network strengthening investment in order to provide the supply available, run the risk of having to make a substantial contribution towards upstream costs incurred by Eskom. This approach is more of a deep connection charge philosophy for the customer initiating the investment. Subsequent customers taking new supplies from the same network infrastructure may end up not having to make any contribution towards Eskom s costs, i.e. it leads to free riding problems where subsequent connections benefit from using assets for which a previous customer has already paid. This clearly has the result of penalising some customers unfairly. Eskom has developed a fair and equitable solution to this problem where a R/kVA Shared Network Charge (SNC) is allocated to all customers taking new supplies, irrespective of whether or not actual upstream strengthening costs are incurred by Eskom. This charge is a national average charge that is revised annually and is based on the replacement costs of equipment utilised for network construction. Adopting this methodology averages the investment costs among all new customers taking supply and would be calculated based on the supply size required by each new customer. No individual customer receiving a new supply is unfairly penalised by the timing of the investment taking place. Any investment costs made by Eskom that are not recovered from

7 Eskom s Connection Charges Methodology Page 7 of 23 the initial customers taking supply who caused the investment to be undertaken is pooled into the cost base, but will be recovered over time from subsequent new customers at replacement cost when they take supply from the already strengthened network. The SNC therefore ensures that all customers that require additional capacity make a contribution towards shared networks, irrespective of whether new investment is required or not. The SNC is used to allocate upstream costs in addition to or in place of any actual shared costs. Table 2 (see Section 3.8) sets out when the SNC is payable in addition to or when it is payable in place of actual costs. A customer cannot be charged SNC and actual costs for the same part of the installation, i.e. if a network from a substation is totally new the customer will only pay pro-rated actual costs and not SNC for that part of the installation. Where sharing is applicable SNC is charged on the NMD and not on installed capacity. Installed capacity only refers to equipment used directly by the customer Sharing through pro-rating of costs based on capacity Pro-rating takes place where SNCs are not applicable and where new work is required and this new work is likely to be shared by other customers. Pro-rating is always based on capacity. Pro-rating is normally done for urban supplies, or where the customer takes the largest percentage of the load or where HV work is required for rural supplies Sharing by allocating common line costs based on distance Sharing of common line costs will generally only occur on rural tariffs and where there are overhead lines. In this method, a customer pays for the dedicated line costs and when a subsequent customer takes supply, any common line between the customers is shared equally and the connection charge of the original supply is reduced or refunded. The methodology is as follows: 500m 2 Line 1 1 Line 2 300m Point of delivery for Customer A Point of delivery for Customer B 3 Line 3 Customer A is supplied first and pays a SCC based on the distance of Line 1 and Line 2. Customer B is supplied later and is required to pay a share for Line 1 the line common to both Customer A and Customer B The SCC for Customer A is reduced by the share of the network now allocated to Customer B.

8 Eskom s Connection Charges Methodology Page 8 of 23 Sharing is applied AFTER the line allowance is given, per customer. The line allowance is always subtracted before calculating the share, even for subsequent run-of-line points. 3.3 Types of connection charges standard and premium There are two types of connection charges standard connection charges (SCC) and premium connection charges (PCC). The type of connection charge depends on the investment to be made. Where the investment satisfies a least life cycle cost, technically acceptable solution to provide a quality of supply in terms of NRS 048, it is considered a standard supply. Standards supplies receive capital allowances SNC rules are applicable to the NMD of standard supplies. The refurbishment of standard connections is recovered through the tariff. A premium investment is when the customer wants and contracts for networks or capacity to be installed at costs above the least life cycle cost and where Eskom cannot justify this investment as a standard supply. Other customers should not have to pay for this investment in the tariff. The customer must always pay for investment above the least life cycle cost. Premium supplies do not receive capital allowances. Premium supplies are not allocated SNCs. If any, actual upstream premium costs are always payable. The refurbishment of premium connections is recovered through new connection charges. 3.4 Payment of monthly connection charges Connection charges can be paid either as a once-off up-front contribution or monthly over a maximum period of 25 years where Eskom provides the option of financing. The maximum period of financing for different assets is as follows: For public lighting supplies 10 years/120 months. For temporary supplies 15 years/180 months. For all other supplies 25 years/300 months. The repayment period should never exceed the expected life of the asset. The outstanding amount of the connection charge may be reduced at any time during the repayment period by means of interim lump sum payments. 3.5 The capital allowance

9 Eskom s Connection Charges Methodology Page 9 of 23 The capital allowance is equivalent to the amount of capital recovered over a period of time through the tariff rates. The capital contribution payable by the customer for the cost of providing new or additional equipment is reduced by the capital allowance to ensure that Eskom does not recover the cost twice, i.e. through the tariff and through the connection charge. The capital allowance is not given for premium power supplies and as from 2005 on any Transmission assets. Capital allowances are not given to connection charges raised for distributed generators as there is currently no network charges payable. When network charges are payable, an appropriate capital allowance will be calculated. The capital allowance is subtracted from the allocated costs in order to calculate the standard connection charge that is required from the customer. The capital allowance is the maximum allowance given. Where the allocated costs are less than the capital allowance value, no further allowance may be given, except when sharing common line costs. The capital allowance for rural networks is split into a capacity allowance and a line allowance due to distance being a significant component of costs in rural networks. The capital allowance for rural tariffs is largely subsidised. 3.6 Financing of connection charges Eskom may provide financing for that portion of the connection charge that is not paid up front subject to associated risk. Eskom does not finance connection charges for developer projects. Such financing is always subject to the availability of funds and is recovered from customers as a MCC payable over a period not exceeding 25 years. For connections made since 1 January 2006, the interest rate charged is calculated at the prevailing prime interest rate plus a premium of 2% and varies during the repayment period in accordance with fluctuations in the prime interest rate. Prior to 1 January 2006, connection charges were recovered on a fixed interest rate basis. Customers are required to provide guarantees where large investments occur and where Eskom provides financing. 3.7 Allocation of Costs Allocating of costs for a basic connection for smaller customers A basic connection is a connection for smaller customers with the minimum investment required. The basic connection is defined as a single-phase <80A urban supply with up to 35 metres of underground cable or an equivalent allowance for overhead conductor. The connection charge for the basic connection is the standard connection fee and no other costs will be allocated for individual supplies. Township developments and subdivisions are not considered basic connections. See paragraph Allocating of costs for standard supplies

10 Eskom s Connection Charges Methodology Page 10 of 23 A standard supply will always be the least life cycle cost investment, minimum standard technology required to provide an adequate supply and to comply with NRS 048. Eskom reserves the right to determine the technical standard. For each new point of supply that is not a basic connection, or changes to a point of supply, the relevant costs allocated are based on the methodology to be applied: Actual costs pro-rated on a R/kVA or R/km basis when shared or total when dedicated AND/OR Shared network charges on a R/kVA basis AND/OR, where applicable Shared line costs. Once the costs are allocated, the capital allowance, if applicable, is to be subtracted from these costs Allocating of costs for premium power supplies For premium power supplies actual costs (pro-rated where relevant) are used. SNCs are not applicable for premium power supplies as additional capacity is not being provided, usually just firm or spare or reserve capacity. However, SNCs can be used as a proxy for upstream premium costs if a premium supply is required on upstream assets and the actual costs are not known. If a portion of a premium power supply converts to a standard supply, SNC will be applicable and be subject to a capital allowance. See paragraph Allocating of costs for embedded distribution generators Costs are allocated in the same manner as loads (refer to paragraph 3.19) Actual costs for dedicated networks and applicable SNC based on maximum export capacity. The supply is a standard supply option, unless the customer wishes to contract for a premium supply. No capital allowance as there currently are no network charges payable by distributed generators Allocating of costs for electrification projects Actual costs plus a contribution to actual upstream costs are charged no SNC is applicable. Only the connection fee is payable for single-phase supplies connected within 200m from the LV line of a project. All electrification projects are deemed urban and not classified as rural or urban in terms of NRS Shared network cost tables The following tables indicate the methodology used to allocate connection costs. The actual values are updated on an annual basis based on actual replacement costs and amounts included in the tariff.

11 Eskom s Connection Charges Methodology Page 11 of 23 Table 2 (a) Allocation of connection costs for Urban and Rural customers SNC and costs applicable to customers taking supply at various voltage levels, e.g. HV, MV or LV Megaflex, Miniflex, Nightsave (Urban), Businessrate NB Nightsave (Rural), Ruraflex Landrate Voltage and subsystem SNC to be allocated (a) HV (b) MV (c) LV (d) MV/LV (e) MV/LV 1. Go across to determine the voltage level at which the supply is taken, i.e. columns (a) to (e). 2. Then go down the relevant column (a) to (e) and add the sum of all the applicable SNCs up to the voltage level (1 to 8) that the supply is being taken at. HV 1. Dx network (R/kVA) R R R R n/a 2. Dx bulk substation (R/kVA) R R R R n/a MV 3. Reticulation underground (R/kVA) R R R Actual costs 4. Reticulation overhead (R/kVA) R R R NAP/km 5. Metering R0 (Standard metering costs included in tariff). For CT/VT units for supplies >500kVA all costs included in tariff. For supplies <500kVA, full costs charged for CT/VT units less amount included in tariff. Actual 6. CT/VT units costs for protection equipment (includes auto recloser) where installed by Eskom. LV 7. Mini substation (R/kVA) n/a n/a R Actual costs LESS NAP transformer allowance 8. Transformer (R/kVA) n/a n/a R n/a n/a Total applicable SNC (R/kVA) R R R R R Total SNC (R/kVA) x NMD (Rand) R R R R R Plus: Actual costs (where applicable) (Rand) R R R R R Equals: Total costs (Rand) R R R R R Capital allowance (R/kVA) R R R Line allowance of: 3-phase: 300m 1-phase: 600m Less: Capital allowance (R/kVA) x NMD (Rand) R R R R R Plus: Tx connection charge (if applicable) (Rand) R R R R R Less: Minimum connection fee (Rand) R R R Not deducted from costs Equals: Customer contribution (Rand) excluding standard connection fee R R R R R

12 Eskom s Connection Charges Methodology Page 12 of 23 Table 2 (b) Allocation of connection costs for Residential customers SNC and costs applicable to customers taking supply at various voltage levels, e.g. HV, MV or LV Voltage and subsystem SNC to be allocated (a) H/P 1 Nondevel. (b) H/P 2 Nondevel. (c) H/P 3 Nondevel. (d) H/P 4 Nondevel. (e) H/L Nondevel. (f) H/P & H/L Developers Elec. & Core 3. Go across to determine the tariff to be provided, i.e. columns (a) to (f). Formatted: Portuguese (Brazil) 4. Then go down the relevant column (a) to (e) and add the sum of all the applicable SNCs up to the voltage level (1 to 6) that the supply is being taken at. HV 9. Dx network (R/kVA) R R R n/a n/a R 10. Dx bulk substation (R/kVA) R R R n/a n/a R MV 11. Reticulation underground (R/kVA) R R R n/a n/a R 12. Reticulation overhead (R/kVA) R R R n/a n/a R LV 13. Mini substation (R/kVA) R R R n/a n/a R 14. Transformer (R/kVA) R R R n/a n/a R Total applicable SNC (R/kVA) R R R R n/a n/a SNC x NMD (Rand) R R R R n/a n/a Plus: Actual costs (where applicable) (Rand) R R R R per meter for service cable in excess of 35m NB Equals: Total costs (Rand) R R R R R R R Less: Capital allowance (Rand) R R R R0 R0 n/a Less: Minimum connection fee (Rand) R R R R n/a n/a Equals: Customer contribution (Rand) R R R R R n/a NB Single-phase supplies such as Homepower 4, Homelight and Businessrate 1 or 4 will pay the standard applicable connection fee only for connections made where the service connection cable length is within a distance of 35m for underground cable or alternatively 80m for overhead LV conductor. For greater distances, additional actual costs for underground cable or overhead conductor must be added, i.e. no calculation of costs needed except if cable length is greater than these distances. No SNC is calculated. Cable length does not apply to NEF funded projects.

13 Eskom s Connection Charges Methodology Page 13 of Standard vs. premium supplies A standard supply is one where the investment satisfies a least life cycle cost, technically acceptable solution in order to provide a supply that satisfies the quality criteria of NRS 048. Standard supplies receive capital allowances. SNCs are applicable to the NMD of standard supplies. The refurbishment of standard connections is recovered through the tariff. The connection costs allocated will be offset by the amount of capital/subsidies included in the Distribution network charges (the capital allowance) to ensure that customers are not double charged. The capital allowance is applicable only to Eskom Distribution connection assets. A premium supply is one where the customer requests and contracts for networks or capacity to be installed at costs above the least life cycle cost. The customer must always pay for investment above the least life-cycle cost. Customers will be required to pay the full costs associated with contracting for a premium power supply. This cost includes new capital investment plus a share of existing equipment required to provide the premium supply. Refurbishment costs for dedicated premium equipment will be for the account of the customer. Eskom reserves the right to raise a charge to the customer to maintain premium equipment where these costs can be easily identified and allocated to the specific assets. No premium-related costs are to be recovered through the tariffs in order to ensure that other customers with standard supplies do not have to pay for premium supplies. The customer may be required to pay a contribution to existing upstream networks if a premium supply is required on the upstream network. Premium supplies do not receive capital allowances. No SNCs are payable. Upstream costs are payable where applicable. The refurbishment of premium connections is recovered through new connection charges. Based on the availability of capital and the risk associated with the project Eskom, subject to the availability of funds, may request an up-front payment for provision of any premium related equipment. A minimum up-front contribution of 25% is payable as the connection fee Connection Fees The connection fee is always the minimum up-front amount required from the customer as a contribution towards the cost of providing supply Conversion Fees Conversion fees are the minimum amounts payable for tariff changes such as: tariff conversions

14 Eskom s Connection Charges Methodology Page 14 of 23 upgrades or downgrades in supply size meter changes changes in phase changes in installation, or a shift in a supply point 3.12 Changes in Supply Size/NMD Where changes in supply size/nmd occur, a capital contribution could be required. All changes in supply size/nmd will require a new contract and must be done in terms of the NMD rules. The allocation of connection charges will be based on the following: Table 3 - Allocation of connection costs when changes in demand occur Asset dedicated and full cost recovered through connection charge Asset pro-rated connection charge based on NMD (no work required) Asset pro-rated connection charge based on NMD (work required) Capacity reduced No change in connection charge Connection charge adjusted (reduce pro-rata share and adjust capital allowance) As above plus any dedicated costs Capacity later increased No change in connection charge. Connection Charge adjusted (increase pro-rata share and adjust capital allowance) As above plus any dedicated costs 3.13 Temporary Supplies Temporary supplies are supplies that would normally be disconnected intentionally within approximately 3 years. A portion of the costs is payable up front as irrecoverable costs and the balance of the costs may be paid as a monthly connection charge over a maximum period of 15 years Developers All costs incurred by Eskom are for the account of the developer. Developers are required to finance any allocated project costs as an up-front payment and no MCCs are allowed. Where applicable, developers are required to pay the prevailing SNC where existing upstream infrastructure is utilised to supply the development. Where there is potential for future sharing of any asset constructed for the provision of supply to the development, a pro-rated portion of the cost of the asset is allocated to the development.

15 Eskom s Connection Charges Methodology Page 15 of Customer self-built power supply option Eskom supports the concept of customer self-built supplies on overhead reticulation lines up to 22 kv as an option to customers who are in a position to build or extend a network sooner than Eskom can or at costs more favourable than those quoted by Eskom. Customers have the option of engaging an Eskom approved contractor to perform the construction subject to all work complying with Eskom s technical standards Minimum liability/notice period for termination/transfer of supply A liability period is required on contracts to ensure that in the event of early termination, an appropriate amount can be recovered from customers to cover costs invested in providing the supply Transfer of supply If a supply is taken over by another customer, the terms and conditions of the terminated contract and the remainder of the liability period are applicable to any new customer taking over the supply (terms and conditions applicable to the POD and not the customer) Guarantee for Irrecoverable Costs (GIC) Guarantees for Irrecoverable Costs (GIC) are raised for any supply where Eskom has financed the connection charges and where the risk cannot be covered through appropriate liability periods. GICs are not required in cases where the customer has financed the cost in full Distributed generation Connection charges for distributed generators will be calculated using the approach as for normal loads, except that distributed generators currently do not receive capital allowances as they currently do not pay network charges. Capital allowances will be applicable when network charges are raised. SNC are payable for any upstream investment caused by the generator connecting to the network based on the maximum export capacity. If the customer is both a load and a generator, the connection charge for the load will be raised based on the dedicated costs of the load with SNC payable for the NMD, i.e. the NMD stated in terms of a normal contingency scenario. The dedicated costs arising as a result of the generator are charged for as a separate connection charge. If the customer is a generator only, the connection charge will be based on the dedicated cost, plus SNC for the MW capacity of the generator Quotations Eskom provides feasibility quotations free of charge in order to enable customers to make meaningful decisions about taking/changing an electricity supply. Subsequently, where budget quotations or final quotations that are specifically requested by customers to provide higher than the standard confidence level are rejected, the cost of preparing the quotations will be for the customer s account. This provision protects other Eskom customers from carrying unnecessary costs of preparing quotations that are rejected. Three types of quotations are available to customers:

16 Eskom s Connection Charges Methodology Page 16 of 23 Feasibility quotations give customers, with 65% confidence, an indication of the estimated costs, time scheduling and other financial and physical conditions. The purpose of this quotation is to indicate to the customer an estimation of costs thereby enabling the customer to determine whether or not to proceed with the project. Budget quotations give conditions and financial terms with an 85% confidence, subject to certain conditions. The customer may pay more if any of the stipulated conditions cannot be met, or pay less if the actual costs are less than quoted. Final quotations where all conditions, including the financial terms, will be the final terms to be stated in the contract, with a 95% confidence. The customer will pay the amount quoted without any change Commitment fees A commitment fee will be raised to cover costs associated with providing a budget quotation. This commitment fee is payable by the customer before the quotation will be provided. The commitment fee is seen as a contribution to the connection fee and/or costs. If the commitment fee is higher than the connection fee, no additional connection fee is payable Recoverable work Customers are required to fund up front all costs for recoverable work which is defined as work undertaken that does not result in a new connection or system enhancement. Any costs associated with recoverable works will be for the customer s account as a onceoff up-front payment, i.e. no monthly connection charges are allowed for this type of work Ramping of capacity Where a customer s usage/capacity will be ramped up over time, the SNC and the capital allowance is based on the increasing NMD and calculated as and when the NMD is ramped up Reserving of capacity Where a customer either reserves capacity that is in excess of his actual usage or requires standby capacity, the customer is required to pay for this capacity through a connection charge. The capital allowance provided is based on the NMD Moving of assets/load to balance supply and demand Customers are required to pay for the fair and reasonable costs associated with rebalancing capacity and demand where this is required to meet their changing requirements, over and above any other allocated costs Fast-tracking of projects Where a customer requests Eskom to bring forward the date of the construction of a project, the customer will pay any additional incremental and acceleration costs arising from the fasttracking of the project Transmission connection charges

17 Eskom s Connection Charges Methodology Page 17 of 23 Transmission connection charges, where applicable, are raised by Eskom Transmission Division in accordance with the Transmission Grid Code Ownership of assets The payment by a customer for any capital invested by Eskom is associated with the usage of the installed equipment, and does not imply ownership of the asset. In the case where a customer makes an up-front payment, the equipment usage is paid in advance, i.e. the equipment is not sold to the customer and it remains the property of Eskom. The exception to this is in the case of street light infrastructure where ownership may vest with the customer Allocation of environmental costs As a general rule, costs associated with complying with environmental laws will not be charged directly to any specific customer and will be pooled into the tariff rates and recovered from all customers. This excludes Environmental Impact Studies (EIA) Capital allowance for rural tariffs The capital allowance for rural networks is split into a capacity allowance and a line allowance due to distance being a significant component of costs in rural networks. The capital allowance for rural tariffs is largely subsidised Sharing by allocating common line costs based on distance Sharing of common line costs will generally only occur on rural tariffs and where there are overhead lines. In this method, a customer pays for the dedicated line costs and when a subsequent customer takes supply, any common line between the customers is shared equally and the connection charge of the original supply is either reduced or refunded Customer self-built power supply option Eskom supports the concept of customer self-built supplies on overhead reticulation lines up to 22 kv as an option to customers who are in a position to build or extend a network sooner than Eskom can or at costs more favourable than those quoted by Eskom. Customers have the option of engaging an Eskom approved contractor to perform the construction subject to all work complying with Eskom s technical standards Premium supplies Customers will be required to pay the full costs associated with contracting for a premium power supply. This cost includes new capital investment plus a share of existing equipment required to provide the premium supply. Refurbishment costs for dedicated premium equipment will be for the account of the customer. Eskom reserves the right to raise a charge to the customer to maintain premium equipment where these costs can be easily identified and allocated to the specific assets. No premium-related costs are to be recovered through the tariffs in order to ensure that other customers with standard supplies do not have to pay for premium supplies. Therefore, no rebate or capital allowance is given for the cost associated with providing a premium supply and no SNCs are applicable. The customer may, however, be required to pay a contribution to existing upstream networks if a premium supply is required on the upstream network.

18 Eskom s Connection Charges Methodology Page 18 of 23 Based on the availability of capital and the risk associated with the project Eskom, subject to the availability of funds, may request an up-front payment for provision of any premium related equipment. A minimum up-front contribution of 25% is payable as the connection fee Refurbishment of premium power assets When refurbishment is required on connection assets that are considered premium assets, the customer must pay costs for the premium power portion of the installed network equipment that is to be refurbished.

19 Eskom s Connection Charges Methodology Page 19 of 23 4 Definitions Additional Capacity Additional Capacity is the additional amount of power rated in kva or kw that a customer adds to the existing notified maximum demand. Allocated Costs All costs allocated as the cost of providing the capacity a customer requires, including where applicable, dedicated new costs, pro-rated new costs, shared network costs and shared line costs. Available Capacity Available capacity (for pro-rating calculation purposes) is the maximum limit of upstream network capacity at which point system strengthening is generally undertaken. This is not the maximum technical limit of the network and can also be referred to as the Economic Capacity. Capital Allowance The capital allowance is the contribution to shared or dedicated assets paid through future tariff rates - i.e. average capital costs recovered over time through the tariff rates. The capital contribution payable for the cost of providing new equipment is offset by the capital allowance. Capital Charges Capital charges encompass charges raised through tariff rates, connection fees, monthly network connection charges (SCC and PCC) and up-front contributions towards the cost of providing or upgrading a supply of electricity. Charging Parameters The component or unit used to charge a customer through a tariff. Typical charging parameters could be c/kwh, R/kVA and R/customer. Connection Fee The minimum up-front standard fee payable by the customer for the cost of a new connection. Connection Charge Charge recouped from the customer for the cost of providing new or additional capacity (irrespective of whether new investment is required or not). This is recovered in addition to the tariff charges as an up-front payment or as a monthly charge where the distributor finances the connection. Consumption The energy used by a customer during a specific period, measured in kwh.

20 Eskom s Connection Charges Methodology Page 20 of 23 Conversion Fee The minimum up-front contribution payable when there are tariff changes, meter changes, changes in installation or when a supply point is shifted. Dedicated Supply/Costs A network or a portion of network is dedicated when the connection asset is specific to the user and does not form part of the connection to any other user and it is unlikely that it will be shared by another user within a reasonable foreseeable period. A reasonable foreseeable period is generally regarded as 5 years. Distributed Generator A legal entity that operates a generating unit that is connected to Eskom s distribution network. Diversity Diversity arises when two or more loads maximum demand do not necessarily occur simultaneously. Customers with two or more loads receiving the benefit of diversity are charged on the simultaneous maximum demand and not the sum of the individual load s non-simultaneous maximum demand, which may be higher. Fast-tracking Fast-tracking refers to the process where projects are rescheduled for completion on a date that is earlier than the original project completion date. Firm Supply A Distribution supply that can withstand any single (n-1) contingency within the Distribution network, e.g. the customer supply shall not be dependent on any single component. HV (High Voltage) Network Nominal voltage levels equal or greater than 44 kv up to and including132 kv. Irrecoverable Costs Costs for labour, transport, dismantling and installations/equipment that cannot be re-used. Guarantee for Irrecoverable Costs (GIC) A Guarantee for Irrecoverable Costs is a guarantee provided by the customer to cover the value of the total irrecoverable and dismantling costs where it is believed there is risk to Eskom. LV (Low voltage) Network Nominal voltage levels up to and including 1 kv. Maximum Demand The highest averaged demand measured in kva or kw, during any integrating period within a designated billing period (usually one month).

21 Eskom s Connection Charges Methodology Page 21 of 23 Monthly Connection Charge A monthly connection charge is a monthly repayment of the required capital contribution where Eskom provides a customer with financing. A monthly connection charge may be a SCC or a PCC. MV (Medium voltage) Network: Nominal voltage levels greater than 1 kv and less than 44kV. National Average Prices (NAP) A national average standard price used in place of actual costs. The purpose of using national average prices is to ensure a consistent and simplified approach to charges and to ensure that customers are charged fair, equitable and average related costs. Network Charges (NC) Charges designed to recover costs (including capital, operations, maintenance and refurbishment) associated with the provision of network capacity required by and reserved for the customer NMD The notified maximum demand (NMD) is the maximum demand or capacity notified in writing by the customer and accepted by Eskom as that which the customer requires Eskom to be in a position to supply on demand or when the utilised capacity exceeds the notified maximum demand for a month, this utilised capacity will automatically become the new NMD for a period of 12 months. Premise or Point of Delivery (POD) The premise or POD is either a single POS or a grouping of POS located at the same electrical substation, for one customer at the same voltage and same tariff and can be a metering or summation point. Point of Supply (POS) A point of supply or POS is a physical point on the electrical network where electricity is delivered to a customer. Premium Connection Charge The premium connection charge or PCC is a monthly repayment of the required capital contribution where Eskom provides a customer with financing, for any above standard supply costs. The calculation of the PCC is based on a maximum repayment period of 25 years at a given interest rate (see also SCC). No consumption or demand based rebates are given on PCCs. Premium Supply Where the customer s requirements exceed the specifications of a standard supply. Project Costs Project costs are the total estimated costs for new capital investment, including applicable shared network charges (SNC).

22 Eskom s Connection Charges Methodology Page 22 of 23 Pro-rating of costs Where costs are apportioned based on capacity required/capacity available Recoverable Work Work performed not for the purpose of establishing a new connection or enhancement e.g. the shifting of a line. The cost of this work is always recovered up front from a customer or where a third party is liable for the cost of such work i.e. it is never pooled into the tariff rates. This could typically arise where Eskom acts as a contractor. These costs should not be confused with recoverable costs. Reticulation The reticulation network performs the function of transporting and dispatching power from the distribution network to the point on the network where the service connection is made. This is usually done at voltages of 22kV or lower. Rural Tariffs/Areas Refers to all areas that are sparsely populated and not defined as urban. Service Connections The service connection consists of the equipment connecting the customer to the reticulation network. This usually includes the switchgear, cables/lines and metering. Sharing of Line Costs Sharing of line costs occur when a line originally dedicated, is later shared by other customers. Due to sharing, the original SCC may be reduced and the new customer(s) may be required to contribute to any sharing of line. Sharing of line costs will only occur for rural tariffs and is based on distance (not capacity as in the case of pro-rating). Shared Network Charges (SNC) These are national average charges raised outside of the tariff rates for the shared costs of networks (line and capacity). These charges are applicable to urban and rural tariffs and are used to calculate the capital contribution payable by the customer for shared costs. Standard Connection Charge The standard connection charge or SCC is a monthly repayment of a capital contribution where Eskom provides a customer with financing and is payable for a standard supply only. The calculation of the SCC is based on a maximum repayment period of 25 years at a given interest rate (see also PCC). Consumption and demand-based rebates are not applicable on SCCs. Standard Supply A standard supply is defined as the lowest life-cycle costs design that meets the specifications in terms of NRS048 and the Power Quality directives for a technically acceptable solution.

23 Eskom s Connection Charges Methodology Page 23 of 23 Standby Supply Capacity supplied by Eskom for a customer s partial supply (e.g. Sugar Mill) to meet the possible demand that a self-generator could request from Eskom, due to an outage of the customer s generating equipment. Tariff Combination of monthly charges each at a particular rate that is usually escalated annually and is applied to recover measured quantities such as consumption and capacity costs and unmeasured quantities such as service costs. Temporary supply A supply to a customer that is of a temporary nature. MCC calculations are based on a 15 year recovery period. Urban Tariffs/Areas Areas that are densely populated proclaimed residential areas or areas designated by Eskom to be Urban. Up-front Contribution A once-off generally non-refundable cash payment for costs not covered by tariff charges. Upstream Strengthening Upstream strengthening occurs where due to the provision of new capacity, investment is made on upstream networks located before a customer s POD or POS. Utilised Capacity Utilised capacity is the greater of the customer s NMD or actual maximum demand registered during the previous 12 months. Wayleave Agreement The right of way obtained from a landowner, who signs an agreement with the supply authority. A wayleave agreement is not registered against the title of the property.