With the advent of smart grid, distribution network charges have been one of keystones of ongoing deregulation and privatization in power industries. This paper proposes a new charging methodology to allocate the existing distribution network cost with an aim of reflecting the true cost and benefit of network customers, especially of distribution generator (DG). The proposed charging methodology separates distribution network costs due to the respective real and reactive power flows. The costs are then allocated to network users according to each charge for the actual line capacity used and available capacity. This distribution network charging model is able to provide the economic signals to reward network users who are contributing to better power factors, while penalizing customers who worsen power factors. The proposed method is shown on IEEE 37 bus system for distribution network, and then the results are validated through the comparison with the MW-Miles and MVA-Miles methods. The charges derived from the proposed method can provide appropriate incentives/penalties to network customers to behave in a manner leading to a better network condition.