Issue Paper (transcript of fax from Nick Wyatt Dept Ag. Min&Energy, via CitiPower) 21 December, 1995 SALE OF EMBEDDED GENERATOR OUTPUT TO OTHER NETWORKS: APPLICATION OF WHEELING CHARGES Assume that a generator embedded within Network A contracts with a retailer within Network B for the energy output of the generating plant. The size of the generation is small, so that Network A continues to be a net importer of electricity at all times. The direction of flows downstream of Network A is unchanged, so that transmission charges for other networks is unchanged. Can the owner of Network A impose a "wheeling charge" on either the generator or the retailer, for the energy traded between them? Paragraph 5.7 ("Excluded Services") of the ESI Tarriff Order allows a Distributor to levy additional charges for certain services excluded from the price controls specified in the remainder of the clause. Amongst these is "the transportation of electricity not consumed in the Distributor's Distribution System (ie inter-network provider distribution)". Thus the Tarriff Order does allow a network owner to impose a "wheeling charge" under certain circumstances. Under the assumptions of this example, the output of the embedded generator will be consumed within Network A. None of it would satisfy the condition of being "not consumed within the Distributor's Distribution System". Can a "wheeling charge" be imposed under these conditions. The fact that the generator has an energy contract with a party in another network does not seem to be relevant; the generator might have no contract at all, but may be selling into the wholesale pool. Thus a wheeling charge does not appear to be justified. If the output is not physically consumed within Network A, is the situation different? Sub-Paragraph 5.7.2 states that "Services provided by a distributor...... are not excluded services ..... insofar as they consist of the provision of services or charges remunerated under the Distributor's Distribution Charges." (The excluded services set out elsewhere in the paragraph are also subject to this condition). It means that a "wheeling charge" may be imposed only if it imposes extra costs on the network owner, not recovered through other charges. In the case of embedded generation, no extra costs are imposed on the network owner, other than the costs of connection, which are recovered through the connection charge. Again a "wheeling charge" does not appear to be justified. In fact the owner of Network A is likely to see cost savings. Less electricity would be imported from the EHV network, resulting in a decrease in the transmission charge payable to VPX. There would also be savings in energy costs due to transmission losses, and probably also distribution losses. How should these savings be allocated? The intent of this part of the Tariff Order is to allow a charge to be levied where electricity is "wheeled" across a network, entering at one point and exiting at another. In this case, the network owner would incur an increase in the transmission charge payable to VPX, compared to that payable in the absence of such electricity. The imposition of a "wheeling charge" would be appropriate under these circumstances. Conversely, under circumstances where the embedding of generation provides savings to the network owner, the "Wheeling charge" would be negative. Thus, it could be equally appropriate for the network owner to pay the generator the amount by which the transmission charge has decreased.