(3) Connection Charges

3.1OPTIONS AND ISSUES

In assessing whether to make connection charges for new users at all and, if so, how to calculate them, network operators are faced with a range of options as set out in the table below. In examining these options, network operators must consider how to balance the interests of the potential new user and any existing users.

It should be noted that as connection charges depend on the physical assets to be deployed, the cost of any new connection must be related to:

the distance between that new connection and the existing network assets (Potential new users can find location details for existing assets within the Statement of Opportunity);
the size of new connection required; and
the existing local configuration of network assets.

For example, connecting a new power station at the Princess Elizabeth Hospital would be more expensive than connecting an identical power station at St Sampson's Harbour as the network infrastructure is much more extensive at St Sampson's Harbour.

Table 1 - Connection Charging Options

Options	Discussion
1. No Charge	If no connection charge is made then the network operator will recover all these capital costs in usage charges paid by all users. GE considers this to be inappropriate as existing users would meet significant costs caused by new users from which the existing users would derive no benefit. GE believes it is appropriate to make a charge to new users for system connection and discounts this option.
2. Shallow Reinforcement Charge for the costs of reinforcement only of the local network in the area of the new usage (typically the secondary network within a high voltage sector, see the Statement of Opportunity)	Historically GE has levied "shallow" connection charges for new customers whose incremental impact relative to the capacity of the adjacent network is minimal. For GE's purposes incremental impacts are defined as minimal when load is less than 500kW or less than 10% of the peak sector load. Over recent years requests for new load exceeding 50 kW are in the order of 100 p.a. Of these typically less than 10 are for loads in excess of 500kW, where the new load can make a significant impact on the network. "Shallow" charging is advantageous in that the new user can readily identify the connection assets and hence there is transparency as to the value being provided to the new user. Furthermore GE can readily identify and cost the relevant assets without incurring any significant administrative overhead. This methodology provides market signals to potential users as to the economic effect of the new use on the network. GE believes shallow charging is entirely appropriate for small new users where the new user's load is less than 500kW or less than 10% of the peak sector load. There are, however, a limited number of potential new users whose size or location is relatively large or distant compared to the existing network sector. In such cases extensive works will be required to the network, not just in the geographic area of the new user but possibly on the wider network. If only "shallow" charging is applied in such instances then existing users would have to meet the costs of such extensive works, through the higher UoS charges, with large users subsidised by existing users, which is inequitable. GE proposes an alternative method to address these types of users, which is addressed in option 4.
3. Deep Reinforcement Charge for all the local reinforcements, for all other network reinforcements and for capacity in principal network assets	Historically, deep charging has not been employed by GE. Deep charging recovers the full costs of all system changes from any new system user irrespective of the user's intended location and size of connection. Whilst there is an economic rationale for deep charging based on a complete allocation of all additional costs, the estimation of deep charges would require GE to carry out sophisticated mathematical analysis of its network, a task which GE is not currently able to undertake on a routine basis. Furthermore, GE believes that such deep connection charges would be a significant barrier to new developments on Guernsey, inconsistent with the States development plans. GE believes deep charging is inappropriate for Guernsey and discounts this option.
4. Semi-deep Reinforcement Charge for local reinforcement costs and also the cost of reinforcing principal network assets further back in the network	In recent years there have been a small number of developments where the size of the new load relative to the network capacity available has been sufficiently large that a semi-deep charging regime was adopted. Over recent years less than 5% of customers have been charged on the basis of semi deep connection charging. For such large new users, GE advocates the use of a "semi-deep" charging methodology as the appropriate trade-off between the extremes of shallow and deep charging. Given the actual costs of a new connection are driven by the power demand, the distance from the existing network and the existing local configuration, it would appear appropriate to use these factors as the basis for deciding whether any potential user should be charged "shallow" or "semi-deep" costs. A new user located a significant distance from the existing network will attract a larger connection charge irrespective of whether the shallow or semi-deep methodology is used. The critical factor, therefore, in choosing the appropriate methodology is the power demand, and its relationship to the capacity of the existing network. The assessment that a potential new user is large enough to warrant "semi-deep" charging is now set out. Any user requiring a connection of more than 500 kW will broadly be utilising more than 10% of the local network capacity as the mean capacity of each sector within the secondary 11,000 volt network is approximately 5 MW (see the Statement of Opportunity). Furthermore a 500 kW trigger is used as the lower limit for central despatch limit Licence Condition 24 of generation licences. In summary this criterion will be used as a trigger so that new users in excess of 500kW will be charged using a semi-deep methodology, whilst users with loads equal to or less than 500kW will have connection charges calculated on a "shallow" basis. GE believes semi-deep charging is entirely appropriate for connections greater than 500kW.

3.2 EQUITY BETWEEN NEW AND EXISTING USERS

Where a network development is undertaken to service a new user it is rare that existing network users do not derive some benefit. In these rare circumstances the calculation of connection charges is relatively straightforward since the new user will be asked to meet all the shallow or semi-deep connection costs as appropriate. Such costs are calculated using the standard method and worksheets appearing in Appendix 2.

The calculation becomes more difficult, however, when it is apparent that existing users will derive benefit from the new installation. Given that the whole of the conveyance network comprises underground cabling and ground mounted plant, if costly and disruptive road works are to be avoided, it is appropriate for the network operator to use the opportunities provided by new user connections to enhance the network as may be prudent.

From the 1st January 2002, the Public Thoroughfares Committee's Code of Practice on excavations in the highway provides for a three-year period after resurfacing where only emergency works will be permitted. Such restrictions make it even more important that available opportunities to reinforce the conveyance network are used where appropriate.

Given that such works are undertaken for the benefit of all users then it is clearly inequitable if only the new user should be required to pay for them. In such circumstances it is inevitable that a judgement must be made as to what proportion of any development should be chargeable to the new user. Whilst it is not possible to make any judgement beyond dispute it is possible to establish a process to make the reasoning behind any judgement as clear as possible.

Historically GE has adopted the following process:

I. A minimum installation to service the needs of the new user has been designed and costed. The minimum installation will include "semi-deep" network costs when the installation is being costed by this method.
II. The design is enhanced as necessary to meet the expected needs of other network users in the area. Such enhancements may include the replacements of life expired plant or cabling.
III. Additional plant, cabling or ducts may be specified where a further new user may be reasonable anticipated.

The charge to the new user initiating the development has been only that of the minimum installation.

3.3 GENERATION& DEMAND

In the specification of power plant cabling and equipment necessary to make a new connection, the key criterion is the maximum current required by the user. Whether the network is required to supply or absorb the current makes no difference to the size of plant required, so, in principle, there should be no difference in the connection charges made to generators or loads.

In accordance with Licence Condition 24 (see document OUR 02/04 available from www.regutil.gg), generators capable of exporting more that 500 kilowatts to the network will be subject to central despatch and will require control equipment allowing control and load shedding facilities which increases the cost of connection. Where such equipment is necessary its costs will be separately detailed and included with the connection charge paid by the generator.

Users contemplating the connection of generating plant to the conveyance network are advised to make an early enquiry of GE so that this and other technical issues may be discussed.

3.4 SUMMARY OF CONNECTION CHARGES METHODOLOGY

Based on the issues set out above, GE will adopt the following connection charge methodology as conveyance network licensee:

A charge for connection will be made, as a single transaction, and payable as a single advance payment, to protect existing users against the credit risk of individual new users. The standard terms and conditions of connection quotations are given in Appendix 3. Connection charges will be calculated using the shallow or semi-deep principles as discussed in Section 3.1 of this Statement and demonstrated in Appendix 2.
No distinction will be made between the conveyance system connection costs of generators or loads, save any differences made necessary by the control requirements of generators.

Back to Statement of Connection (Conveyance System Connections)